Did Apple save the markets?
Apple earnings were, as expected, spectacular. Even more spectacular than we thought and many of us are caught "short" with callers that will be well in the money assuming they hold the $185 level they hit in overnight trading.
This is one of the dangers of hedging – sometimes you get clipped! We can take solace in the fact that our long positions are also well in the money and our gains are very well protected by our very happy callers. I should have been more bullish on them, as well as Google but both positions had run up too much, giving us too much to lose to be cavalier about our positions going into earnings.
I would have minded a lot less if I had taken my own advice in the morning to buy the DIA $136s (opened at $2.20, now $2.55) and the QQQQ $53s (opened at $1.05, now $1.40), but my computer crashed and by the time I came back on-line I had missed the opening bids and I was too mad to pay up. At least we got our puts off the table at pretty much the best price of the week and our open upside plays served us very well as we made another nice round of gains in our main virtual portfolios.
Fortunately we recovered from the morning glitch and had a great day during the intraday as we set very good breakout levels and let them guide our trading, leading us to make a bullish turn in the afternoon and getting out of our XOM puts at the dead bottom as they held $90 (we even took a bullish play on COP $85s for the bounce).
My general advice at 10:22 was: "BSC trying to mount a comeback, GS at $220 and BSC at $118 are the spots to watch but we’ve got the Apple/Google/SOX/Nasdaq move that I said would be the best chance of success for today so we can buy some tech (anything with 4 letters in the symbol actually) until 2 of those 4 turn back down. XXX"
It was a choppy day and the S&P broke 1,500 at 10:10, lost it at 10:33, touched it at noon, broke it at 12:50, lost it at 2:55 and, finally, broke back up at 3:30, where it finally consolidated above the line before taking off like it meant it. We added a bunch of new plays and talked about Apple all day and at 1:19 I’d seen enough to give up on the bear side, saying: "Very bullish action now, remember what I said about mattress plays going both ways if you are too bearish but I’m still watching the SOX, who are dragging a bit but I’m stopping out of puts and leaning back towards establishing downside hedges while the market goes up and letting my positions enjoy a bullish bounce."
That was fortunate timing as we got our last good dip of the day to sell our puts into and it brilliantly occurred to Loonie at 1:29 that the FXI calls would make a good play – something we often do on a Dow recovery.
Notice there is nothing in these notes regarding fundamentals, as they haven’t changed. At this point, we are in the mode of "What doesn’t kill us makes us stronger" as any bad news the market shakes off serves to feed they myth of invincibility required to sustain the rally. The problem with this game is that we are running with that market story while at the same time whining and crying for the Fed to come save us. It’s hard to be the damsel in distress AND the knight in shining armor – who do you kiss?
They’re still kicking around that story about the $100Bn "superfund" that’s going to bail out the SIV market and the bulls are brushing off signs of a slowing economy as "old news" that should be ignored. Personally, my box of things I’m supposed to be ignoring is pretty full but I guess we can always build a new wing if we have to!
I don’t put much stock in this rally until we really start retaking some levels. I want to see 13,800 on the Dow with 13,600 not even a bounce off Friday’s drop and 13,700 being "progress" at best. The Nasdaq needs to lead us to the promised land at 2,775 but we’ll take 2,760 if they can hold it for the day but the S&P has a long way to go to get back over the 1,520 mark, otherwise we’re probably not going anywhere. After 1,520, each 10 points should make us about 10% more bullish, assuming we’re starting at 60% bullish.
I know we’re going to get a rally for tomorrow’s open, Apple’s numbers won’t let it be any other way – the question is can we sustain it and build upon it or is Apple going to be the last of the big tech rockets that can boost us back into orbit? This was something I asked members yesterday when I said, where is the fuel going to come from to bring us back to all-time market highs?
We need a new story, the same old song isn’t likely to give us the same old results.
