Don't blame Buffett!
Berkshire dropped half a point right at the open – those indicators we were supposed to be watching this morning both blinked red on the first trade of the day, even as the indices kept climbing.
What else didn't happen today:
-
The Dow did not "pop right through 12,500"
- The transports went straight down all day.
- The S&P did not "fly by 1,430"
- The NYSE did not even consider 9,200 as an option!
-
The Nasdaq went bust after failing at 2,471
- The SOX head-faked up but came nowhere near our safety zone of 490
- The Russell flew down from the start – a dead canary!
Over the weekend we were discussing our three "canaries in a coal mine" that would tell us when it was time to get out. We had the RUT (dead), the NYSE (woozy) and the transports (near death). We also added insider selling (way up) and, of course, the SOX (so-so) to our watch list and I warned:
"One dead canary – maybe he had a hear attack, 2 dead canaries – maybe one couldn’t live without the other, 3 dead canaries – you may have missed your chance to escape!"
Well we have a few very sick canaries and we decided it was a good time to lighten up a little today! By 10:36 we were selling a bit and I said: "I’m not too worried, I think oil is dragging down the markets but I’m not taking too many chances either!" It didn't take us long after that to get much more worried!
The daily levels we set are very, very, very important – if we don't get to our goals, we shouldn't be trading!!! I often forget this myself as I get caught up in making this or that trade but the reality is, if the underlying premise of market direction is wrong – then the trades picked on that assumption are likely to be flawed as well…
I blame oil for dragging down the markets today. I know I blame oil for everything but this really was all oil's fault! NYMEX January contracts were still trading today and were pared down by 25% leaving just 77M barrels scheduled for January delivery. The January contract fell $1.22 while the February contract (active tomorrow?) fell $1.30 to $62.79, just .58 over the January!
Due to a whole lot of barrel rolling, February (a short month I hear) has 303M barrels open vs January's final tally of just 77M barrels. If we assume that's how many barrels we truly need in a month then we have to figure February needs to get down to 75M barrels by January 19th, when we roll into the March contract. But the March contract already has 118M barrels so if we roll the extra 228M barrels into March, then we will have 346M barrels open for that month. Gosh that seems like a lot of oil!
And those barrels are big and heavy and hazardous and need to be stored somewhere and moved around by trucks and cranes and union men – all for a spread of $24.36 a month per $2,604 barrel!
Gee I'm glad I'm short on oil!
So the energy sector took a huge hit today, about 4% on the average as roaches scrambled to get out of their traps. Not even the trusty rebels could save the oil bulls today as they actually used bombs today at two oil facilities in order to obtain higher oil prices freedom for their people.
Don't blame the dollar for oil's great decline today, it was relatively flat as our markets looked questionable and Gold dropped slightly to $615, clearly in the danger zone!
Is it time to panic? Not yet – the energy sector accounts for 20% of the S&P and was off 4% so that would account for a .8% drop in that index (11.3 points) but the S&P only went down 4.6 points today, if it wasn't for those pesky energy stocks we would have been ahead! The Dow suffered a similar fate as heavily weighted XOM dropped 2.3%, shedding $10Bn of market cap on just 22M shares traded.
Other big Dow losers were AA, BA, HON and MSFT (still recovering from their Zune fiasco). As all of those stocks have just recently made nice gains (even XOM) I see no reason not to wait for at least one more canary to keel over before we head for the exits.
=========================================================
We did bid a fond farewell to several winning positions today as we are lightening up ahead of the holidays. It's always nice to go into the new year with cash and there was certainly nothing about today's action that made us feel like we would be better off with stocks!
As I said this morning: "Just because you’re bullish is no reason not to take a profit!"
I took half of the AXP $60s off for $3 (up 173%) as it was too much to risk.
We took another round of CC $25s for .40 ahead of earnings tomorrow.
CHKP gave us the .45 entry we were looking for and Apr $20 puts finished the day at .55 and the Apr $22.50s are already below our target at $1.15 but I'd rather pay a little more on the way up after a very weak day.
