What the heck was that? May 1st me says, “Hey S&P 500 companies, I know we’re hitting record highs with huge earnings but what can you do for me if I also cut energy costs by 15%?” S&P says “Zzzzzzz.” Something is not adding up. Granted energy stocks make up 15% of the market cap of the S&P and today was another bad day for commodities but Merck down 2%? HP back where it opened the day they had a 10% beat and raised guidance? MSFT is about to release a product that costs 50 cents to make, sells for $199 and will be in 400 Million computers by the end of ’08 yet is trading for the same price as it was in 2002 when the EPS was half of this year’s… Apple is Apple (no comparisons) but even dull companies like JNJ are up 20% a year. The entire S&P earnings, including all the bad ones, is up over 16% for the year and the only reason projections are cautious is the fear factor: Fear of the Fed, fear of terrorists, fear of high oil, fear of consumers drying up, fear of a housing collapse…. Now I’ve been urging caution but I say these things to remind you (and me) that I think the economy is much stronger than people think and that stocks are generally undervalued so, when we do take puts, they are meant to be very short trades where we take the money and run. As a counterpoint to my favorite saying “If it’s a real stock market collapse, there will be plenty of time to short things.” So what did happen today: First off, we finished at lows. Very bad. But we finished on weak volume – very I have no idea what that means. So tomorrow we wait and see with an open mind. The Dow shot down 50 points, dropped another 30 points, rallied 60 points then dropped 70 points – this was one day, not a whole week! We broke down on all indicators and a SOX and Trans rally was murdered just about the same time the oil sector made a comeback at 2 pm. NSM will provide no help tomorrow with another bad report. We can go over the new levels tomorrow but it was, on the whole, quite a debacle. Oil did indeed finish below $67.50, just barely, and the oil sector seems to be grasping at straws here to keep from going down. As I mentioned in comments, there were 100M shares of XOM purchased at over $70 who are already out 5% and it will take 10 days of very heavy trading (30M shares) for just those guys to unwind. Exxon has been above the current level since August 1st, beating the previous all-time high by $2.50 for a whole month. That’s 400M shares traded 3-7% into the red. What about short covering? Sorry, as of August 10th, only 49M shares were shorted (.8% of the float – one of the lowest ratios in the S&P). Once you go below $60 on Exxon, you are putting 6Bn shares that have been traded since March of 2005 into the red. Sure there might be some people in for the long haul but it doesn’t take more than a Billion dissatisfied shareholders to give this stock some real problems. I don’t mean to pick on Exxon as most oil companies have this problem but come on, doesn’t $402Bn seem like a pretty big market cap? Gold was kind enough to finally make me seem less crazy as I have been calling for this move (-$17) for more than a week as it continued to defy gravity. Today’s drop came courtesy of a strong dollar that gained almost a point, but that only excuses $6 of gold’s move today. The dollar is just the catalyst that gold needed to take that first step off the diving board. As the great Yogi says: “It ain’t over ‘till it’s over.” This morning I said that maybe tomorrow we can panic so let’s just have a good night’s sleep…
===================================== I couldn’t resist playing with my put profits on some more calls in comments:
- Back in MRVL Jan $21.25s for $1.20
- TOL $25 puts for .45 and .35 (that one not so good)
- TOL Oct $25 puts for $1 (that one I timed right)
- QQQQ Oct $39s for .95 and the current ones for .30
- I dumped all my oil puts to lock profits and rolled into the following:
- BP Oct $60 puts for .30
- RDS.A Oct $65 puts for .75
- CVX Oct $60 puts for .35
- SUN Oct $60 puts for $1
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BP $70 puts finished the day at $4.30, up a neat 100%. CLB dropped .65 to $75.75, fine for a first day. CVX $65 puts finished down a nickel at .70 and the Oct $60 puts finished up a nickel at .40. ABX finally went down and the Oct $32.50 puts shot up to $1.50 (up 90%). CHK Oct $30 puts hit .85 already (up 55%). GRMN stopped out with a 50% loss at $1. Should have trusted Tom’s chart! TGT Oct $47.50s actually went up, to $2.50 (up 25%). OSG Oct $65 puts moved today to $2.50 (up 66%).
