Wild Weekly Wrap-Up

Woo hoo, we fininshed the week up 33 points!

We had lots of fun getting there though with a 250-point top to bottom move EVERY SINGLE DAY.  It just doesn't get any better or worse than that, depending on what type of trader you are.  Friday was the worst as we fell all the way from Thursday's hopeful open at 12,500 all the way to the pit of despair at 12,155 at 3:10 Friday afternoon only to finish back just under 12,400 so quickly that we didn't even have time to enjoy it (but it really saved our virtual portfolios for the week!).

I mentioned in the morning that the sell-off was overdone at 12,250 and another 100-point drop in the morning did nothing to change my mind but I kept up that theme all day during member chat and, fortunately, we maintained a fairly bullish outlook and stuck to our guns during the sell-off.  As we have now delayed the launch of the basic membership site unitl March 7th and we have some comments available on the free site, I will tell you to read the Friday post and comments if you want to see how we handled the day, rather than rehash it here.

On Friday the 15th we were in absolute pain and just wanted the week to end as we dropped from a high of 12,627 on Wednesday the 13th all the way down to 12,216 in intraday action on Friday.  Let's remember that that sell-off was caused by the anticipated St. Valentine's Day Massacre of Bernanke and Co as they addressed the Senate Banking Committee and a lot of the residual selling sentiment is based on the fact that Bernanke must face Congress in what used to be called Humphrey Hawkins testimony when Greenspan used to do it but, after seeing Bernanke's inept handling of the testimony, Mr. Hawkins apparently came back from the dead to demand his name be disassociated from that circus.

It's the Congressional report that has all three rings of the circus in action with our Congresspeople really representing the full gamut of the American people, many of whom, unfortunately, aren't very knowledgable about banking.  Unfortunately, you don't have to pass a test of any sort in order to waste everyone's time – you only need to be elected to Congress!  Of course, we also get to see another episode of "When Ron Paul Attacks," that's always fun!

The next day (the last day of the month) the Senate Banking Committee gets another whack at Ben but he'll be by himself this time and he's already been spanked so I'm not expecting the same market reaction as we had on the 14th.  I'll simply more or less repeat here what I said in last week's wrap up (and we are STILL at the same maket levels): "There was nothing we heard this week that made things worse than they were last week and, as I said the morning of the 15th, this is what the market needs to make sure that buyers coming in now are real buyers, not delusional optimists that get chased out of their positions every time Bernanke’s voice cracks."

Consolidation is GOOD, not bad.  We've been floating between 12,000 and 12,700 since mid-January and it's the same range we were in between Nov 2006 and Apr 2007 before we took off and gained 2,000 points.  You can look at this chart and decide we are going to fail, and that 2 years of corporate growth and profits were all some kind of fleeting illusion, or you can say: "Well, perhaps 14,000 was a little irrationally exuberant but going back to to 11,000, which is a level we skirted since early 2004, would seem a bit overly bearish as well."

Overly bearish and overly bullish have been characteristic of this manic/depressive market for months now.  It has fallen on me to take on the role of stock market therapist and talk the bulls off the highs and talk the bears out of the lows, often within hours of each other!  On Tuesday morning, the futures market was up almost 150 points and I said:  "It LOOKS, from the futures, like we are heading into a very strong open for no particular reason other than nothing really bad happened over the weekend."  It didn't take me long to be right about that one as we were down 100 points by 11:20, back to even by 3pm and a 40 point loser by the day's close.

Wednesday we were fortunate enough to assume that the Fed minutes would spart a pointless rally based on a rehash of the same but only after the CPI put a knife in the heart of the bulls that morning.  Apparently many investors simply don't believe in inflation unless it come in a government wrapper and Wednesday's report was a doozy in that regard.  My morning call was right on target, saying: "So, despite all the bad news this morning I am not changing my outlook.  We will wait for a bottom and start picking up some of those beaten down securities.  HPQ had great numbers and raised guidance last night but the stock is barely moving this morning so don’t worry if your stock is down, it’s probably nothing personal…"

While Wednesday went EXACTLY as expected, the rise of oil to $100 turned us bearish again and we flipped from QID (Nasdaq Ultra-Shorts) puts in the morning to QID calls in the afternoon, despite the strong LOOKING action. Thursday morning I said: "I’m calling this post "Thrilling Thursday Morning" but I make no promises about the afternoon" and the picture on the right said 1,000 words as we went downhill fast all day, from 12,500 all the way down to 12,250, led by a deflating energy sector, which picked up the post $100 blues.  The QID $48s I selected in the morning post opened well below our $3.75 target and topped out at $6 in Friday's drop, not bad for 2 days!

Thurday was demoralizing and upsetting and many of our members were getting demoralized and upset so I used my gentle, diplomatic tone in the wrap-up and called TA bears a bunch of wimps who need to stop letting the squiggly lines on a graph run their lives.  As our guest speaker, Vladimir Putin, so eloquently put it that night: "Grow a pair and buy some stocks."

