Weekly Wrap-Up

I think this image from last week's wrap-up kind of says it all:

Last week we talked about why we were going to go down, we even talked about when we were going to go down but I sure didn't expect the suddeness and severity of the reaction to the Fed on Tuesday.  We thought we'd have two more hours!  How can we have confidence in a market that can drop over 350 points in 100 minutes over something Warren Buffett was just quoted as saying is meaningless in his investing decisions?

I have little of note to add this week as I said it all last week when I felt it was important to warn people to take the money and run ahead of the Fed no matter what nonsense the mainstream media was trying to shove down your throat.  This week all we can really do is perform an autopsy at what is very possibly only the midpoint of a major correction.

Monday morning I asked, as the markets continued higher and higher: "Am I being a Scrooge or just a cautious investor?"  It's hard when I'm trying to write for a broad audience as I know some people are more bullish than others and every strategy has it's own merits but, on the whole, I have to go with my gut and, after dissecting the Paulson Plan, I decided I didn't like it which meant at least half of the 1,000-point rally we just had was a sham.  We were ready for Monday's gains as I said prior to the day's 100-point gain: "In my weekend reading I find my negative sentiment has a lot of reenforcement which makes me think there are still some bears left to capitulate before we head back down so let’s look for this rally to continue, probably through the Fed."

By the end of the day on Monday I was already disgusted and we started shorting early.  We found a great video (part 2 here) that echoed my feelings about the crisis and I closed that day with: "I think there’s a lot more money to be made on the short side of this Fed meeting and I’m willing to say now it’s going to be literally 2,750 or BUST on the Nasdaq this month so tune in tomorrow to see how close we can get it."  The Nasdaq peaked out at 2,734 at 2:14 on Tuesday before dropping almost 100 points in 100 minutes.

Watching our levels has served us well in a crisis and Stock and Option Trades gave us an excellent series of Fed day charts which gave us a good heads up as we couldn't break through those resistance points.  The overall advice in their post was dead on: "As Sage pointed out yesterday the worst the can happen if a big bullish move occurs is that you don’t make as much money as would otherwise have been the case but the worst that can happen if you have no hedging is profits that may have taken months to accumulate are wiped out."

Tuesday morning was absolutely the right day to short XOM, and pretty much everyone else for that matter.  Not only did we not get fooled agains but we used our lessons from last Fed day to take a lot of timely short positions.  Tuesday night we discussed the undelying housing crisis and we predicted the bounce AND the criical 13,500 line for the next day.  On Wednesday morning we were treated to a completely ridiculous pre-market run that had us open at around 13,700 and it was great for us as we got a chance to sell everything we missed selling the day before and short everything we failed to short back near the highs – had the "rally" lasted more than 11 minutes, we could have shorted a hell of a lot more positions! 

By Wednesday night it was painfully obvious (and Captain Obvious was our mascot of the week!) that the market was not coming back but we had such a fantastic day we really weren't too concerned.  On Thursday morning inflation rears it's ugly head with a 3.2% rise in the monthly PPI and the markets held up but we covered on the end of day run, which again worked out great and Thursday night I reviewed my bearish position which was based on upcoming data and earnings that led me to believe that fund managers would not want to go long into the weekend.

On Thursday night I said about the energy sector: "Hopefully we’ll get a pointless rally today so we can short into the weekend as that party is over and the oil traders are just too drunk to know it."  Friday morning we were ready for anything and made a lot of really good choices, giving us a great day of intra-day trading and putting us exactly where we wanted to be for the weekend.

Needless to say we had a fantastic week!   My goal for the week was to start getting back to cash ahead of the holidays and we are making great progress there even as more cash comes in the doors. 

The Short-Term Virtual Portfolio had an astoundingly good week as we began the week with a very uncharacteristic 300 naked DIA and 400 naked SPY puts plus another 200 DIA puts that were covered which we, of course, uncovered on the Fed day run-up.  Since we didn't have a single index call to offset them, the profits were extreme!  We also ended up with a shocking amount of XOM puts on Fed day and all that led to a 10% gain on the total virtual portfolio, one of our best weeks of the year.  Cash has gone up from 78% to 83% but the actual amount of cash has gone up over 20%, so it was great progress as we head into expirations.

Slow and steady wins the race with the Long-Term Virtual Portfolio, which gained another 10% this week.  Last week we were brave and left a few positions uncovered but that was not the case this week where we'd rather be paying off a few callers than risking another leg down unprotected.  The LTP, by nature, will not be going to cash but is at 59% cash at the moment and should break the $2M mark by expiration day.

Our $10K Virtual Portfolio had a nice week too, posting an 8% gain and finishing the week at $12,333, which is just fine after our first crazy month. 

The $25K Virtual Portfolio now stands at $139,507, up $16K in this crazy week and I did a detailed report of it in this post so we'll just skip ahead and say we're very pleased and will be more please with more than 61% cash at week's end.

The Happy 100 Virtual Portfolio still stands down 16% and I see no point in keeping the January positions open so we will be killing this virtual portfolio during the week.  It was set up to take advantage of a market breakout and we got no such thing.  We need to learn to take our losers off the table and this virtual portfolio simply isn't working and we need to make room for another strategy.

Our Stocks Virtual Portfolio held up all right at 84%, down just half a point on the week.  MRB was a big disappointment and FNF and FRO will almost certainly be called away so I'm simply going to reset this virtual portfolio next week and start from scratch with all cash for the new year.

Complex Spreads held up very well this week, up 18% as we got very nice movement from AAPL and GOOG before they turned down on cue.  Our FSLR butterfly is right on the money so far and we could be looking at another good week if we hold steady.

Overall we closed 153 positions with an average gain of 58%.  It was a really good mix of positions but weighted a little heavily towards Apple, which we ended up taking off the table on that last spike, hoping for a slightly cheaper entry: