That was a terrible way to end a very nice week!
I hate it when I’m right about negative stuff but I missed the drop in the Dow by 1 pt and the Nasdaq by 3 pts. What surprised me wat the ease with which the S&P ran below 1,300 as it had to outlose the other indices on a percentage basis to do it.
Another very bad sign was that the Dow and S&P were only saved by the bell from closing much lower for the week:
http://finance.yahoo.com/q/bc?s=%5EDJI&t=5d
http://finance.yahoo.com/q/bc?t=5d&l=on&z=m&q=l&p=&a=&c=&s=spy
Leading to articles like this:
http://biz.yahoo.com/ap/060409/wall_street_week_ahead.html?.v=3
After what can barely be called an adjustment day, the Wall Street Journal chimed in on the weekend with an $80 prediction for oil this year.
http://online.wsj.com/article/SB114462531016921322.html?mod=home_whats_news_us
And, just to make absolutely sure the market stays jacked up as the new oil ETF opens tomorrow the Journal printed yet another pump piece (page one too!) to remind us of how afraid of Nigerian and other rebels we should be:
http://online.wsj.com/article/SB114463092157621421.html?mod=hps_us_pageone
If this doesn’t do it tomorrow there could be a major exodus from oil positions but that would assume that the average investor isn’t suckered into all this oil scarcity nonsense. Yes there can be an oil shortage, but there isn’t. There can be a grain shortage if we have a drout, a chicken and egg shortage if there is bird flu (yes, no one is even thinking of that), a hospital bed shortage if a virus breaks out and there’s already an engineering shortage, supposedly because someone is building something somewhere…
Anyway, the point is that you can’t jack up the price of everything based on the possibility of disruptions but we have to let it run it’s course – there is a lot to be made on the way down once the bulls abandon ship.
Things can’t be so bad in the world as gold pulled way back to $589 and, thankfully, never hit $605 to fool us, but NEM went down so far intraday I picked some up anyway. Gold is still significantly higher (5%) than it was in late January yet Newmont is down 15% – this makes no sense on an unhedged producer.
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Of course the oil puts were perfect on Friday with VLO giving a very clear sell signal at 10:15 with only a .25 pullback in the afternoon before finishing at the day’s low:
http://finance.yahoo.com/q/bc?t=1d&l=on&z=m&q=l&p=&a=&c=&s=vlo
Had I followed the Valero Rule for the past week I would be very, very happy but because I tried to get ahead of the game I will now be happy to get most of my money back!
BP was very freaky as it opened way up at $72 and the $70 puts opened at $1.20 and finished at $1.55 (up 25%) – even though the stock technically was up .5% for the day!
DO went down 3% and the $90 puts finished at $1.90 (up 45%).
THE dropped 2.5% so there was no deal on those puts!
COP was very good to us with a 2% drop. The $70 puts ran up to $4.20 (up 33%) while the May $65 puts nudged up to .65 (up 25%).
CVX was also well behaved and the $60 puts made a very relaxing 55%, climbing to $1.60.
XOM $62.50 puts wound up at $1.50 (up 50%) and I really hope nobody held those kind of gains over the weekend!
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Nothing worked yesterday except puts and we didn’t have to be very smart to pick good ones there but let’s take a look at a few plays that are still interesting:
SBUX closed positive on Friday, a day only about 20% of all stocks did. While I do not recommend buying anything until we get a clear turn, we need to keep our eye on the May $37.50s if they come back under $1.
CCJ was saved by the 5% rule and the $40 puts ended at $2.85 (up 75%) but opened very high and didn’t make a good trade.
RIMM had no strength in the afternoon, I think shareholders are too stunned to sell. Maybe they think something will save them but Cramer gave them a triple sell so the pain may not be over for them.
I don’t think I could have picked a worse time to pick HP as it dropped 2% and the May $35s ended at .90 (down 25%).
BA did just what I wanted it to with a big $1.50 drop before lunch and it did recover but the market was so bad I didn’t buy the May $80 calls which are now $2.20.
http://finance.yahoo.com/q/bc?s=BA&t=1d
TOTD AN finished up 2% but opened up 2.5% so I’m not so thrilled yet. The May $22.50s shot up to .65 (up 30%).
I don’t know what people are thinking when they take $20 of their hard earned money and give it to GM in exchange for a piece of paper that literally may not be worth the .0000001 par value it has printed on it! Nonetheless, too dangerous to short…
ADSK is a great example of the 5% rule in action. We picked the May $40s for .90 on Weds am. and it ran up 5% the first day, 5% the second day and Friday it seems to be running out of gas with “only” a 3% gain (on a terrible day). The May $40s are now $3.70 (up 400%) which is not bad for 3 days work! If you must continue to play this at least roll into the May $45s for $1.05 and take the rest off the table!!!
I am starting to like the SPY plays as they are very liquid and make very good money when you get it right. The May $130 puts are already up 60% from Thursday’s pick and the DIA May $111 puts are up 60% as well in just 2 days.
MCD was a great pick Weds, while not up a lot (.20) it really beat the market on Friday and the May $35s closed at $1 (up 5%) so this one is still playable.
http://finance.yahoo.com/q/bc?s=MCD&t=1d
We’ll deal with Google in the morning but so far, no weekend disasters in Google or Oil (other than the WSJ article on oil). In fact, what’s very surprising about Google is the shear lack of articles this weekend. Yahoo has only 7 articles all weekend so we can assume nothing at all happened this weekend!
Here’s a fascinating drama in penny stock land. No recommendation but this is why it is foolish to play with these things:
http://biz.yahoo.com/pz/060406/96975.html