Friday, as I mentioned above, was a real capitulation day for many as those last 100 points down really started to get to people and our stand against the stampeding sheep looked pretty much like this right up until 3:28 when we suddenly became geniuses.  Mega Kudos to Andrew Wilkinson and Rebecca Darst, who gave us a heads up on heavy May call volume at MBI and ABK, which was very much in line with my theory that the fears of a bond meltdown were way overdone.  We caught the turn on MBI at 1:06 and Charlie Gasparino made some nice comments about them just 7 minutes later on CNBC.  Like I said, you can read Friday's comments to see how cool MOST of us were under pressure so no need to rehash it here.

Despite being "right" about many of the market's moves during the short week, we did not do all that well in our virtual portfolios.  We had chosen a bullish stance and the week was flat and we made a few adjustments that cost us some additional money.  There is nothing wrong with that – Warren Buffett's Rule #1 is "Don't lose money" and that's what we are trying to avoid in a week like this.  We have safeties in place when things go up and we have our main positions when things go up and even flat works for us as we sell a lot of calls but choppy doesn't work for anybody who is not day trading and it just doesn't get much choppier than this.

 Our day trading is done in the Short-Term Virtual Portfolio and we posted a 5% gain there for the week.  Due to the sudden rally on Friday we did not have time to re-cover callers that stopped out on us and we went into the weekend with 26 open calls against just 4 puts, although the net values are only about 2:1, it would have been nice to have more protection over the weekend.

The Long-Term Virtual Portfolio had far less activity and added just 1% for the week with 35 open calls and 12 covered spreads.  Despite the crazy swings, we merely followed through with the strategy laid out in the LTP Review from way back on Valentine's day because, as I said, nothing really happened since then!  This is a good week to point out to new members how utterly relaxing it can be to employ the LTP strategy in a dicey market compared to sweating out the day-to-day short-term movements!

Our brand new $10,000 Virtual Portfolio is now the $9,248 Virtual Portfolio, booking a 7.5% loss on the week.  It was a very rough week to pick up new posiitions and we still have just under $6K in cash to deploy but we're going to need a pretty good reason to use it if we don't get any good movement out of our first 4 positions. 

The Old $25,000 Virtual Portfolio ended the week down $100, also with very little variation from the plan we laid out on the 15th.  This I would urge new members to study as well as it is a great illustration of the value of a well-balanced virtual portfolio.  We made very few moves in it this week and it held fast, very in-line with my crisis management article "Don't Just Do Something, Stand There."

Our New $25,000 Virtual Portfolio celebrated its first 4 days with a 7.3% loss at $23,175 with $14,750 remaining in cash.  This is not surprising as it's the same 4 positions as we have in the new $10KP but we are more likely to take another stab at new positions next week with the much larger reserve of cash remaining.

We were also frozen in our tracks in the Bargain Basement Virtual Portfolio and made no moves that weren't already planned from the prior week.  When in doubt, stick to the plan.  The "plan" however, did not stop us from giving back 5% of our 9% gain on this month-old virtual portfolio.  Again, I'm not totally displeased with the balance and there simply wasn't any real reason for us to panic and go off course, based on the movement of the past 4 sessions.

The Stocks Virtual Portfolio did surprisingly well this week, gaining a whopping 2% thanks to a nice move by MU (which we covered) and a decent performance from MRB.  Our other gold stock favorite, NAK, hit our buy point last week but we didn't want to be too gold heavy.  That's very unfortunate as NAK had a much better week than MRB!

Complex Spreads also lost 5% this week as our Apple and Google holdings had a very rough time.  Due to the sudden move up on Friday, both of these positions went naked into the weekend and I'm losing sleep over them, which indicates it was a big mistake (not necessarily from a strategy standpoint, but from a stress one).  The logic is that if Google and Apple open Monday at Friday's lows, I am no worse off than I was when I stopped out my callers on Friday AND I need to roll them down anyway but it's very painful to have a lot riding on just two open positions and is NOT worth the worry that could have been eased by taking a damn half cover.  Just my confessional on a stupid play I got myself into…

Nonetheless we picked up June $600s on Friday for $11, not that we're so sure we're going to zoom back to $600 by them but because $11 seemed pretty darn cheap on a risk/reward basis, just looking for $14 or better on a call that traded as high as $140 just 2 months ago.

 For the week, we took fairly little action, mainly buying out our beaten-down callers, closing 50 positions with and average gain of 43%.  While that's nice from a cash perspective, the fact that we were flat to down across the board indicates that our remaining open positions took a pretty good hit and we are risking the gains we took off the table in the form of our uncovered positions.  We fininshed the week accidentally more bullish than we had planned and hopefully our folly will be rewarded by fortune next week but this is certainly not our first choice of strategies: