Wild Weekly Wrap-Up

"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen." – Earl Wilson

"I try to learn from the past, but I plan for the future by focusing exclusively on the present. That's where the fun is." – Donald Trump

"Look back over the past, with its changing empires that rose and fell, and you can foresee the future too." – Marcus Aurelius

"Since emotions are few and reasons many, the behavior of a crowd can be more easily predicted than the behavior of one person can." – Isaac Asimov

I grew up on Asimov and I've always been a big fan of the future.

My consulting company is called Delphi Consulting because, if you can't help your clients plot a path for the future, no amount of advice about the present is going to save them!  Forgetting Wilson's tongue-in-cheek observation of economists (and by economists I'm sure he would now include pretty much every bozo on CNBC), we have above observations on the future by a captain of industry, a general and a futurist.

Donald Trump is a builder and a doer, he MAKES the future and he sees the future doesn't happen without someone stepping up and doing something NOW.  In the current Apprentice, he fires the playboy playmate because she "saved" her ability to pull a favor from Hef for "a better time."  Trump says "Forget about saving it for later, there is no later, this is the time – you're fired."  Traders need to live in the past, the present and the future to be successful, we need to learn from our mistakes while trying to spot the trends that will help us avoid making new ones.

Back on October 20th, at the beginning of this correction, I wrote an article called "How to Spot a Market Correction a Mile Away."  This was just after my call to go to mainly cash as the markets topped out in early October and, despite the "recovery" post Thanksgiving, we went back to almost all cash ahead of the holidays and I removed 75% of the cash from our virtual portfolios, which are only 1/2 invested now, to start the new year, so we are roughly 12% invested using last quarter's totals, but I have no intention of putting that cash back in – it's so much more fun to make new money!

"Always in motion is the future", according to Yoda while Aurelius sees the rise and fall of empires as an endless cycle but Asimov and I think the future is predictable using scientific methods.  In physics, there is something called Kinetic Theory, which shows that, although there is no way to predict the action of a single molecule of gas as it moves in a space, the mass action of the gas can be predicted with a very high level of accuracy.  The markets are no different, while any individual stock may appear to be wild and unpredictable, the mass action of the market follows a much more foreseeable path.

We talked about the nasty looking drop we were heading into way back on New Year's Eve in my 'Index Round-Up '07" and last Friday, even after the Nasdaq dropped from 2,663 to 2,571 that week on Friday I said: "I think the Nasdaq is hovering in very dangerous territory at 2,600."  In last weekend's wrap-up I had plenty to say about my concerns and Sage gave us some sensible resolutions but, sensing not everyone was convinced, we brought in an expert for a second option! 

We all owe a debt of thanks to Tom2oc, who was able to clearly illustrate the future path of the market in his 6-part State of the Market Analysis, we hope to make this a regular feature at PSW as a picture really can be worth 1,000 words sometimes!  The week went so crazy so fast I never did have time to finish my State of the Market Review Review but I'll have plenty to say about the future before tomorrow's open – this article is meant to be a review of the past so let's get back to looking back:

In last weekend's wrap-up I said: "I’ve spent the weekend working with my pal Tom2oc and we are going to have some great technical analysis up on the member section so I won’t get into it now but "Uh-Oh" still pretty much stands!" On Monday we had a manic gap up at the open but we weren't buying it as we never made our levels and that saved us from irrational exuberance as many of us are just itching to put some cash in play and it's been very hard to resist the temptation.

Tom had predicted a Nasdaq bounce at 2,425 way back on September 13th and you can look at this chart and see why I love that guy!  We are now nervously watching the 2,450 line and I told member this week that it entirely up to Apple to save the markets now.  The CES Expo has come and gone with little to wow the markets and next week we have bank earnings, where ultra-low expectations are the only thing that will stop them from falling.  Apple still has a chance to revitalize the Nasdaq with both MacWorld and earnings coming up in short order.

Apple came right down to my long-standing $173 target on Monday and we will test my statement that it remains a buy at any price.  We were determined to try to stay bullish until Wednesday but by Tuesday morning I had already given up hope as Bush had simply given one of the worst economic pep talks in the history of speeches on Monday afternoon.  Tuesday morning we were still hanging by a thread with KBH reporting a 31% drop in revenues and Jim Cayne getting dumped at BSC and we were on the lookout for a big sell-off as I noted that the recent activity was merely following the Cramer plan to manipulate the markets and "foment a sell-off."

AT&T's Stephenson was the market hit man on Tuesday as the company reported a surprising number of disconnections from foreclosed homes were affecting their outlook for '08.  Gee, and we never thought the sub-prime crisis would affect the big boys too?  How naive can investors really be?

