Thoughts for the Coming Week.

Earnings season is now winding down and so far, the earnings have been down right spectacular. Economic numbers continue to remain mixed and this leaves the lame duck FED with nothing much to do. As I have opined in my past blogs, I believe that worst of the economic numbers are now coming out and the recessionary force probably has already passed. Remember, the effects of the recession will be felt well after the "real" recessionary force has passed. In effect, the market is pricing in for economic recovery 6 to 12 months out.

Now that doesn't mean anything. I cannot predict things and I may be completely off base. I am a trend trader following momentum. I know that the market is extended at these levels but why fight the momentum and trend? In environments like the current market condition, it is prudent to limit downside exposure with hedges or smaller initial position sizing. In my trading I tend to ride the "wave" so to speak but once the market condition is in the "red" zone, I tend to stay in cash. Right now, there is no indication that this market is headed for trouble.

Having said that, FOMC interest rates will be announced on Wednesday 5/9/2007 at 2:30 PM EST. We have a lot of economic numbers due out this week.

May 9 10:30 AM: Crude Inventories- this number plays a critical role in easing the market's concern regarding rising oil and gasoline prices. The market has priced in the possibility of abundance of crude inventories and the oil futures have come down a bit last week.

May 10 2:30 PM: FOMC meeting. Fed will stay put but may change their hawkish wording.

May 11 8:30 AM: PPI core and non core, Retail Sales ex auto.

These numbers are what I would consider to be critical for the markets. Again, since the market is pricing in for a "soft landing goldilocks scenario", these numbers have to be "just right".

I would like to see the market take a little breather and correct at least 2 to 3% soon as I am getting worried about how overheated this rally has been.

I am going to hold Crox options through Tuesday (please see prior blog for my trade positions). I am planning on entering Cisco trade for July $30 contracts currently trading for around $.60 or June $27.50 contracts. I like the prospects of Cisco, and like Crox, it got taken down during the market correction despite stellar earnings. I believe that this quarter earnings will benefit from global operations and that the concerns regarding the domestic enterprise division slow down is overblown. The risk continues to remain this overheated market and what the FOMC meetings will have in store. Cisco reports earnings on Tuesday 5/8/2007 after the market close. I expect the markets to remain jittery heading into Wednesday for the FOMC rate decision. That could present additional buying opportunity for Crox and CSCO.

I am interested in looking at Mindray (MR), Johnson and Johnson (JNJ), and Apple (AAPL) for quick options trade. I am especially interested in Apple as the IV has come down significantly ahead of the iPhone release in June 15 (some say June 21). We can expect some price volatility until then. I am looking to possibly play the July $100 or $105 call.

Mindray (MR) also did not fare well in last earnings quarter despite mostly good earnings due to Shanghai market meltdown (which was short lived). This time around, the Chinese markets have recovered and is powering ahead. If the earnings are good, I can expect this stock to trade from the current $24 and change to $32 by July. I am interested in the July $25 or $30 call. There is unusually high open interest for July $30 at 3641. It is currently trading for around $.30 per contract. Company is due to report earnings on May 15, 2007. If the market condition holds, this can be one of the biggest sleeper trades out there. IV is relatively high compared to HV but, that is due to the abberant stock price decline since last quarter's earnings report. All indications are is that this company should handily beat earnings estimate.

As always, protect your capital and be very careful not to lose it all!