Weekly Wrap-Up

Hey we gained 200 points for the week!

While it didn’t end particularly well, the week did exactly what we thought it would, including making a chart that shows you why they call Wednesday "Hump Day" and we had our expected St. Valentine’s Day Massacre on Capitol Hill which I still think was cathartic and, overall, a good thing as we finally got all those nagging fears off our collective chest and put them out on the table for all to see.

We played the week pretty well, going "pretty bullish" in last week’s wrap-up and we got all the key elements we were looking for in a rally other than oil behaving itself as it is doing pretty much the opposite of that for the past 3 days.  On Monday Morning I pointed out that the level of panic being generated by the media was officially out of control and buying into the morning dip on Monday gave us a lot of nice winners.  The big news on Monday was BAC and CVX replacing MO and HON on the Dow as well as our man Chavez cutting off oil to America (note to readers – we survived!).  As I said in Monday’s Wrap-Up: "The sell-off was overdone, the problems we face are fixable, the World isn’t coming to an end just because America catches an economic cold!"

I warned in Monday’s post that Thursday’s Senate Banking Committee meeting could get ugly so we were well prepared for that and the market kept going up despite the report that the Greenwich Global Hedge Fund Index had its worst month since 2002.  Tuesday gave us the expected bad news from GM’s earnings but they were Trumped by Buffett’s offer to bail out the bond insurers.  I said our Big Chart levels should hold and we pretty much finished the week right at Tuesday’s open.  Since Monday was a pretty good day, we really can’t complain.

On Tuesday Paulson "unveiled" Project Lifeline, which gave borrowers a 30-day extension before being kicked out of thier homes to "work something out" with the lenders.  You see, the government isn’t doing NOTHING, they have a plan for YOU to "work SOMETHING out" and fix this crisis for them…. 

In Tuesday’s wrap-up I noted about the failure to properly address the forclosure issue: "The government’s failure to address this issue is still the Sword of Damocles that hangs over the housing market.  There is no amount of readjusting of a mortgage on a $500,000 home that’s going to help you when the real value drops below $400,000 and your equity is just $50,000 – the shortfalls need to be addressed, this is why my mortgage industry bailout plan had 3 parts…" 

I also warned that oil going the wrong way would put a damper on the week and it did.  We are doomed until the government comes up with a real plan to address either oil prices or foreclosures, you can’t just ignore both!

Wednesday morning I remarked that our expectations were SO LOW that we could not be disappointed by retail sales – and we weren’t so we got a nice morning boost but I warned Wednesday night that the market had merely shifted from depressive to manic again without really facing up to our problems.  Art Laffer called the stimulus package a "zero sum game" and I said: "We, as a nation, have so lost our economic minds, that we think spending $168Bn on a "temporary fix" is somehow a good use of our limited government resources.  Does anyone even take economics anymore or is it just one of those empty phrases they like to put on a banner behind the President?"

I closed Wednesday by saying: "So don’t expect tomorrow’s meeting to be a love-fest as Dodd, Reed, Shumer, Bayh and Casey will get the majority of the floor time and all will be looking for party points that will be scored each time they can hit the administration’s team with an economic zinger.  If the market survives this circus, I may be in a downright good mood but, until then, I’ll still be taking today’s gains with a Lot’s wife-sized grain of salt!"

I can only tell you guys what’s going to happen – the rest is up to you…

Thursday moring was My Saint Valentine’s Day pre-Massacre post, we literally saw that one coming a mile away so while everyone else was freaking out and selling, we were buying out callers and repositioning.  My end-of-day take on the meeting was: "We were treated to a less than stellar performance by Fed Chairman Bernanke as he looked and sounded like he would rather be somewhere else (perhaps screwing up the economy of a smaller country) as he answered some particularly uncomfortable questions from the Senate Banking Committee.  It was, as I predicted this morning, a massacre as Al Capone’s gang at least had the decency to put their victims out of their misery back in Chicago."  This is, however, a GOOD thing as people needed to hear all this, investors in particular, who seem to have no idea about the environment they are buying and selling stocks in.

By Friday morning we were ready to throw in the towel on the week but they insisted on opening the markets anyway and that turned out to be a mistake as we quickly fell back to 12,300 ahead of Monday’s Wal-Mart earnings.  Still we were bullish(ish) and excited about starting our new virtual portfolios next week with so many great opportunities to pick up bargains.  "Thank goodness for the 3-day weekend as we all need a little time to step away from the market and take a breather but we can just go back to my articles of the past two weeks (and I will on the weekend) and I will say again that there is nothing NEW in this news.   Earnings are still going fairly well and I continue to say – show me the losses!" – nothing that happened on Friday changed my mind from that morning statement.

We had a pretty flat week but flat is good in this market and, as I said, we took our chances into the weekend as I found myself very bullish in Thursday’s Long-Term Virtual Portfolio Review where we decided to let the market drop and just take out the callers and see what happens (despite our very bad experience with the last 3-day weekend we had):

Our Short-Term Virtual Portfolio gained 10% on the week and we ended up with 29 open calls with just 4 puts and 3 spreads, less a statement of bullishness than a celebration of having 20 of 25 callers expiring worthless.  While we are hoping for a bounce, we’re ready to cover quickly if we have to.

The Long-Term Virtual Portfolio had a rougher time and gained just 2% so I’m much more nervous about those uncovered positions (37) but they are all leaps and we really felt there was a lot of pinning going on on Friday.

Our $10,000 Virtual Portfolio is closing out at a very nice $22,623, down 3% for the week but, on the whole, a very nice way to finish up our first small virtual portfolio of the year.  We start with a fresh $10,000 on Tuesday but I doubt I’ll be jumping on any picks until the market picks a proper direction.

The $25,000 Virtual Portfolio had a great finish, tacking on 14% in it’s final week and finishing the month up 93.5% at $48,365!  I’m very pleased with this and the mix of positions were so good we decided on Friday not to close that virtual portfolio and keep up with the remaining trades, even as we start our second brand new $25,000 Virtual Portfolio of 2008 next week.  Just to be clear, there will be no new trades in the old $25KP but we will work our spreads or close open positions as necessary.

The Bargain Basement Virtual Portfolio gained just 1% for the week and has 12 open calls but some are the result of being half-covered on our 6 spreads.  This is a very dull virtual portfolio as we are playing for a major market upturn in Q2 but if we have another up and down week like last I may have to rethink our positioning on this one.

Our Stocks Virtual Portfolio is doing very well, up 28% for the year (2% on the week) with just 2 actual stocks (MRB and MU) as weill as short puts sold on MSFT and C.  We are still 2/3 cash but the market has simply been too crazy to just jump on something without a REALLY good reason.

Complex Spreads added an uncomplicated 4% for the week as both Apple and Google perked up a bit for us. 

For the entire week we closed 123 positions, many of them our callers, with a ridiculous average gain of 325%, which is caused by the calculation of selling a call for $1,000 and buying it back for $5 so the number I will go by is the still very good 65% gain on cash.  Obviously, since the virtual portfolio by virtual portfolio gains weren’t all that great, there was a lot of premium deterioration in our remaining positions but this is why it is critical to be a seller of options and not just a buyer!