I did not like that!
Intel got us off to an awful start and oil raised its ugly head back over $52, breaking my $52.10 danger zone on a huge end-of-day pump that had crude finishing $1.64 above its low of $50.60.
- Dow was fairly well behaved, testing and failing at 12,600. We had a bounce from BA and XOM and an all-time high for PG on a Goldman upgrade but, other than that, it was a lackluster day for the Dow, which dropped 5 points in the end to 12,577.
- Transports gave back 31 points and failed all the way to 2,776.
- S&P was dead flat for the day with dead being the operative word.
- NYSE could not hold 9,150 but finished up slightly at 9,146.
- The Nasdaq ruined the party with an 18-point drop to 2,480, just off our failure line and looking like only the end of trading saved them from worse.
- As usual, blame the SOX, which march ever downward, now at 472.
- Russell had no party either, very disappointing as it dropped to 788.
When we tested my week’s target for oil at $50.79 on Tuesday, at 1:39 I said: "We’re just over my mark of $50.79 so be careful with oil short oil plays here!" Just a half hour later I said: "Really, really this is a good time to take oil off the table!!!!"
We dumped all but our long oil puts but first thing Wednesday morning I amended it and warned: "Valero rule says get out! There will almost certainly be pain if you hold so only do so if you like it!"
Zman opened his new section on our site (we are testing this week but this is going to be a huge addition!) with the comment: "Exculpatory Clause To Today’s Generally Bearish Comments: Watch out for a potentially large bounce off $50.00.!!! If we don’t knife through it the bounce could be very painful so watch your puts. " And we’re not the types that need to be warned twice, yet alone 4 times!
As we discussed further in comments, we are not holding any oil positions that we aren’t ready to either double down on at half or roll into a longer contract as NYMEX trading still has 3 days left and they have now reduced the open February contracts to just 121,000. My guess is 80K should be about right for February delivery but I don’t think there’s going to be too much pressure reaching that target.
March open contracts are all the way up to 348,000, but that will be next month’s problem. The March contract finished at $53.13 and that’s still a much better starting point than the $64 that the February contract was trading at on December 17th! NYMEX traders, boosted by T Boone’s CNBC appearance in the morning, think they have hit bottom at $50 but it looked like short covering to me, not to mention we have another inventory report coming tomorrow so we shall wait patiently and see.
The dollar held flat but the PPI report stoked inflation fears and gave gold a boost over the 50 dma, finishing at $633 and looking poised for another run at $650. This is coming despite a continuing decline in copper so one of these guys is wrong, unfortunately it may be copper and we will be sent into another rising commodity cycle, even if it’s just a bounce.
Food inflation, of all things, is stoking the flames this time as we are using all our corn to run our cars which is running up the price of all sorts of things!
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Apple got a tepid after hours response to some phenomenal earnings and we’ll have to wait and see how the morning trading works out – that should keep us very busy ahead of inventories!
We added an AAPL spread early in the morning, taking the Feb $100s for $3.70 and selling the Jan $95s for $3.60 for a .10 net – we need to watch this one closely in the morning to see where Apple comes in!
We doubled down on several HB plays as that bounce looked overdone and added a few new positions (see Wednesday Virtual Portfolio Moves).
The only oil play we dumped was the remainder of the PTR Feb $130 puts for $8.80 (up 291%) as it was way too much to leave in the table with all the other oil plays going to wrong way.
