Incoming premier Li Keqiang, who will succeed Wen Jiabao in March, will be present at the CEWC and is widely viewed as a proponent for bolder reforms. The closely watched meeting’s focus will be on macroeconomic policy, tax reform, income distribution, and urbanization. Output from the session is expected to include plans for further monetary easing, with lowered rates to cut corporate financing costs and gradually lower reserve requirements for banks.

As China’s economic data seems to be turning a corner, one play could be avoidance of US Chinese ETFs, whose movement has been divergent from the Chinese stock market, and instead make a long play in commodities. Forecasted to slow, Chinese copper consumption could maintain 4.8% growth or improve, creating opportunities in copper futures and related equity options. 

John Voorheis
KOTM Contributor
jlvoorheis2@gmail.com

• Court ruling stated that Apple’s iPhone infringes on three patents held by MobileMedia (jointly owned by Sony, Nokia, and MPEG LA)

• Survey from Piper Jaffray shows that 53.3% of consumers plan on purchasing an iPhone 5 within the near future

• Intel’s new Corei7 processors likely to be installed in Apple’s iMac lineup starting in 2013 and is a highly anticipated addition

• Apple Files new patent for an intelligent call waiting system, that automatically places incoming calls on hold, when user is on the other line and can translate voicemail into text message

As you may recall in September of 2012, ratings firm Egan-Jones slashed the U.S. bond rating to AA- following the announcement of QE3. With Federal Reserve stimulus now more than double what it was in September, we should be on the lookout for another possible downgrade to U.S. treasury bonds in 2013 as the US debt-GDP ratio continues to widen. Looking to Europe, the ECB will most likely be forced to ease as well to push the EURUSD lower or face a currency devaluation that would be insufferable. Going forward, the Fed said it plans on continuing this “stimulation” until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% two years out. The empirical relationship between unemployment and the S&P 500, coupled with the possibility of going over the fiscal cliff increasing with every day, we could very well see a retracement in the S&P to 750.

PXD has been in a horizontal range since the better part of September. Earnings hasn’t even moved the stock out of its barcode-type pattern. If nothing is going to move this stock, one might as well play along with the trend. The upside to this range has been $110 and the downside, again, has been $101. There are many potential ways to trade this range.

One could simply flip long and short equity deltas around, selling the top and buying the bottom, but trading the stock ties up a lot of cash. Another way one could trade this range could be from getting long theta. This would put the probabilities into the favor of the option seller, for it is estimated that nearly 80% of all options expire ‘out of the money.”

Selling an iron condor would be a way to play this range. The short strikes could be around the aforementioned price levels. One could wait until the stock is equidistant from the two levels or leg into the trade, however being net short vega may not be a good idea going into the fiscal cliff. These support levels will get thrown out of the window if Washington does not get their act together.

A little fundamental analysis never killed anyone. PXD is an oil and gas E&P (exploration and production) firm. They are vertically integrated, meaning they enjoy cost savings from overlapping operating efficiencies These include, but are not limited to service equipment and people. Citi recently initiated coverage with a ‘buy’ rating and issued a $120 price target. The $120 level is vey significant, for it represents the all time high in the stock. PXD is 17% away from the all time high. PXD’s 100-day moving average recently crossed over the 200-day moving average too. This horizontal action may be setting up PXD for its next big move, up or down, but until then, one may employ a plethora of strategies to take advantage of the choppy action.

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to…

Author: salernoma@mx.lakeforest.edu