Well it's been a crazy week!
Getting the new site up and running was harder than I thought but we are in very good shape now and got off to a real bang with a huge week for picks.
Luckily we got the macro picture right for the most part and that guided us through a scary early part of the week. My suggestion that we just let the US dollar burn (inflate) to fuel the market rally was my most controversial article since "Inflation Nation" article earlier in the month – I guess people really don't like inflation…
Still I was confident enough in our heroic team of Super Banker and Chair Man (of the Fed) as they headed off to China to do nothing (which is just what the markets wanted) other than maintain the status quo (we buy stuff – they buy dollars) and put on a show for the international press corp!
We wisely took some Flight Insurance before departing and our insurance picks did just what they were supposed to do, they went up when the rest of the market stalled early in the week. Our stock of the year selection, BRK.A in fact, gained $5,700 since Sunday's mention while junior selection BRK.B added 6.7% for the week!
Monday I said "There is almost no point trading today" and there wasn't – but we did get some nice entries on calls as we kept the faith! We had a flawed forecast from Forrester that scared people out of tech. My premise on Monday that 213K open oil contracts were far too many played out at the end of the week (down to 101K at yesterday's close) but crude finished up for the week anyway.
Tuesday I predicted a "gauntlet" of economic news and recommended "patience Daniel-san." But perhaps we should have given more weight to the brewing IRS crackdown on options shenanigans. We dismissed Tuesday's quick dip as an air pocket – attempting to force us to eject so the markets could take off without us and we did not buy it! The Manufacturer's report was our confirmation that things looked better than they seemed.
We started Wednesday off checking our calculations and determined we were indeed about to break orbit and it's a good thing we can now recognize a hyperbolic move when we see one or we wouldn't know what to call BRK.A's day on Friday! On Wednesday morning I said that the BOJ rate hold "hurts our MTU Jan ‘08 $10s, but they are way up at $3.50 (up 25%) and we only just got them so I’m going to give it a little slack." Let's hear it for slack! The lower trade deficit gave us a little boost and we called the VIX DOA on Wednesday night, setting up for a nice rally!
More fuel was added to oil and pharma on Thursday as Tim Johnson's emergency brain surgery threatened to put the Senate back in the hands of the Republicans, whose supporters handled it with the usual sensitivity. Our super friends showed up in China and the market was greatly relived to see the same old BS they were used to. Thursday was, of course, our big market pop.
Friday the Senator stabilized and the oil sector backed down as a class action lawsuit was filed against 17 gasoline retailers (VLO, XOM, CVX, COP…) for (and you'll love this, it's a shocker!) overcharging consumers $2Bn a year because they have been selling gas that was: warmer (so you get less) than federal standards!
You know they’re in trouble when the industry spokesman can only come up with: “When you buy a gallon of gas, you buy a gallon of gas. Sometimes you get a little more, sometimes you get a little less.” No Jackass – that's WHY they HAVE standards!!!
Just holding our newfound highs was a great way to end the week!
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This week was so stunningly good that we only closed out 13 positions for an 87% average profit on 12 average days held. Without our ridiculous 1,400% gain on DALRQ we would have had a 41% average gain.
AEP, CAG, and my original PD Dec $90 put from 11/17 were pretty much total wipeouts but LVS, OIH and XLE were good to us in additon to Delta.
That puts our average gain for the month over 75% on 43 closed positions with an average hold of (as usual it seems) 9 days.
What is really stunning (and a direct product of having a week where pretty much all of our expectations were met) is that our remaining 70 open positions already have a 64% average gain, which is especially unusual as that included A LOT of new positions taken this week!
Breaking it down into Short-Term Positions (48 positions, 21 average days open (due to an MGM that is closing out after 170 days), 36% average gain) and Long-Term Positions (20 positions, 31 average days (lots of new ones) and a 130% average gain (69% without STN's ridiculous 1,375%).
I will be setting up a separate sheet for spreads and income producers but please give me your feedback on this as we will be trying to keep up at least every other day but, as you can imagine, it's a little hard with 70 open positions. As in October, having too many positions that didn't close is merely a sign of a very healthy market!
We all have very different balances so it's silly to pick a number of shares or a dollar amount and, obviously, not everyone plays everything but I generally advocate having no more than 1/20 of your short-term money in any short-term position (and your day trading money should be no more than 1/5 of that (unless you're a day trader – then I have no idea what to tell you because that's too crazy for me!)).
And be DIVERSIFIED! Watch Cramer if you have to but make sure you get this: Tech, Finance/Brokers, Banks (not the same), Energy, Web, Retail, Industrial, Telco, Materials, Mining, Transports, Bio, Big Pharm (not the same), Health Care, Services, Real Estate… It's not like there's nothing to choose from!
Also, watch your put/call ratio. I don't like to have more than 70% going in the same direction, even in a major move (much as it hurts).
Of course check out trading policies to get an idea of entering and exiting and, now that we have less people, I will get much more into adjusting the basis on trades. Just because we are in a trade for the long haul, doesn't mean we can't take some off the table on a run and add a little on the dips!
A quick review of our insurance trades are in order. They are mainly long, safe(ish) plays and they will not do great while the market is flying but it also isn't the right time to sell calls against them yet, let's give it a week and see where we are:
AFL May $45 have not moved much at $2.35 (up
AIG Jan ‘09 $70s seemed way too cheap at $10.40 but there they were still just $10.60 on Monday and they finished the week at $11.90 (up 14%). Remember we were sold to sell Jan $70s for $2.20 against them and the stock keeps rising! We had pay an extra dime for the Feb $75s, but they jumped up to .80 (up 60%) and will protect us from a pop on the calls we sold.
ALL recovered too quickly from their probe news and the July $65s got away from us at $3.80 (up 36% from Monday's open).
CB Jan '08 $52.50s were the dog of the group at $4.60 (even).
GNW got off to a quick start, then sputtered at resistance but the Mar $35s finished at $1.10 (up 47%). As I said on Sunday "They should have a tough time at the 200 dma with a death cross 50 dma at $33.75 but there are 9M shorts who will be in a 5 day “House of Pain” if they break it."
PGR Jan '08 $25s barely budged at $2.30 (up 15%).
T insurance (selling the Dec $35s for .60) cost .10 to get rid of the caller, raising the basis on the Jan $35s to .90, now $1.25 (up 39%).
TWGP Jan $35s stopped out at .60 (down 29%) and was not worth chasing with so many working plays.
