What a very disappointing finish!
I'll summarize the indexes by saying is was a canary massacre – I'm far too disgusted to even go over it (and that's after waiting a day) so I'll just give myself another 24 hours to take a technical look at what we need to watch for next week.
Contrary to what you might think based on gold's jump to $667, the dollar did not go down. It retested 85 and failed but held firm at 84.88 as traders gambled ON the dollar ahead of the G7 (they must be readers!). I said in the morning "I’m spending the morning looking for some good oil covers but I just can’t find one I actually like.." and boy was that a good call as we didn't even get a good run into the weekend!
Our safety oil cover CFK did manage to gain 2% on the day, popping nicely over the 50 dma and finishing on a strong note. The rest of the oil patch, along with crude itself, finished flat for the week and in danger of looking toppy.
I'll give myself a nice pat on the back for hitting our HB plays right on the button as they all turned down nicely but my real call of the day was to play chicken little in the morning, closing with:
"Sorry, it’s not pretty but I think it’s a good idea that we take a cautious posture here as it’s a long way down if we don’t break orbit soon!"
Luckily, I had been getting more and more bearish all week and over 1/3 of our positions were puts so we actually gained ground yesterday! Of our 44 remaining open calls, we sold cover calls against 19 of them – that's pretty darned bearish!
The week started off so nicely too!
On Groundhog day we accepted the fact that we would be stuck in a rut for a while and I started shifting our mix of puts and calls to reflect that but the early part of this week gave us some false hope and I may have been a little wishy washy about the turn. I'm still a little bullish but punching the Dow below 12,450 will shake that right off if it happens next week.
Zman warned us that oil would keep bouncing around that $60 mark and we touched it 4 times this week! In case anyone's keeping track, here's how the NYMEX contracts (1,000 barrels each) moved about for the week:
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March Open: 230K (-123K) $59.89 (+$.87)
- 317K contracts traded Friday alone.
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April Open: 227K (+92K) $60.63 (+.90)
- 180K contracts traded Friday.
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May Open: 75K (+16K) $61.33 (+.85)
- 57K contracts traded Friday.
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June Open: 103K (+6K) $61.91 (+.80)
- 23K contracts traded Friday.
We say moved because, on the whole, only 9M barrels worth of crude were actually cancelled, the rest were bumped up the line to become another month's problem. What was the cost of rolling 114M barrels of crude from March to April, May and June? Even assuming that the owners of the March barrels were clever and not one of the roaches who paid $65 or $70 for their contracts, you're still looking at a $120M hit to move those contracts with another 150M barrels that need to be moved out next week.
Last weekend Robert X. Cringly gave us a $3,000 price target on Google. Needless to say he's off our list of favorite analysts! GOOG had a terrible week and they do look like they'll be testing Cramer's $450 bottom prediction but what will the bounce be?
Our Monday educational segment focused on BOBJ, and it became a good lesson in how a spread can be better than a call as the March $40s that were (in the example) bought for $660 finished the flat week at $460 but our recommended spread of the April $40s and Feb $40s for a net of $460 finished the week at $600 (up 30%). We will continue to track this next week on the public site but spreads dominated our member picks as well during this very choppy week!
On Tuesday the President dropped a $2.9T bombshell on us with a budget that was still $239Bn shy of balance but the markets held up pretty well and Wednesday even gave us some small but nice gains. Ben Bernanke raised the issue of the "Wealth Gap" and Steve Jobs called on the recording industry to give up this copy protection nonsense.
Tuesday morning I said: "There is literally nothing I like today outside of the running items we are trading and tracking in comments – we need to see how today plays out and get past Bernanke’s speech but watch out if we start to fail our levels!"
On Wednesday I noted that would could "break into some new highs, not with a bang, but with a whimper" and whimper it was as we scratched out a few gains but with very little conviction. We took a nice, timely exit on some working oil plays after an inventory dip and reentered some new ones on Thursday's bounce although I dubbed the market action "the worst rally ever!"
