What a wild week that was!
Our energy plays kicked in with a vengance and we closed 29 positions with and average gain of 119% – that's a pretty good week!
So good in fact, that our best bet would be to pack it in right now and go on vacation since last week was 107% and we are now heading into the most dangerous part of the year – EARNINGS SEASON! <==Click Here!
I was literally going through the open virtual portfolio last night and saying "what's wrong with me, why am I so hedged?" Then I remembered we haven't really heard how the quarter went, we don't know what the Fed is going to do, we haven't gotten the CPI yet, we're not sure oil will stay down here… So let's give it a week, we've got plenty of time to get irrationally exuberant but for now let's remain calm and go with the flow.
We rode the wave this week as oil prices crested and the money that's been sloshing around in commodities found another outlet and began to fuel our stage 2 rocket boosters for a mega market rally. The Dow finally broke 12,500 on it's third attempt (so take that double top chart guys) and we got the Nasdaq leadership we've been searching for for so long.
We haven't hit all my targets yet but, as I said, I am starting to feel a little over-hedged, which is a good sign as the last time I felt that way was October and we "recovered" from my overly cautious positions quite nicely to post spectacular gains in November. This is one of the reasons I started a blog 2 years ago, I learn a lot from going back and reviewing my picks. We also had a LOT (141) of positions in October and I suppose that's a sign of a change in direction for me as I tend to add positions before I start purging.
By November I had cut us down to 98 positions and we managed a nice 81% average gain on those and, of course, last month was just great too with 83 positions giving us an 82% average gain.
We've already closed 59 positions in January, and it's only the 13th, and there are a whopping 78 positions remaining open so a painful purge is in order for next week! I usually give a pass to the first earnings week until we see how the market reacts but I want to make sure we have cash in hand for the second half as I've been known to nail one or two of these things once I get my bearings…
While our 79 open positions look good statistically, with an 84% average gain on 17 open days, that is very misleading as we have spectacular gains of 1,045% from RIMM, 700% from SPF and 3,900% from AAPL, where we're up $3.90 on a .10 basis. Without those we have a more normal 23% average gain but, of course, new positions always drag down the average and we have sold a lot of calls against, which limits our gains but certainly made us feel better on last week's dip!
The reality is the builders killed us this week as did our last round of oil puts but at least those were mainly just profit rolls and 1-day entry positions so we have little invested in those so far. I'm going to write another post on money management but please review the strategy section as I've talked to several people this week, who overplay into these rallies and some got caught by oil's much expected bounce.
Ordinarily I would have covered more of the oil positions but I have my XOM April $80's covering (nice recovery yesterday!) and they are a triple down at this point so, after selling off puts on Thursday, I'm actually overprotected to the upside (ie. I have a larger number of call contracts than puts).
ALWAYS, ALWAYS, ALWAYS have some insurance in your virtual portfolio! I'm saying this now as I realize a lot of you get very excited and jump on those trains, which is great when you catch them but sometimes they reverse on us and it's never good to get in with all you bags and then find out you got on at the last stop and the train is now turning around on you! Try to have a reason (25% minimum) to be happy no matter which way the market goes.
I'd rather only make money on 2/3 of my positions when I'm right than lose money on 100% of my positions when I'm wrong! Last week we made money on Oil and Real Estate but lost on Tech, the last few days we lost money on Oil and Real estate but had a Tech bonanza. If we followed our rules and took profits off the table, we couldn't ask for a better turn!
This week though, we were very, very right!
On Monday I said: "Everyone is back from vacation, the big boys have had their strategy meetings and they’ve captured Paulson (just kidding about that but the article is great – thanks JB!) so it’s time for us to get serious about 2007."
I think I made my call of the week on Monday morning with oil at $57, when I said: "A responsible analyst would calculate the next upside target for crude so he’d be able to point to it later and say he did cover all the bases, but I will tell you right now that there is no upside for crude right now and any upward movement today is engineered nonsense!"
After a very scary morning pump (which we bought puts into), we ended up having a great day and holding our levels. On Tuesday I called shenanigans on XOM, who promptly fell $3 but made it all back by the end of the week on a low volume spike. We were still worried on Tuesday morning and I demanded Nasdaq and Russell leadership to take us out of the doldrums – and we actually got it!
I credit Apple as the Nasdaq caught fire on Tuesday afternoon and finished the week at a 6-year high as Steve Jobs gave us a glimpse of the future we always thought we would have when we were kids. Even Mr. Spock would be blown away by the amazing technology neatly bundled into the IPhone package:
- It's a tricordor (sensors optional)
- It's a communicator
- It's a universal translator
- It's a navigation system
- It's a computer
- It's a music and video library
If we could only set those things to stun it would be everything a well-equipped away team ever needs to save the universe! So how about some props for Mr. Jobs, they guy who started the personal computer revolution back in the '80s, for getting us back on track 350 years ahead of schedule!
MacWorld certainly distracted us from a collapsing oil market and on Wednesday morning I was concerned, saying: "I am wondering if the larger trading community is so unsophisticated that they can be spooked out of the whole market by a correction (long overdue) in the commodities sector. Last I read, most businesses make stuff out of commodities and tend to do well when those prices drop but maybe I’m just getting old and out of touch with the new-fangled economy."
Lucky for us the trading community hangs on my every word and by Wednesday afternoon we had stabilized, even as oil dropped all the way to $54.02. Oil gave us another $2 drop on Thursday and, even through we lost Apple as a leader over renewed options fears, the Nasdaq really came through for us! Despite the exuberance of the day I urged caution due to Asia's major sell-off saying: "Are you prepared for a 300 point drop in the Dow? I’m not saying it will happen but I am saying it could VERY EASILY happen and I get very worried when I see people trading with no hedges."
Thursday was a real thriller and I cleared us for takeoff and it was my bad for not pulling back more on the protection at that point. I even said in the Thursday wrap up: "That means we have ignition on our main Nasdaq thrusters and we could get a major rally with all engines firing as they can once again burn a limitless supply of cheap(er) oil to propel the markets on to new heights."
On Friday morning I said of oil: "One would expect short covering into the long weekend (I know I am) but how much is going to be key." Well, it turns out A LOT is how much!
Nonetheless, we managed to close the week with new Dow and S&P records with some gathering strength that will hopefully take us through earnings season and place us firmly into a higher (and hopefully stable) market orbit.
If you are a new reader, now would be a good time to review "Stock Market Physics" as we will be discussing a lot of it next week as we try to gauge where this wild ride will be taking us.
We rode 28 of 29 closed positions to a profit this week so BOO to EBAY Jan $32.50s that I picked up on 12/19 for ruining my first perfect week of the year! Hopefully we'll have more luck with the Feb $30s we picked up this week as I still have faith in the company, regardless of how badly Meg keeps treating me!
Our other 28 positions included 18 oil plays, including XOM Jan $70 puts that were originally bought on November 3rd and were doubled down four times before we finally managed to take half off on 12/18 so we could let .31 ride. I have never been more relived to collect .45 in my life!
15 of our week's positions were doubles or better including a 500% return on RDS.A Jan $70 puts and a great 230% gain on our HPQ Jan $40s that we picked up for a buck on 12/13. Now if only DELL would wake up…
It was a real monkey-with-a-dartboard kind of week so I'm not overly proud of my short-term selections, I personally prefer the finesse moves!
Our long-term virtual portfolio is rockin' and rolling already and I don't even regret closing out the old one so we could all be on the same page as we are up 95% in our first month!
These are the plays that really matter and we have all the time in the world to improve these numbers. We added 7 new positions this month, bringing our total up to 32 long-term positions with only MOT (which makes me cry!) and PGR currently in the red.
These are the plays that are meant to carry us through the year, through thick and thin and provide us with an all-important source of monthly income which we can then use to mess around with short-term positions! I just did an extensive review of them last week so I won't get into it here but we do have to set some rollovers for next week prior to expiration (we certainly don't want to get called away on any of them – except MOT!).
All in all, this week has been fantastic! The quality of conversation in our chat room has been astounding so I just want to welcome all the new members and thank all the veterans for chipping in and helping out on such an amazingly hectic week – it has truly been a pleasure to spend this time with you!
Have a great weekend,
– Phil
