Weekly Wrap-Up

Again the markets held up fairly well in the face of adversity.

We’ve been looking for a correction for a couple of weeks and, if that was all it is, we could be heading into a nice rally. This supposition is based on several factors that have held the market down this week can’t get worse: Oil heading to $70, interest heading to 5%, gold heading to $600, Iran has WMD capability, Iraq continues to be a quagmire… Also, a lot of people were taking profits off the table in a thinly traded week to pay taxes and that should be over by Monday.

Last year we had a 900 point Dow drop between Jan 1 and April 15 so it is understandable that many buyers (including me) had a wait and see attitude this year but, in both last April through July and the same period in 2004 we had 10% runs in the indexes. 2003 also had a very strong last 3 quarters and, although I would have liked to have seen more of a pullback (and still may see it), it does look like we are consolidating for a huge move up.

The Nasdaq is still resting on key support so we will look to that next week to gauge market direction but we need the S&P to get back over 1,300 in order to have real momentum.

Traders have cautiously trading as though we are in the mid ’70s when an the Arab oil embargo dropped the markets from 1,047 to 577 but this is a totally different situation. Back then oil went from $12 a barrel to $42 in just 2 years (to keep that in perspective, a new VW bug cost $1,995 back then) but it wasn’t the price of oil that killed the economy – it was the lack of supply!

There were many issues (Nixon resigns, we lose a war, stagflation) back then and here is a good summary article on the oil situation:
http://en.wikipedia.org/wiki/1973_energy_crisis#Chronology

Bush isn’t going to resign(so many jokes come to mind), we are not leaving Iraq for a long time (in the early 70s, when the war was a total disaster and everyone was protesting the Dow went from 662 to 1047) and there is plenty, plenty, plenty of oil. We did not have a 6 month strategic petroleum reserve back then, Canada did not have more oil than Saudi Arabia back then, Mexico did not have significant oil back then… At $100 we have all the oil we could want for the next 50 years!

So it’s just not the same. We may end up paying $100 a barrel for oil but the Europeans have been paying $4-5 a gallon for gas for the past 10 years and they adjusted just fine. So perhaps commodities are just expensive because we have a thriving economy and thriving economies use a lot of resources…

Oil did shoot up to $70.50 in London this morning but the Asian markets don’t seem to care. Europe is closed like us so I expect everyone to take a breather on Monday but I won’t be surprised if we see some buying later next week.

Chad has now threatened to cut off another 175,000 barrels of good (light, sweet crude) oil on Tuesday if the World Bank doesn’t change a policy that has frozen their funds so we will have a whole new crisis on Monday!
http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060415:MTFH92117_2006-04-15_15-27-50_L15738095&symbol=XOM.N&rpc=44

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I know gold looks overbought but so did oil at $40, $50 and $60 for the past 18 months! I think we are simply in the same consolidation you can see on the charts at $400 and $500 levels which means we are about to burst to $650 by May.
http://stockcharts.com/gallery/?%24gold

Copper is also nowhere near done going up and PD an PCU are only being held down into option expiration as they have run up 15% since the last expiration. I will wait until the end of the week but copper should get close to $300 and these stocks will make fresh highs in the near future.
http://stockcharts.com/gallery/?%24copper

MRB for $3.11 is still interesting to me. Like all miners, the value of the company is based on $180 copper, $400 gold and $6 silver (3 year averages). Production is increasing by leaps and bounds while end prices are going up. As a rule of thumb, it costs $340 to pull an ounce of gold out of the ground and great miners do it for $320 and poor ones do it for $360 but, at $600 an ounce, who really cares anymore? We originally picked this stock back in December at $1.80! If this company can learn not to use the mining term “Decline” in press releases they might really take off:
http://biz.yahoo.com/iw/060406/0121789.html

NAK at $6.50 is another miner that gets no respect. They are sitting on a huge Canadian reserve and will make a nice long term play.
http://www.northerndynastyminerals.com/ndm/Home.asp

If oil keeps going up, gold will follow but look out below if oil takes a big dip!
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We shouldn’t be holding any stocks so there’s not much to review but let’s see how the week went:

Even with a down week the AAPL $62.50s wound up at $4.80 (up 50%) but how could you still be holding those from $70?

ABX stayed down with the gold sector and the May $30s finished at .75 (down 5%).

ADSK peaked on Monday but the May $40s are still $3.20 (up 240%).

ADM has been on a tear but the May $40s are only up 10% to .45. We shouldn’t have been cheap as the $35s did much better so far.

AIR May $25s dropped a bit to $2.60 (down 10%) but if BA and BEAV continue strong they should catch up:
http://finance.yahoo.com/q/bc?s=AIR&t=1y&l=on&z=m&q=l&c=beav

If you didn’t take the triple on AH $60s and got burned earlier in the week, you were saved yesterday as it went back to a double at $2.

AN was up 30% but holding it was a huge mistake as the May $22.50s dropped to .20 (down 60%) but with earnings on the 24th I’m doubling down!

AVNX is why I hate small caps, you have to be way too patient and ride out horrific dips. It finished the week at $2.80 (down 20%) despite the best possible news early in the week.

BA May $80s never hit my $1.50 target but they did bounce from $1.80 back to $4.70 so I was just off on calling the bottom!

BIIB was a tease on Friday and has languished since, the $45s are down to .75 (down 35%) but, on the bright side, the premium is just .65 now!

BJS had a rough week and the May $37.50s finished at .80 (down 30%) but the stock is looking stonger now.
http://finance.yahoo.com/q/bc?s=BJS&t=5d

BSM was a good play from Daniel as long as you went into it with a 5% trailing stop. The stock went from $6.50 to $7.12 but quickly pulled back to $6 where it finished the week. With a stop, it was a 5-10% gain, without a stop it’s a 10% loss. This is why I usually don’t play these – far too day trady.

BVN dropped on election worries in Peru but PCU recovered so I’m betting they will too and I’m doubling down on the June $30s for .55 (down 40%) as long as gold is still over $595:
http://finance.yahoo.com/q/bc?s=PCU&t=3m&l=on&z=m&q=l&c=bvn

Even though I doubt he will win the election in the end, Socialist candidate Humala has been trying to reassure foreign investors lately:
http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-04-10T194031Z_01_N10339502_RTRIDST_0_PERU-ELECTION-HUMALA-PICTURE.XML

C $47.50s are already in the money at .95 (up 90%) but it’s too late to sell so we have to pray for a good earnings report at 8am!

DD still looks solid with the May $45s just .25 (down .05).

DIA May $111 puts were a great hedge this week as they moved up to $1.35 (up 40%).

DIS did not do us any great favors this week but the $27.50s finished at .50 (up 25%) but I think it’s time to roll it into the May $27.50s for $1.

DJ also picked up a dollar this week and if you didn’t stop out the $40 puts are now just $2.25 (up 120%).

Our EBAY $40s are down 15% from our original buy at .90 but we did say to buy only 1/4 per day and the DCA should be flat at .75 into earnings. The May $40s are hanging tough at $1.30.