Well I titled the morning post Fickle Friday and my opening statement was that we could go either way and we did – all in the same day.
After zooming up almost 100 points on a totally overblown reaction to a slowing economy the Dow went down 60 points by 3pm but made a spectacular recovery right at the end. The S&P followed suit but finished below my 1,280 mark and the Nasdaq went back to just being sad and lost 7 points on the day after opening above 2,100 for the first time since 7/12. In comments at noon we noted that the Valero Rule had kicked in and that the oil sector was going to drag the markets down:
http://finance.yahoo.com/q/bc?t=1d&s=%5EDJI&l=on&z=m&q=l&c=oih+vlo
The last thing I wrote was “I expect big Nasdaq resistance at 2,118 if we get there.” I just didn’t think we’d get there in the first 15 minutes of trading!
http://finance.yahoo.com/q/bc?s=%5EIXIC&t=1d
Oil went all the way down to $74 but had a miraculous recovery (which I called to the second in comments at 1:45!):
http://finance.yahoo.com/q/bc?t=1d&l=on&z=m&q=l&p=&a=&c=&s=uso
It was a relief, at least that USO couldn’t break back over $70 and crude held under $75 despite frantic pumping efforts. The current contracts are breaking down as Chris turns into a tropical depression (not even a storm) as it enters the gulf but there is still plenty of fear in the front month contracts which roll over in 2 weeks.
The dollar continued it’s death spiral as rumors of a “Gentle Ben” spur the World markets to dump greenbacks. Gold rose back to $647 but was again rebuked at $650, turning gold stocks back negative from 2% gains earlier in the day. We should have played for that as I called it in the morning but I was too excited about the pre-market action to focus on that one.
http://stockcharts.com/gallery/?%24usd
I don’t see how the Fed can risk a pause with other Central Banks barreling ahead with a tightening policy and our government still spending $2Bn a day more than it makes. A responsible Fed will continue to tighten even if it hurts because we just don’t have the money! On the other hand, as I have said before, I would lower rates and boost inflation to 10%, raise taxes and pay off our $8,451,540,095,908.59 national debt with the wheelbarrels full of cash it will take to buy groceries under my regime (which is probably why Bernanke doesn’t take my calls anymore).
http://www.pgnx.net/forums/showthread.php?t=18300
Next week will be very interesting but I think it will be safer to watch from the sidelines until the Fed meeting is done because the markets may be in for one hell of a disappointment if they tighten and, if it goes the other way, people may figure out what I said last week – that the Fed has clearly gone too far (from an economy boosting point of view) for the past 6-9 months and is already 35% over the line!
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Needless to say all of our picks, which had a spectacular start, quickly reversed and forced us to stop out even or perhaps a little behind for the ones that were playable at all – as some opened above targets anyway (depending on how tight you were).
The best performers were GE, which held up nicely, MSFT, who are clearly ready to roll and CUP, which probably would have gone wild on a better day – the rest were very disappointing.
PD also should have done much better as copper rose 4% during yesterday’s session but the chart on copper has recently been weak and we continue to operate as if the US economy is the only thing that matters so the reaction is to our slowdown vs. the reality of global demand.
Our put trades did nicely, I haven’t let my XOM or SLB shorts go and I still stand behind Thursday’s choices:
CHK held up better than I thought on a drastic pullback in natural gas and the $32.50 puts finished at .75 (up 35%).
ECA is also a slow mover but looks weak with the Sept $50 puts at $1.25 (up 25%).
BP, XOM, CVX and SUN all bucked the sector yesterday with gains and the $70 puts held flat at .50.
RDSA shot up a dollar yesterday and I have no idea why. The $70 puts dropped 20% to .70.
XOM $67.50 puts are very frustrating but holding on at .75 (up .10).
Some of our longer calls went well and, although you should have taken the money and ran, they are still playable if the market doesn’t freak out on Tuesday or Wednesday when they get the rate news (I took the money and ran myself!).
BA is looking pretty solid with the Sept $85s up .15 to .90. The $80s did much better as a percentage but you should have stopped out of those for sure!