Tuesday's wrap up has a really nice view of how we handled this wild market, as well as a preview of what you can expect to see as far as picks on the new basic membership site.  For such a bad week, the picks went very, very well.  That took us through Wednesday, which was a crazy day where we tested our bottoms thanks to Goldman's fomenting the drop in the morning by running with a recession call, "coincidentally" released with a similar statement from Forbes and it was just all too pretty and tied up in a bow for us so we spent Wednesday cashing out the plays we didn't love and loving the plays we didn't cash out by rolling them to lower strikes at what we sincerely hope is some kind of bottom for now.

Wednesday morning we laid out changes to our existing $10KP and $25KP positions and my advice for the mornng, as we stared into the abyss, was "The only winning move is not to play."  We did indeed finish the day 146 points higher than were we began it after al the fuss.  It was a perfect day for us to roll and reposition but we still have plenty of cash "just in case."  I noted to members at 3:30 that following our stop rules had left me "accidentally bullish" a the end of the day, that was very lucky as we got a huge jump on Thursday!  Thursday morning I predicted a roller coaster and we sure got it.  The SU puts gapped away from us and the XOM puts are up slightly after a wild ride but they should do well on Monday.

Thursday night AXP hammered the markets with lowered guidance and we bought them because it didn't seem like such a big deal to me.  We also had a great time on Thursday playing Google's wild swings but, by the end of the day, we were back under our covers as the rally looked as forced as the sell-off had.  We picked up the QID Nasdaq Ultra-Shorts into the close and those were a huge winner on Friday, I'm really starting to like those as emergency virtual portfolio protection…

Needless to say we knew Friday was going to be a bummer but I got (surprise!) positive on the markets again and we got a little more aggressive into the weekend.  My attitude is we either make a stand here or we don't so it's pretty much the last chance to be bullish before it goes completely out of fashion.

Overall it was a pretty good week for our virtual portfolios.  We didn't make a lot of money but we have MUCH better calls than we started the week with and that will be fantastic if the markets can get it back in gear.  We closed 87 positions this week with a very silly 157% average gain as we wiped out many, many callers so we'll use the 41% gain on cash as a better indicator of performance.

Our Short-Term Virtual Portfolio finished the week with $1,178.615, up $86,360 for the week (8.7%) and we are still 50% cash.  A lot of our gains came from the index puts that we placed here to protect all of our virtual portfolios and this virtual portfolio is well balanced and ready for pretty much anything next week.

The Long-Term Virtual Portfolio had a great week as we got a chance to take out our callers at incredible lows on Wednesday and, so far, our new callers haven't burned us yet.  We gained $49,400 for the week, finishing at $1,059,665, up 6% for the year, a very nice turn-around from last week!  We're a bit bullish here with 21 naked long positions so there will be some serious scrambling if we open down next week…

The $10,000 Virtual Portfolio finished the week at $11,981, up $788 for the week and up 19% since we started it in late November.  It's been a very bad time to try to win with a small virtual portfolio and we just have to be satisfied with small gains until the market perks up.  We were doing much better until we got burned by CFC and we'll have to prioritize repositioning that one next week.

Our $25,000 Virtual Portfolio also took a hit on CFC but did manage to gain $6,503 for the week, now up at $154,010 (up 516%) in it's final week.  We started this virtual portfolio back in late September and it's time for our new Q1 $25KP on Friday!  The remaining open positions will be moved to the Short-Term Virtual Portfolio as there are many spreads we will want to continue to keep track of but I'll be quick to shut things down and go to cash if we continue down next week as this virtual portfolio still have a fairly bullish bias.

The Happy 100 Virtual Portfolio is down to just the almost-dead AMGN $52.50s and good riddance to that this week!  We'll be starting a new virtual portfolio in that spot on Friday as well.

Our boring old Stock Virtual Portfolio has been very exciting this week.  Following my own advice from "How to Buy and Hold Stocks" we sold puts on C and TASR that are both doing very well and our MRBs came back, leaving us up $10,780 for the week and up 3.9% for this year's 11 days, not bad for some pokey old stocks!

Complex Spreads is, as usual, the star of our show with a spectacular 11.5% gain on the week, running up $57,160 in gains to $550,310 thanks to (also as usual) Google and Apple.  No celebrating yet as I'm very worried about this virtual portfolio was we have no covers on our Apples and just 15 of 35 of our Googles, probably not smart but MacWorld looms large next week and, as I said before, it's now or never.

For the most part, we played it smart, following Warren Buffet's #1 (and only) rule to investing: "Don't lose money."  We don't know which way things will break and my magic 8-ball says the future is unclear, at least for the coming week but we're getting the consolidation I always wanted at 12,500 and, if we can hold that line, we can hopefully get back into my 13,000 to 13,300 range for a while, on the way to a nice break-up (always hard to do!).

As the great physicist, Niels Bohr said: "Prediction is very difficult, especially of the future" but it was Eric Hoffer who said: "In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists."  As I always say myself, I don't mind making a mistake, as long as I learn something from it, I think The Donald would agree with me!

Have a great weekend – Phil