That was nasty! Not really bad in the big picture but for those with a short-term view of the markets, that was a scary little dip today. Canaries are dropping like flies and, to further puree a metaphor, we have a full-fledged flame-out on our Nasdaq engine and the SOX drive is shot!
Well that's OK, the manual says: "In case of Nasdaq engine failure switch to the Transport drive." What? Down 16 you say? How about the backup Russell engine? Fell apart at 780? OK – time to panic! (just a little).
We did hold our senior index levels today! But when you're driving with 7 major tracking indices and you have a blowout on on 3 of them, you'd better schedule a pit-stop fast and rotate your positions or you may crash and burn on the next curve!
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The Dow closed at 12,567, it held.
- The transports dropped 16 points, not good but not terrible yet.
- The S&P held 1,425 – BARELY!
- The NYSE 9,125 is precarious at best!
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The Nasdaq failed at 2,443!
- The SOX betrayed us (as predicted) and fell all the way to 454! 454 was November's low-end!
- The Russell broke its trendline and closed at 778.
Hard to get enthusiastic isn't it?
I can forgive the Dow, the S&P and the NYSE – they are dragged down by the commodity sector but the other indexes are supposed to provide some sort of leadership and they have really fallen apart. Blame Bernanke for being a downer this morning, warning congress that "that rising entitlement spending could create a "vicious cycle" of rising debt and interest payments and an eventual fiscal crisis." Not exactly a tune you want to whistle is it?
Oil was no help today, falling so hard, so fast that it made investors think something was wrong with the global economy, despite CPI and PPI evidence to the contrary. IBM's net was up 11% but it sold off, Apple was up 48% but it sold off, Merrill Lynch was up 68% but they sold off… Hey – I found one! BK's earnings were up 300% – all the way to $1.79Bn and their stock actually went up: .69! That's almost 2%!!!
2%??? The market cap of BK is $30Bn and they earned almost $2Bn in one quarter and, other than the little gap up this morning, they flatlined too! Something is just not quite right here. Are people bailing on the markets or are stocks, which are up an average of 20% since last January, simply being pinned down into the expiration of many long-held January leaps? We'll have a clearer picture on Monday!
Today's crude inventory report was a total disaster for the energy sector. We had an overall build of 11 Million barrels of crude in a single week. To put this in perspective, on weeks where the draw is just 500Kb over, oil can spike up $1-2. An 11Mb build, at this time of year, can only mean demand has fallen off a cliff AND supply is still rising.
The chart on the left is meant to illustrate how we will run out of oil and has some very conservative supply numbers YET IT STILL SHOWS MASSIVE SUPPLIES OF OIL THROUGH 2020!
Folks, we've been lied to by energy traders (T Boone), Investment Bankers who fund mega-mergers between commodity companies (GS), our government (Halliburton) and of course, CNBC (Convincing Neophytes to Buy Crude) who have engaged in a 7-year campaign to drive the price of the second most abundant liquid on earth up 600% since 1999.
Now this bubble is bursting the same people who were running around with pins poking at housing are all just shocked and amazed that maybe something that was as recently as 2002, profitably delivered for $20 a barrel, just might not suddenly be worth $80 or $70 or $60 or, maybe not even $50 a barrel 5 years later.
Anyway, so that being said, we're already below my target for the week of $50.79 and we did take some more off the table today as the NYMEX boys whittled 45,000 more contracts off the February expiration and the urgency to sell may have been abated for the week.
The dollar went nowhere again as nothing Bernanke said was very encouraging (perhaps it was his comment that the US has $38 Trillion in unfunded long-term debt obligations – making us the GM of nations) but gold decided not to wait and fell back $5 to $628.
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We continued to lighten up on positions today, with good timing as the markets turned choppy. Our energy puts are making up for our tech calls but we are reaching our tolerance limit if the slide of the Nasdaq continues.
It was a very busy day and the many moves we made are logged under today's "Virtual Portfolio Moves" and the highlights were:
AMZN Feb $37.50 puts (12/29) came off the table at $2.40 (up 60%) as we are not leaving winners on the table in a choppy market.
I wasted $1.60 on the IBM $100s at the bell. I took the bet as a craps roll and it worked out about as well as most craps rolls do! It doesn't do any good to play the earnings when good earnings are being ignored!
We called the bottom on the IGW Feb $65s at .20 but the SOX gave us little reason to feel confident about this one.
Finally a jackpot on LVS! 1/2 of the Mar $95 puts (1/16) were taken off the table at $4 (up 57%) so we could lower the basis of the Mar $85 puts and let the rest ride in style.
Half of the OII Apr $40 puts (12/18) were taken off the table at $4.10 (up 273%) as this one has proven too bouncy even for a longer play!