Rmyadsk asked if we should DD COP at 9:43 and I said I was too worried to chase that one (kick, kick). Gutsy call at the top Ry!
We took the DIA June $124s and they held $5.60 but that purchase is we decided to hold of on selling the Jan $124s for $1.90 or better unless we get a confirmed downturn. The DIA Jun $124 puts came in at $3.50 and we are hoping to sell the Jan $124 puts for $1.20 or better.
EBAY $32.50s stopped out at $1.45 (up 26%) and I'd like to get back in if it drops further.
We initiated the FDX Apr $100 puts for $1.40 against the anticipated spread but we will wait to trigger that one for now! We are still looking to pick up the July $120s for $7.50 (hopefully less) and sell the Apr $120s for $5 (hopefully more) but the main goal is to get this spread ahead of earnings along with the put for downside protection.
We added the GE Jun $37.50 for $1.70 (now $2.15) as a pre-roll but had no reason to sell the June $35s yet at $3.90 (up 117%). The stop should be $3.70 or a .30 trail.
GOOG June $490s stopped out at $44 (up 52%).
HET seemed like a nice opportunity to take the Jan '08 $85 puts for $3.75 and sell the Jan $85 puts for $3.
JOSB Jan $30s were let go at $1.50 (up 50%)
We added more LVS Mar $85 puts for $4, now $4.40.
We were given another crack at MET $60s for .60.
MGM had a huge spike and then pulled back and that was as good a reason as any to get out of our $37.50s for $23.90 (adding in the $4.20 we gained on the last sale) giving us an average profit on our two positions of 710%. This is the successful end of a leap we've been selling calls against since June.
I put in an offer for more MOT $20s for $1 but no takers so far.
OIH Apr $140 puts ran up to $7.60 (up 19%) and we didn't want to risk it.
OII Apr $35 puts were added at $1.10 with tight (.25) stops going on the Apr $40 puts, now $2.65 (up 66%). This assures we have .90 to reduce the basis of the $1.10s to a very safe .20!
We went for ORCL pre earnings with both the Mar $17 for $1.75 and the Mar $18s for $1.20 against the Jan $17.50s sold for $1.05. This one will be fun to track as the earnings were good, but not great.
Zman made a very nice call on PBW going down at 10:56.
PFE $25s were taken off the table at $1.20 (up 118%). They boosted their dividend and named a new chairman after the bell so we'll miss some of that but I think 118% is plenty for 14 days!
RDS.A gave us a chance to DD on the $70 puts for $1, bringing the basis down to $1.50 (down 23%)
We took out the RIMM $130 puts we sold for $9 for just $5.25 on the morning spike and are hoping for another leg down on the Mar $130 puts, now $9.60 (up 54% from the adjusted basis).
Our morning pick, SGR flew up too fast for us, which was a shame as it gained 8.5% for the day and another 2.5% after hours.
TOL $32.50 puts for $1.25 seemed like a real bargain compared to puts for other builders we looked at and I felt very confident when I heard the delusional December builder sentiment: Although sales were flat and traffic was down they say expectations are improving! Like I said over the weekend, they use these reports to manipulate the markets.
SPF was another builder play – buying the Mar $25 puts for 1.55 and selling the $25 puts for .70.
I couldn't resist the SUN $65 puts for $2.10, now $2.40.
UA (formerly UARM) kicked the day off with a ridiculous Cramer pump right from the NYSE floor and fortunately, they were already a topic of discussion on the weekend where we decided they were not worth buying at this level. As soon as Cramer left the floor, the stock dove and finished the day 5% below the open, back at $50.44.
XLE $61 puts were taken for momentum at $1.65, now $2.
XOM $75 puts were also a momentum play at $1.35 (now up .20) while half of the $72.50 puts were taken off the table at .70 (up 75%). The $70 puts are still a loss so we let them ride for now.
