Wow, that was a wild day.
We were sorely temped in the morning and the afternoon but it the exchanges selling off (NDAQ, ICE, NYX) at the end of the day really bothered me as that would seem to be a sign that traders are seeing a prolonged downturn that will dampen trading interest over the long haul. This can not be a good thing.
While we finished spot on my 13,000 floor, it's a shaky old floor and the Nasdaq couldn't hold our critical 2,600 mark and they are supposed to be giving us leadership! Very good for my ultrashort play on the Qs from this morning but not good if you like your markets to be less depressing…. As I pointed out to members this afternoon, if it wasn't for a huge rally in the energy and commodity sectors, we probably would have been down 200 points.
The dollar made a new closing low at 75.21, gold closed at $791 and oil came roaring back to $98.03 as the NYMEX traders are chomping at the bit to get a $100 handle on crude on tomorrow's inventory report. We are again being given a chance to short CVX and XOM but hopefully they will go crazy and break up first, giving us a nice fat $90 target to short into. Exxon investors in particular seem to forget that XOM is a refiner and $100 oil isn't actually that good for them, especially with gas prices under $4.
I have little more to add to the day's comments from the member section, the highlights of which were:
- 9:42 – Financials not participating in this rally at all. Oil going nuts on expectations of another Fed cut so now we have to worry about the 2pm minutes killing the rally, not starting one.
- 10:15 – Upside failures to look for now are 1,450, 13,100 and 2,625. The SOX are still miles from stable, the Russell needs to hold 750 and I don’t like GOOG having trouble at $650 so I’m 1/2 covering open GOOGs with $650 calls here and will cover the rest if it slips below $645 (again, arbitrary numbers but better than nothing). AAPL holding $170 is now a must as is GS $220. SHLD $114 is very disturbing and no one seems to care that oil is at $96 but I do. On the whole, I am slowly but surely covering up here as I think this (up 100) might be it and I KNOW I want to be fully covered by tomorrow so it doesn’t leave me much time to be wrong does it? XXX
- 10:24 – I think that may be it kids – I’m stopped out on DIA calls and watching very carefully.
- 10:38 – That might have been a premature top call as I still see a lot of buyers jumping in. Gold stocks coming back nicely but to much extent this is another weak dollar rally, not necessarily something that will last but holy cow look at those energy names come back!
- 11:33 – Builders heading south.
- 11:45 – Home builders being gang raped – very ugly. SHLD making new year lows. Cover cover cover!!!
- 12:53 – Wow, isn’t it amazing how fast all those gains can evaporate? The national mortgage market cannot function without a SOUND FRE/FNM, Greenspan warned they were out of control years ago and everyone brushed him off but this is the catastrophic event he foretold. If they blow, it is very over. You guys say the gvmnt won’t let them go down but how? We’re talking Trillions in transactions with possibly hundreds of Billions in damages – what’s the solution? Run up more debt, print more money, raise taxes? None of those things are exactly market boosters other than print more money (lower Fed rates) and we see how that’s been working out…
- 2:05 – Fed Minutes look meaningless to me. They sure don’t want to cut and they sound so out of touch saying there is no inflation I think it blows their credibility.
- 2:09 – OK now we’re going to see how low we can go.
- 2:39 – I’m getting the feeling we’re being flushed here based on the sells I see crossing my screens – there’s nothing I want getting killed, that means someone is buying the 100+ stocks I like which is too coincidental to be random so I think we’re getting some rotation but not a real sell-off. I’ll let you know if this changes but other than AMGN and ERTS there is just a lot of crap being sold at the moment.
- 2:50 – I’m setting tight stops (.25) on my higher DIA $133 puts and buying some $130 calls for $3 and a 2:1 put spread into the holiday (currently 400:0). Everyone so bearish – sometimes everyone is bearish because it’s clearly over so do be careful but, in this particular case, there are too many people putting in way too much effort into making us bearish so I’m not buying it.
- 3:08 – Now the good stuff is selling off too, nasty nasty…
- 3:26 – We need a resolution trust but that tends to help poor people and the administration has already said there is no way they are bailing out homeowners even though it is the logical place to apply the band-aide. C/ ANY spread – anything you can roll down where the new money from the caller pays for your roll you be executed in a down market, you can’t play everyhing as if it’s all coming back next week. NDAQ selling, that’s a bad sign, signals traders fell long-term downturn may be in the cards. Very bad if other exchanges follow down.
- 3:30 – Markets coming back a bit now. Finally sinking in that the rumor de jour (CFC) is false.
- 3:43 – ROFL dow up 88 again – the market is such a scam!
- 3:56 – Tomorrow will be a very wild low-volume day.
- 4:02- Thank goodness it’s a short week because I’m exhausted already!
This was the second time in 2 weeks I've had to say "Cover, cover cover" and that cannot be a good sign. Perhaps I was overly nervous going into a long weekend but this market took a hell of an ugly turn mid-day. We didn't buy into the afternoon rally but it did seem like BS as it was sudden and reasonless. I think it was yesterday when I said I would rather be well covered and miss a 200-point rally than go into this weekend unprotected so that's the strategy we followed.
Much like our government's nuclear "Duck and Cover" policy in the 50s, a few callers aren't really going to help us if it all hits the fan. This is why we have our trusty mattress plays and we need to be ready to deploy them at a moment's notice in this kind of market. I'd like members to have the next level DIA put written down or loaded in your system and ready to go at all times as we are skirting on the edge of a bigger breakdown. The bulk of our positions are generally bullish, albeit well covered – it's the downside that concerns me.
Hopefully yesterday everyone got a good idea of how vulnerable their positions were in each direction as we had a 150-point gain followed by a 250-point drop followed by a 200-point gain. The VIX finished the day LOWER and this is a perfect day to point out that the VIX does not really measure volatility so much as negative sentiment and it's a very important distinction. If a day with 600 points worth of up and down moves doesn't qualify as volatile, then we really do have to reconsider the definition of the Volatility Index.
When we give our virtual portfolios a nice "stress test" we can fine-tune our index puts and calls to achieve a better neutral stance when needed. Notice at 2:50 I decided that our 400:0 put to call ratio on the DIA was excessive in relation to our covers (that is because I substantially increased our covers during the day) so we started picking up some calls to offset a major upside move. We were lucky enough to get one just 30 minutes later but it was too fast and too silly to profit from so that's the set (400 DIA $130 puts and 200 DIA $130 calls) we're likely to take into the weekend.
Those QID's from this morning worked out great so you can expect to see a lot more activity there once I get comfortable with the spreads. Perhaps if we all start trading them we can make our own market! I'm effectively done for the week as I'm leaving around noon so I'm not expecting many virtual portfolio changes (other than tinkering with the index puts and calls) and I will post a set of what I hope are balanced virtual portfolios in the morning.
