Testy Tuesday Top Off

I don't know what to make of today…

The Dow had a good start but pulled back and couldn't hold 13,100 BUT the Nasdaq had a pretty good day BUT couldn't hold 2,525 and the S&P made a nice break back over 1,450 BUT couldn't hold that.

In comments this morning I reminded members: "Market future – I said last week (or the week before) that it’s very hard to be short when the Fed is stepping in to stop a 10% correction from happening. Now we have US Senators (head of the Budget committee no less!) freaking out just because a respected Fed Governor says maybe we should wait until the Sept 18th Fed meeting to make a decision.

"That’s why I’m saying cash, not shorting. We need to let the market find a bottom but if the Hang Seng can be thrown up (and I use that term because that’s how the shorts must have felt) 15% in 3 days then I wouldn’t be surprised by any move the market might make but I seriously have no idea if we will go up down or stay flat right now and I personally would rather wait a week (especially this no-data week) to see how things shake out than play for the sake of playing."

Oil dropping $2 mid-day forced me to cover our DIA Sept $130 puts with additional DIA Sept $132 calls at $2.95 (we already have the Oct $131 and $133 calls so now it's a strangle) as I have often said that oil drifting back to the mid-$60s is the one thing that can reignite the markets.  Every dollar per barrel we save is like $180M a day thrown back into consumers' pockets (as we pay for our global 90Mb/day habit in several mark-ups).  That's $4Bn a month of discretionary consumer spending that is released every time oil gives back $1 of the $30 per barrel they have stolen from us for the past 2 years – almost $1Trillion of excess profits that have been sucked out of the global economy and placed into the pockets of the energy sector – not to mention into the hands of governments who hate us!

We haven't added any puts (other than CFC) and we've stopped out of virtually all our existing puts but there are very few short-term calls left either, so I guess we are looking for a recovery but we're not sure when.  TGT had encouraging numbers and left guidance intact and COST put up huge numbers, which means the consumer may not be dead – just WMT's business plan…  WMT's poor 8/14 earnings clouded a strong July Retail Sales Report, sparking a 400-point drop in the Dow.  If this is why we broke support at 13,200 (don't blame sub-prime, it's old news) and we retake it this week, we may be looking at that level as very firm support.

Happy Trading, Option Sage and I are keeping a close eye on the S&P and the Nasdaq and the S&P did break the 10 dma so now it's up to the Apple-led Nasdaq (we need Google to come play too!) to get back over 2,525 and stay there:

I still think the overriding fundamentals are very dangerous and I won't do anything without being well-hedged to the downside BUT, after reviewing Happy's trades for the past 2 days I have decided we can not sit out while we are presented with such a smorgasbord of bargains.

While I've been sitting in cash Happy has plugged away with his normal (and very successful) selections and his day's closings were stunning:

• ZOLT Sept 40 calls, LVQIH, at $3.6, +44% (partially out)
• NOV Sept 120 calls, NOVID, at $4.2, +23.5% (partially out)
• ZOLT Sept 40 calls, LVQIH, at $3.6, +43% (all out)
• RIMM Sept 240 calls, RFYIZ, at $16.8, +118% (all out, post split, sold Sept 80s at $5.6)
• BIDU Sept 190 calls, BDUIR, at $16, +119% (all out)
• GOOG Sept 220 calls, GOPIV, at $8.2, +17% (more out)
• POT Sept 80 calls, PVZIP, at $6.4, +6.7% (partially out)

This is an amazing performance in any market and we have far to much cash on the side to not take a few swings when so many good pitches are being thrown to us.  We nibbled on Google (made 25% in an hour) and VLO (ahead of inventories) but, for the most part, we took plays off the table, including half our very successful CROX and GSKs from the $10KP, leaving it with $11,761 in cash and $4,440 in securities – I think it's time to make a few plays!

We're not going to go crazy but 90% cash leaves us lots of room to play without over-committing.  I'll be bargain hunting in the morning so expect lots of trade ideas on the member site as my watch list is now teaming with nice looking opportunities. 

There are a few things we'll be looking for:

• I want to see the VIX confirm an up move in the Dow
  • Vix back to 20
  • Dow back to 13,250
• I want oil to stay below $70.  If inventories are bearish, we could head for $66 very quickly – that's close to $1Bn per day back in the hands of consumers!
  • I've often commented about the glut of oil in Cushing and today was a day to pay the piper.  My comment this afternoon was:  "Oil – today is Sept expiration day so no surprise that September barrels are being dumped like crazy but the Octobers and Novembers are getting killed too. Right now the Octobers are .20 lower than the Septembers so we will get an even lower open tomorrow and December is just bloated with 198M barrels already on order (about 150M more than a normal 3rd month) so it will be very interesting to see what happens with almost 650M barrels on order over the next 90 days (150M more than usual). I think with no hurricane action we could get on mofo of a correction between now and October’s close."
• I would like gold to stay at the evil Goldilocks level of $666.
• I would like the dollar to stay above the 50 dma (roughly 81.50).
• I want to see Europe recover and Japan to get going again (China is already flying)
  • Tune in tomorrow for the big chart!

Did we close these positions too soon?  I'm already wishing I still had the Intel's and T's but we'll see soon (we just need to click our heels together 3 times and remember that Cash is Always Good!):