I know, I know, you were thinking I lost it around 1pm. You were thinking, darn that Phil, he got all bearish and scared me out of investing…
Then at 3:30 I got pretty smart again, didn’t I? I’m so glad I was away or I would have been tempted to put some money in myself the way things were going in the early afternoon!
This was exactly what we didn’t want to see – a firm volume rejection of key psychological areas of resistance:
Dow double topped at 11,100: http://finance.yahoo.com/q/bc?s=%5EDJI&t=1d
S&P couldn’t make it to 1,300: http://finance.yahoo.com/q/bc?t=1d&l=on&z=m&q=l&p=&a=&c=&s=%5Egspc
Nasdaq was up and down 35 (1.5%) points in one day! http://finance.yahoo.com/q/bc?t=1d&l=on&z=m&q=l&p=&a=&c=&s=%5Eixic
Now we can blame a lot of this nonsense in the morning on Intel and their earnings warning but that was over by 10:30. I suppose the negative of the day was consumer sentiment which came in at 86.4, down from last month’s 87.4 but, more importantly, confirming a trend from January’s 91.2 (this is not usually such an important indicator but we’ll have to pay more attention next time it is coming out). The ISM numbers were great but I suppose traders are more worried about the consumer petering out this year.
There was even a late sell-off in the oil sector on some pretty good volume, backing up my theory that this is a sham and POO (my new ultra-appropriate term for Price of Oil) is merely being propped up so the big boys can dump out of their bloated oil stocks.
Money is moving from Gold to Silver in anticipation of a new exchange-traded fund on silver that will eat up a lot of supply. To me the problem is going to be storage – I don’t think this will catch on the way gold has as it takes 60 times more space to store the same dollar amount of silver – too much shipping, handling, rent etc. for this to be a viable alternative.
I’m kind of optimistic just at this moment as nothing catastrophic happened this weekend and Warren Buffett’s letter to investors was encouraging, also the AT&T deal was huge and may ignite several sectors but we’ll know more in the morning.
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If you read the comments Friday then you know I dumped my longs (from the spread) at the open as they rocketed up (always sell into the uptrend while people are overbidding on options) and, since I still thought the stock was a dog, I doubled up on the puts at the same time (buy puts on the uptrend while people are bailing). I ended up dumping those for a hefty profit at around 3pm as I didn’t know what this thing would do over the weekend and I wanted to sleep well!
Speaking of sleeping well – although there was not much change from the open on the Nasdaq, the QQQQ $45 puts went up 10% to $3.50 due to the increasing implied volatility of the index – remember, this was just an insurance trade and was not meant to do more than help us sleep on open positions! Great if the market opens down but otherwise we will be done with this.
SMVD started off looking great then got dumped on big volume near the closing, which disturbed me but you never know with a penny stock. It finished the day down 8% to $2.53. At this point I’m not confident enough to add to my initial buy until I figure out why it sold off.
http://finance.yahoo.com/q/bc?s=SMVD.OB&t=1d
TIE started the day like a rocket but died with the markets, this may still be a good play next week if the markets recover. ATI, as usual, was stronger and didn’t seem to care what the markets were doing. The Jan $50s rose to $13 (up 8%) but I still want to lock in those profits by selling the April $55s for $5.
I said AAPL “should” blow through $70 but instead it bounced off it like a brick wall. If you sold the calls, you could care less but I won’t be taking any new positions until it breaks this resistance with some authority.
http://finance.yahoo.com/q?s=aapl
On Friday morning I said: “WYNN should make another run at $66 today and I would be tempted to short that one into the weekend to offset a few longs if I could get the $65 puts for $1.50 or less.” This worked out to be a nice 50% day trade! (pat pat pat): http://finance.yahoo.com/q/bc?s=WYNN&t=1d
I meant to highlight the GNW shares on Friday, not the GE shares (which we already have Jan ’08 leaps on that I’m more than happy with). The GE shares never executed in that model but GNW did exactly what I wanted it to in the morning but I would only enter on a pullback at this point as the money has already been made (quite a lot, I’m sorry to say).
http://finance.yahoo.com/q/bc?s=GNW&t=1d
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BRKA (and BRKB) told investors that quarterly profit is up 54%. I picked it on Friday but I will be interested to see how much the stock moves on this news as I have been saying it’s undervalued since October, way back at the bargain price of $83,000! Of course, if you’re stingy, you can pick up the BRKB shares for “just” $2,911 (up $20 from Friday’s pick).
With a p/e of 19 and $45Bn in cash, it’s still a bargain but Buffett (75) did not clear up succession, which is a major concern of investors. Buffet is the World’s second richest person ($40Bn) and he only has to look one board seat to the right to find the first (Gates) so I’m not too worried about this issue. Warren did say: “I feel terrific” regarding his intentions but he admonished the board to toss him out if he shows signs of senility.
Q4 profits at Berkshire were $5.13Bn (up 54%) or $3,331 per A share on $25.37Bn in revenue (up 27%). This is my favorite kind of increase but a lot of it came from a special gain resulting from P&G’s purchase of Gillette, which Berkshire had a major stake in. With an ordinary corporation I would discount this as a one-time lucky event with Berkshire’s size and mission, “one-time” gains like this happen with regularity.
Net income for the year rose 17% to $8.53Bn despite “one-time” losses from hurricanes (now here’s a business that can actually blame the hurricanes!) of $3.4Bn in insurance payouts. Buffett says he is unwinding Gen Re’s derivative operation, saying of the disposition: “When we finally wind up Gen Re Securities, my feelings about its departure will be akin to those expressed in a country song, “My wife ran away with my best friend, and I sure miss him a lot.”
Berkshire picked up a large amount of WMT and WFC but his horizons are much, much, much longer than mine so I don’t just jump in on that kind of news – I usually keep my eye on what he is selling so I know when the party’s over!
The letter in its entirety is available here: http://online.wsj.com/documents/2005berkshireletter.pdf and I strongly encourage you to read this to get a glimpse on into the thought process of the world’s greatest investor. Not only is Buffett a genius, but he is also very honest and outspoken and you can learn more from this 22 page report than any 3 business books you may buy!
