It’s certainly a manic Monday in New York as we celebrate our first Superbowl victory of the 21st century and that should put traders on Wall Street in a good mood this morning (albeit a little hung over).
This picture of the play of the game came with 1 minute and 15 seconds left to the game with third down and 5 yards to go at their own 44 yard line, Eli Manning escapes the grasp of 4 Patriot players and completes a 32-yard pass to David Tyree who amazingly catches the ball against his helmet and holds onto it even though he’s hit in the air on the way down.
This is the difference between winning and losing, in football and in the stock market – it’s the combination of hundreds of little things, each of which could go either way, any one of which can spell victory or defeat. The Patriots played a perfect season and were undone by one of the greatest passes of all time (not so much the pass itself but the pressure Manning was under when he threw it) AND a catch that was also an instant NFL classic all coming at the same time in a place where it would do the Patriots (who were ahead by 4 at the time) the most harm.
The markets are like that too. Your virtual portfolio is like a team and you assemble the best one you can but on any given day, on any given play, you can win or lose in an instant. All we can ever do as traders is roll with the punches, savor the victories and adjust our game plans as we go along. The great advantage we have over a sports team is there is no clock – we get to keep playing until we win, and that is the philosophy both Option Sage and I espouse: Stay in the game, don’t risk it all, gain the ground you can when you can and try not to give it back. Diversity allows us to shake off individual hits we may take and flexibility allows us to adjust on the fly to changing market conditions.
Even that is not enough. No matter how well prepared we are, no matter how good our strategy is, we will win some and lose some – the real skill in trading is managing our assets so that the winners can offset our losses and we must learn to realize we are as lucky in victory as we are unlucky in defeat, only then can we learn to take our profits off the table and be thankful for what we have. I say this now as we will be shutting down our brand new $10KP in two weeks. Our goal is to get to $25K and we’re close enough that I have no desire to push it, I will also reset the $25K Virtual Portfolio, which is also near a double as a win like that, coming within 2 weeks of starting the virtual portfolio is something we SAVE(or) and cherish, not something we go double or nothing on.
The same is true for the Short-Term Virtual Portfolio. My goal was to double it for the year, after doubling it up for the month, don’t expect me to "go for broke" and try to double it again – we were very lucky and, while we may be lucky again, we can also be unlucky so we have to learn not to push it. If the opportunities present themselves, of course we will take them but in no way will we feel pressured to force things, and that’s a great way to be able to start the year. For those members who’ve blown away their 2008 goals in our first month alone, keep things in perspective as early victories are the undoing of many traders, causing them to throw caution to the wind. That’s why starting fresh on the 15th (expiration day) will be a good exercise in virtual portfolio management, as well as a chance for new members to get involved at our intended levels.
So congratulations to the Giants as well as our once-small virtual portfolio players! Let’s savor our victory and prepare for next year, where we have to prove ourselves all over again as it’s a brand new ballgame every day, in football, in the markets and in life…
Asia had plenty to celebrate last night with a 908-point gain in the Hang Seng and a 362-point move in the Nikkei but it was Shanghai who really scored a touchdown with an 8.1% gain, reversing all the losses that have piled up since 1/22. China’s state-run newspapers carried front-page statements by top economic officials downplaying the likely impact of the winter storms, despite widespread power outages and snarled road and rail traffic in some regions. News that credit policies may be eased and two new stock funds have been approved also lifted Chinese shares. "There’s no need to worry. The losses will be recovered and investors should not worry," the China News Service quoted Li Rongrong, chairman of the agency in charge of big state corporations, as saying. I’ll throw a yellow flag on that play though as I trust the Chinese government only slightly more than I trust our own and a bit less so when they find it necessary to say "no need to worry" twice in the same sentence!
Over in Europe, Germany is up a point and England and France are trading flat ahead of our flat-looking open. RYAAY had flat earnings and a poor outlook and this great airline is getting killed pre-market but auto makers are moving well as are miners on (as usual) RIO takeover news. I will like Ryanair as they bottom out here as their outlook is pessimistic about fuel costs.
At home Google is, as predicted desperate to stop the MSFT/YHOO deal and they are putting everything from financial assistance to a merger on the table (and how is that less monopolistic than Microsoft taking over I’m not sure) but, interestingly, what they are NOT doing is making a better buyout offer. Does Google think Yahoo isn’t worth it? Does that then mean that Google isn’t worth it or does that mean that Google can’t justify paying up for a competitor they’ve already destroyed???
As to the broader markets, with over half the S&P 500 weighing in with earnings it may surprise you to know that earnings (outside of the financial sector) are UP 11% for the quarter. That is about double expectations and not at all recessionary sounding. "It’s very striking — nonfinancial earnings are still quite healthy," said Thomas Doerflinger, executive director for U.S. equity strategy at UBS. That strength, he added, "has been fairly broad based." Earnings at technology companies are up 26%, energy earnings up are up 19% and health-care companies are up 18%, he said.
Analysts (not exactly known for their ability to analyze anything) have been predicting Q1 proftis to be up just 2.6% and Q2 is projected at 3.5%, that would be quite a fall from 11%, especially if the doom and gloom write-downs already taken by the financials don’t match the 18.5% decline we’re seeing in Q4 reports so far. I will point out that 18.5% is itself, far less than the 21% drop in the XLF since the summer. Of course these projections also assume that consumer discretionary earnings will also rise an anemic 1.2%. On the whole, these ultra-low expectations are certainly setting us up for a major second-half rally as it will be very hard for the financial sector to blow comps to these Q4 earnings (or lack thereof).
Tom Brown has an excellent overview of how NOT big a deal all this hulabaloo over the bond insurers really is a load of nonsense and MBIA made a presentation over the weekend with many, many charts, one of which shows their ENTIRE actual exposure to bonds that they have NOT reinsured is UNDER $1Bn and another chart that shows that the amount of subprime classified as an asset to MBIA is JUST 0.2% of their investment virtual portfolio – these hyenas may really be barking up the wrong tree on this one!
Peception is everything though and we can expect to see continued weakness in the financial sector until this mess is cleared up but I’m getting very bullish on tech and we will continue bargain hunting as we look for the SOX to lead us up and out of this slump.
