Ever feel like you are stuck in a rut?
The markets certainly seem to be stuck in a rut (sometimes called a trading range) that they just cannot seem to get out of.
The Dow is treating the upper end of this range, currently 12,636, like an impenetrable barrier but, on the bright side, has not tested the lowest end of this rising channel, currently 12,400, since July.
I’ve been saying since New Year’s Eve that I won’t be able to get all gung-ho bullish until we get a nice pullback, and I have been lazily targeting 12,300 as that’s where it (the lower end of the BBand range) was at the time but continued market strength has pulled that low end up another 75 points and I can now say that a bounce at 12,375 would be a hugely bullish sign.
This may not make you very happy if you are holding a lot of calls but, if you are not very, very hedged then you sure haven’t been trading with us the past few weeks!
While it’s been frustrating to have a virtual portfolio where half loses money when the market goes up and half loses money when the market goes down, it’s better than having had all our bets in one direction or the other!
Today, as predicted, we jettisoned the commodity thrusters that took us up to 12,600 (by the way, I use the Dow because it’s an easy reference, even though the NYSE and S&P are far more directly affected) but jettison may be too strong a word as they are only sputtering out right now. When your booster rockets start to run out of fuel you need to dump them cleanly or the weight of them, as they become useless lumps of metal attached to your ship, will prevent you from going any higher.
So it remains to be seen whether we can finally dump the oil, metal and housing stocks while we engage the SOX drive that lights the Russell, NYSE and Nasdaq thrusters that will take us up and out of the atmosphere, into higher orbit. Until we get a successful separation from our lagging sectors – we are still in grave danger of crashing back to earth!
Yesterday we had a check-list, hitting all the tops I set for the week on Monday, today we tested all the bottoms I set on Tuesday (I will repost and comment on each):
- Dow 12,400 represents a 50% retracement of our run-up from 12,200 after Thanksgiving’s test of that level but below that and we are quickly moving down to my 12,300 target for this pullback.
- we held 12,500, stop being babies!
- S&P will be a better indicator and 1,420 needs to hold or we will see 12,300 on the Dow!
- we bounced off 1,420, but only a little…
- NYSE 9,100 is not impressive and if 9,000 doesn’t hold then we could be looking at a critical market failure.
- as with the Dow, 9,150 is nothing to whine about!
- Nasdaq is already failing and without a bounce at 2,425, 2,400 quickly becomes a huge danger zone which could trigger panic selling if crossed.
- we bounced off 2,430, I really don’t know what all the fuss is about…
- SOX have led the way down and need to lead the way up. 450 must hold or we’ll be visiting 400 before March.
- held 455, much better than Monday!
- Russell 780 has to be retaken or we will test 760, 740 and 720 very quickly!
- 784.19 – have a little perspective people…
So we "crashed" again but ended up higher than we were on Tuesday, after our last crash, Tuesday we had a slight bounce, Wednesday a "rally" (I feel the need to repeat this because everyone seems to forget any level that’s more than an hour old) and today we crashed again. Like it says on the label – "Wash, rinse, repeat."
Oil is stuck in it’s own vicious cycle as the traders roll ever more ridiculous amounts of contracts into the next month’s delivery and have blown this month’s March delivery volume over 400M barrels. There is an old saying that "It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God" but I say "It is easier for a trader to make money shorting oil than it is for these suckers to take delivery on 400M barrels of crude in Cushing, OK." Sure it may not be as catchy as Matthew 19:24 but it will make you more money which, ironically, will make it harder for you to enter the kingdom of God – another vicious cycle!
Gold got a super boost as the Europeans thought Bush was going to declare war on Iran (they do think he’s that nutty) and OPEC dumped dollars to buy gold and Euros, hoping to push down the dollar to support the price of oil. The funny thing about this is that it turns out they don’t have that many dollars, as they spend it as fast as you give it to them, and they may have overplayed their hand already as their inflow of dollars is already down over 20% from when oil was at $65 (just last month, actually).
Again, the lack of a good, Jewish accountant causes OPEC to make very poor financial decisions!
Despite a massive effort to reign it in, the dollar finished at near the high of the day at 85.12, after briefly breaking over the 40 wma of 85.16, which is rising on dollar strength. 85 represents the 5% rule down from the 2-year median high range of 89.25. The dollar dipped down another 2.5%, touching a bit lower than 82.87 but quickly retested and broke above it on 12/8 and is back at the 5% line again. Breaking through this level would naturally take the dollar to 87.25 but there are so many people short on the dollar that we’ll probably get a mega squeeze that takes us to 90, which will decimate commodities – which is just what we need!
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Kudos to David Gaffen of the WSJ for telling it like it is on the housing market with this quote:
"We’ve heard of trying to sugarcoat things, but this is ridiculous. The National Association of Realtors said sales of existing homes just ended their worst year since 1982, and NAR’s chief economist David Lereah’s comment is this: “Despite all the doom and gloom stories and dire predictions over the last year, 2006 was the third-strongest year on record for existing home sales.”
"Now there’s an assessment that might even make Baghdad Bob blanch. Sales for all of 2006 dropped by 8.4% to 6.84 million, down from a record 7.08 million in 2005. That’s the sharpest drop since the 17.7% decline in 1982, when Ronald Reagan was occupying the White House. His first term. Roger Moore was playing James Bond."
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While I reduced many positions as we dove through our levels early yesterday, I didn’t close very many out completely as the stops I set were simply not triggered as the calls maintained surprising strength, almost as if someone thought this drop was engineered to chase retail investors out…
We’ll see tomorrow but usually when I set a bunch of stops I lose a bunch of positions so this just seemed a little strange but the same thing happened on Monday. I guess that’s why the picture at the top of the column seemed perfect for this week or, going back to Alice in Wonderland – "Forward, backward, inward, outward, come and join the chase! Nothing could be drier than a jolly caucus-race. Backward, forward, outward, inward, bottom to the top, never a beginning there can never be a stop to skipping, hopping, tripping, fancy free and gay, I started it tomorrow and will finish yesterday. Round and round and round we go, and dance for evermore, once we were behind but now we find we are be-forward, backward, inward, outward, come and join the chase!"
Make no mistake about it, I am ready to dump the whole virtual portfolio but I’m still hoping I won’t have to:
I flipped the AAPL $80s (12/17) and $85s (12/26) into the July $85s for $10.80, taking a $1.40 loss forward.
CY $17.50s (1/23) made me so nervous at $1 (up 82%) that I not only got out but I took the $17.50 puts for .25.
We made a quick 36% so far on LVS $105 puts ($3.30 entry) but I took 1/2 off already at $4.50 as I don’t trust this thing!
I took 1/2 the MSFT’s off the table ahead of earnings, better safe than sorry as they were both big gainers despite yesterday’s drop!
TXN Apr $27.50s (12/11) stopped me out at $3.90 (up 16%) but I’m thrilled to be even as these were a rollover from the Jan 27.50s that were a nickel behind at the time. I would not have taken them off but we also have the Apr $30s (1/11), which are well ahead, as well as the Jan ’09 $30s (12/29) which are also doing well.
YRCW $40s (1.4) weren’t worth risking as they fell back to $2.40 (up 71%).
I didn’t catch everything in the virtual portfolio update as it was a very busy day but I will catch up over the weekend. I’ve been saying all week to watch levels and set stops and I’ve taken half of almost every position off the table this week as I take my own calls to lighten up very seriously.
