One of the great things about general index protection is it let's you ride out the dips without messing around with your calls.
Today was a perfect example of that as we held on for a very mild dip, led down by commodities, which we haven't been playing to the upside (other than gold) anyway.
We liked the market action right out of the gate as I was impressed with the way we held up depsite widespread sell-offs in the energy and mining segments. The S&P closed flat, after testing both 1,555 in the morning and 1,550 later in the day, which is pretty good coming off a week in which the index gained 2%.
It was a very low volume day all around and there wasn't much that could be read into the action but many of our old favorites, AAPL, GOOG, RIMM flew on to make new highs, keep the Nasdaq positive for the day. Oil dropped 2.8%, finishing at the days lows (the 2.5% rule!) but Ryder's outlook was so gloom and doom it was hard for me to get all gung-ho about the markets: "Economic conditions have softened considerably in more industries beyond those related to housing and construction," Ryder said in a news release. The softer economic conditions are expected to continue through the fourth quarter, it said. This has to be somewhat concerning coming into earnings season.
I'd love to say earnings will tell the story but we get the Fed minutes at 2 pm tomorrow and everyone is going to want to read those tea leaves and we may have to be fast on our feet tomorrow afternoon if this cut looks like a "one and done" event as additional cuts are already baked into the all-time highs of the Nasdaq leaders.
We were a little concerned with the steel sector's sell-off. At 10:38 I noted: "All steel taking a hit, not generally the sign of a healthy economy that the rest of the market (other than transports) is indicating. It seems from the pattern of investing the last few days like the projections are that we are all going to go home, lock the doors and play with computers and video games all day as that’s the kind of rotation I’m seeing. It also seems like we’ll be getting some fast food – check out YUM!" Worrying about steel, of course, draws a penalty flag on the field for illegal use of logic – which is a big no-no in this market as we need to learn to ignore all negative signals!
Yum did come through for us with great earnings (on China expansion!) after hours but I'm still a little nervous and we got out of our October contracts and placed tight stops on the November ones as we have little tolerance to ride out a major correction with closer contracts. We pulled the $25KP back to $9,600 in cash with 22,000 in well-hedged positions remaining so I'm very pleased with our start there.
We will be rolling the AMGN Jan $52.50s out of our Short-Term Virtual Portfolio at $6 (up 100%) and converting it into 10 AMGN Jan $55s at $4.40 in the Happy 100 virtual portfolio with a goal of having 25 contracts if BTK holds up this week. We caught IBM popping right out of the gate yesterday and dumped our $115 caller with a small (.20) loss and switched to the $120 caller at the day's end as how could we turn down $1.70 for a $2+ out of the money call with just 8 trading days remaining?
Fed and earnings tomorrow so not much else matters. Gold had a mild pullback to $738 but you'd think it was $638 the way the miners started tanking. So far no pullback on MRB or NAK to give us a reentry but we have several opportunities to add to our existing gold calls. The dollar came on strong, providing strong is the word you use for making a .46 gain after dropping 13 points in 18 months. There is very little upside resistance until 80, the spot where we failed our 3rd bottom test on Sept. 7th. If we call 80 firm support, we have 2.5% resistance at 78 (just bounced there) and upside resistance at 82, which just so happens to now be the descending 200 dma. I don't see the dollar making a real turn until it proves itself down at 76, perhaps 75 – a level CBs are too nervous to allow right now.
With 48M barrels rushing to Cushing this month, traders are nervous and selling off into tomorrow's inventory report, which we will be doing live on Market News First at 10:25. $77.90 is my 5% line in the sand on this one and below that we will certainly see a retest of the 50 dma at $76 BUT, below that, my $60 by January 1st prediction begins to take shape. We are now back to the same price ($78) where we were on 9/11, when I said: "…This run-up is ABSOLUTELY baseless. We’ll get into this on the weekend but I’m hoping for some nice runs in the oil patch that we can short into but let’s be really careful around oil inventories as we may still be a whole month away from the breakdown, which will need a dollar recovery to begin."
Well, it's been a little less than a months and we had our run and we shorted into it (already taking huge XOM profits off the table along with several other nice shorts) and we'd love a little bounce here to short into but now I'm worried it isn't coming and the energy sector will enter the proverbial "house of pain" before we get a chance to position ourselves. Energy has been nothing, if not resilient and we are currently very light on puts ahead of inventories, hoping for a nice run-up.
Congrats to Google for breaking $600, putting our open Jan $590s (9/19) well in the money and up 149% so far but we'll need to take some of that off the table, roll and cover as it's just too much to risk into earnings. I'm not worried about our various covered positions in Google but Apple is starting to give us problems as they've out-gained the comfort zone we have on the spread so let's focus on fixing those too.