We decided to take the first leg of an eventual spread on the VIX with some very good timing as it jumped 10% on Friday and our Nov 13s gained a quick 10% to $3.60. I'm rereading my other Thursday prediction: "Patterns are forming up in Asia as they too are holding the high ground, albeit 40% higher ground than we are holding. Don’t worry, either we’ll catch up or they will collapse biblically" and I sure hope I'm not right on Monday!
UMC teamed up with MU to take the legs out of our tech rally and not even Tinkerbell could save us on Friday as the semiconductors led the markets lower. On Thursday I said "Let’s keep an eye on the HB’s today as HBC had a disaster in it’s sub-prime virtual portfolio with a 20% projected loss on bad debts" but by Friday we were sure and jumped on top of the HBs, helping us to end up with a very nice week on the whole.
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We had no reason to rush to close our open positions as we wisely took care of the shorter ones last week so we got the month off to a great start by closing out 23 winners and just 5 losers for a 75% average gain on 18 average days held.
Our losers were MRVL (-70%), PTR (-20%), QQQQ (-17%), XOM (-10%) and TSO (0%).
We had to kill our very successful RIMM Mar $130 puts (1/5, up 280%) as well as our PD Jan $120 puts (11/22, up 437%). We got stopped out of our WM Jan $45s (11/27, up 50%) and we rolled our BEAV July $25s (12/1, up 59%) as they were just too in the money, all of which knocked our remaining long-term virtual portfolio's gains down to 46% but generally in great shape with just 11 out of 33 positions down and none by much and ALL because we didn't sell calls against them.
Yes ALL. The only losses we have in the long-term virtual portfolio (and only 2 over 20%) are from being greedy and not following rule number one of the LTP: "Sell early, sell often." It is better to take a hit on the way up than a loss on the way down as this virtual portfolio is meant to protect our investments so we can play, not to be the investments we play with! I'll be reviewing the long-term virtual portfolio separately for the members site this weekend so I won't waste time on it here but, on the whole, we're still in pretty great shape as we took off some of our biggest winners with only a 10% drop in our gains of last week.
Remember, no gains are real until you cash them out and, even then, only if you are smart enough not to risk them all again on the next great thing!
Our remaining 70 open positons have 22 calls that are down more than 20% with 5 down more than 66%:
- GOOG Feb $530s (2/1), down 92% – hopeless
- MRVL May $22.50 (1/12), down 82% – these might be OK because we sold Mar $20s against so we just have to wait and see.
- MO Feb $90s (2/1), down 80% – gosh I really thought these would come back!
- STZ Apr $27.50s (1/4), down 71% – if it doesn't bounce here ($24) it's over.
- DELL May $27.50s (12/20), down 66% – we should have sold into the initial excitement!
15 of our calls are still positive but it's our 16 positive puts that pulled our fat out of the fire yesterday and only our RTP $190 puts seem totally hopeless but that's what I said about the MA Mar $100 puts (1/29) yesterday morning and they ended up with a 144% gain…
We have a really good mix of puts and calls in the short-term virtual portfolio and we'll adjust the mix next week but we added a LOT of length last week so having an average gain of 16% with just 6 Febs is not the worst position to be in. If it weren't for 10 bad (so far) Apple and Google positions, I'd actually be very, very pleased with our short plays!
The updated virtual portfolio will be on the members site over the weekend but I'm a lot more concerned with managing our long-term positions as another dip can take away some good sales opportunities next week (although it would present some nice buying opportunities!).
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Here's an interesting tidbit that came to my attention: There's another disenfranchised group of citizens who are getting ready to march on Washington and it's going to be a very short walk – it's the citizens of Washington, DC. They are fed up with not having a Senator or even a Congressman to represent them (582,049) when Wyoming, a state with a population of 493,782, has it's own Congressman and TWO Senators! Is this taxation without representation? You would think this would outrage Republicans but, since DC would very likely be a Democratic district, expect this bill to be slapped down hard!
