I told you we would have to grind this one out!
That was a real squeaker – I didn’t think the Dow was going to make it at the end there… 15 components went down with just 13 positive with mighty mighty CAT leading the pack with a 2% gain and AA leading the losers by giving up the same. Thanks to a little bit of Dow magic though, $42Bn CAT carries more than twice the weighting of $28Bn AA in the index (because it has a bigger share price) and the Dow managed to eke out a .56 gain for the day.
On the whole, it was a nice positive day:
- Dow held 12,666 after testing 12,700.
- Transports need just 3 more points to get back over 2,875.
- S&P barely cracked 1,450.
- NYSE took out my day’s target by 3, at 9,353!
- Nasdaq made good progress and 2,500 is just 10 points away.
- SOX jumped right through the 50 dma at 471ending just one point ahead.
- RUT 816 is just the leadership we need!
How much does it cost to roll 32M barrels out of March?
Well, selling 32M barrels out of March cost the NYMEX boys $1.17 on that contract but that just leaves 304M barrels rushing to Cushing on the 20th. April was able to absorb 24M barrels after playing hot potato by trading 134M barrels back and forth to bring that total up to 171M barrels – more barrels than can possibly be delivered and we haven’t even activated that contract yet! Even if they "only" roll 230M barrels out of the 304 open March NYMEX contracts, that will put us over 400M April barrels by Feb 20th – what a predicament!
4M barrels found their way to May (66M) so they "only" dropped $1.07 but June fell $1.17 to $59.58 even though they finally broke 100M barrels. We had a good old time shorting oil today made even better by the side sport of watching CNBC spend the whole day trying to figure out what was going wrong. As analyst, after analyst came in to tell us how scarce oil was and how dire the geopolitical situation, oil went down and down and down in the afternoon, triggering a nice little sell-off in our target stocks.
As I said this morning "I hear $56 calling for next week, but let’s break through $58.50 first before we start betting on it." We got our break below $58.50 but we didn’t go crazy, we mostly day-traded ZMan’s picks for the day plus a couple I threw in served us very well –
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BP $65 puts were done at $1.75 (up 21%) as we didn’t want to risk the overnight.
- EOG $65 puts (2/1) gave us an exit at .85 (up 70%).
- PBR Mar $95 puts (2/6) were taken off the table at $3 (up 50%).
- XOM $75 puts were picked up way after inventory for just .60 and finished at .95 (up 73%).
We still have our watch list and I fully expect to use it over the next week but we are exercising caution into the weekend (and we still have quite a few puts just in case).
Don’t blame the dollar for oil’s decline, it has problems of its own as we head into next weekend’s G7 meeting. Perhaps it IS the G7 meeting itself that is causing concern as German finance minister Steinbruck said that "hedge-fund oversight should be part of G-7 discussions" or perhaps it was the fact that the ICE will open data to CFTC regulators – nothing makes those roaches scramble like the light of a Federal investigation!
"ICE expects to provide daily reporting at the firm, or trader, level in the near future," said Kelly Loeffler, an ICE spokesman. Currently, ICE and other exchanges only report at the clearing-member level, allowing for all sorts of shenanigans!
Gold was again rejected at $660 and copper was rejected at $250 and this could turn ugly fast if the dollar somehow recovers.
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Our educational play of BOBJ had earnings today and it turns out to be a great example of why I don’t like open calls (or puts) into earnings!
The earnings were just what I expected, good but not so great as to make the stock run away. After a nasty dip, the stock recovered to flatline at $38.71, just 1 penny higher than when we looked at it on Monday morning.
The 4 March $40 contracts that were discussed but not recommended were a $660 investment and held their value yesterday but dropped to $420 today ($1.05 each), losing 33% of their value as soon as earnings went past. The trade could have been gotten out of for $1.35 for the first half hour of trading, which would have recovered $540 of the investment.
Was this better than having taken $4,000 to buy shares of BOBJ? So far, no. If you held the shares through the dip to $37.82 in the morning (just 2.5%) you would be essentially even now. Remember, our goal here is to make $400…
However, on the trade I did recommend, the 4 April $40s dropped from $860 ($2.15 per contract) to $1.55 for a loss of $240 while the Feb $40s we sold for $400 ($1 per contract) came down to .35 for a $260 gain, up $20 for the total trade. It’s not sexy but it sure beats a 30% loss on the open call and it’s also better than tying up $4,000 and sweating out the trade…
My total exposure on this trade is $460 and we will continue to follow it through as I am still confident in the stock as long as the Nasdaq holds up.