BBY (9/12) pulled it out on Friday after a rough week but we didn’t take the Decembers because we thought it was going straight up anyway. The Dec $50s are $4 already though (up 40%).
BWLD was a good bottom call. I wish they had options but we’re already up to $33.09 (up 3%).
CAKE is another one that went down but the options went up (so sentiment is going my way). Lucky we were ahead of the pack and the Jan $25s are at $1.90 (up 60%).
CYMI Sept $40s crashed from a 75% gain to even at $2.10 again on yesterday’s action. Good chance to buy them again and great example of how stops are very, very important!
http://finance.yahoo.com/q/bc?s=CYMI&t=5d
I hope we hit the bottom on EBAY, the Oct $22.50s are up 15% to $3.10. The Sept $25s were much more exciting at $1.05 (up 70%).
ELN went exactly the nowhere we thought it would go and the stock is up .26 to $15.18 while the $15s are down to .70 (up 50%) for a .96 gain on a nice, safeish $14.94 play.
GE Sept $32.50s are up a dime to .90.
HD is holding up well despite the lack of natural disasters (awww) and the Sept $35s are up just a dime to $1.20.
HET went nowhere fast but the Sept $60s kept the faith at $2.35 (up 10%).
LOW (8/21) is also flat footed iththe Sept $30s still at .75.
MGM Sept $40s hit $1.35 on the 2nd day (up 150%) so don’t even talk to me if you rode them back to .30! Gotta like them again though!
http://finance.yahoo.com/q/bc?t=5d&l=on&z=m&q=l&p=&a=&c=&s=mgm
PFE Sept $25s are disappointing so far at $1.25 (down .10) but I did say to just buy a little and wait.
I won’t pretend that I knew this would happpen as SHLD is down $2 from Tuesday’s pick but the Sept $150s are $4.70 (up 33%).
SIRI has everyone worried and the Jan ’08 $5s are .75 (down 25%) but we are not supposed to watch these every day (or month for that matter).
TIF (8/31) Sept $30s are $2.20 (up 25%) but a lot of that is earnings anticipation which might not be worth riding out.
TWX Oct $17s are flat at .40 after being way up on Wednesday’s excitement which is why you still need stops on leaps.
UNH Dec $50s looked scary at first but recovered nicely to $3.40 (up 13%).
VIA keeps chugging along and the Nov $35s are up nicely at $1.70 (up 35%). The Jan $35s have barely budged at $2.30 (up 5%).
XOM spread was a great Monday call as the Sept $70s ran up to $1.50 (up 87%) and we are well covered with the $67.50 puts for .65. I sold the calls and kept the puts already.
Pretty much everything else was short trades and washed out in the markets so we should be in a mostly cash position going into the weekend. On the whole I’m hoping for a massive market correction so we can finally put in a proper bottom but I think the Fed is too scared to let it happen – which, of course, will only make it worse later.
Apple made a huge recovery from the option scandal news and the CME flew on the S&P inclusion.
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Berkshire Hathaway, my safety pick in the fall at just $ 86,000 had spectacular earnings (up 62% to $2.35Bn or $1,522 per share for the quarter) but barely budged to $91,710. If this doesn’t get people to buy the markets, I don’t know what will as Berkshire’s virtual portfolio is a cross section of American business.
Earnings were expected to be $1,084 so they made this quarter’s earnings plus half of the $1,125 they are expected to make next quarter too. This stock is another fine way to play no hurricanes as insurance claims is the only thing that generally hurts this company (and even then, only for a quarter or two).
The company’s quarterly revenue was up 33% to $24.19Bn and they are sitting on $42Bn in cash. I notice that a lot of their new acquisitions are in global construction, another sign that Mr. Buffet believes the world will get along just fine without the US economy having to drive.
You still have the opportunity to pick this stock up for less money than it was selling for in May of 2004, when earnings were just $1,000 per share. If you don’t have $91K sitting around to buy one (I wish they had options!), Mr. Buffett feels your pain and offers BRK.B shares for “just” $3,050 for the budget conscious…
http://finance.yahoo.com/q/bc?t=my&s=BRK-B&l=on&z=m&q=l&c=brk-a
Have a good weekend,
– Phil
