Weekly Wrap-Up

A big welcome to our new Basic Membership site subscribers, we're finally on-line!

I'l have a special post up for the new site later but first let's bury this lousy week quickly and make sure it's dead.  In last week's wrap up, I headlined it with "misery" and this week was little improvement as the Bush machine, now upgraded with the Bernanke money dispenser, continues to chase our dollar to the bottom of the global currency pile.  Still, despite the Fed's $200Bn money grab announcied on Friday, interventionist talk on the part of friendly Central Banks stalled the dollar's drop at 73.

As any good pilot knows, recovering from a stall is very tricky, and it's still a long way to the bottom but when your currency drops 5% in 4 weeks after 11 consecutive down sessions, any day we don't drop seems like a relief.

There was no relief from the markets, which saw the S&P financials drop 6% and the entire S&P fall 3% and jobs fell by 63,000, the biggest decline since March 2003.  In my new role as Mr. Market Sunshine, I will have to point out that March 2003 was the beginning of a massive rally that took the Dow from 7,400 to 10,400 by the end of that year so I find it very amusing when everyone starts drawing comparisons in their doom and gloom outlooks but those people count on the fact that we are not students of market history and can't be bothered to look things up.

Last week we had good and bad days, this week all the days were bad, with only end of day recoveries that led to bigger drops in every consecutive next day closes.  We are back at 11.893 on the Dow, just 259 points above out 1/22 intraday low.  We have effectively retested a 7.5% retracement off the 12,800 line that has been pivotal resistance both up and down since last March and I've been banking on the 11,900 line to hold, which is right exactly 15% below 14,000, which seemed like a reliable top.

My two probable errors have been miscalculating for the dollar, which I didn't think would fall below 75 and underestimating the very negative effect adding BAC and CVX to the Dow would have.  Unfortunately, as antiquated and useless an indicator as the Dow is, it is still the leading indicator for the markets so we continue to talk about it, even though it's not even the same Dow we were looking at 2 weeks ago.  Newly added BAC fell 15% since being added to the Dow on 2/19 and CVX is down just 1% for that period but was a significant drag on Friday as it fell 3% that day.  HON and MO, who were replaced by these dogs, both have gained since getting out of the Dow and, due to the Dow's idiotic price weighting system, they pretty much cost the Dow my 100 points.

Don't get me wrong, the S&P is no picnic either with (and I wish I were making this up) just 10 companies representing 20% of the index.  Those 10 companies are:  XOM, GE, MSFT, T, PG, CVX, JNJ, BAC, IBM and MO.  So adding BAC and CVX to the Dow now makes it even more of a mirror of the S&P than it was 2 weeks ago by substituting #10 MO, which made up 1.32% of the S&P with #6 CVX (1.57%) and #8 BAC (1.51%).  So how do you manipulate the markets most efficiently?  Just buy and sell these 10 stocks plus Apple, Google and Intel and you can pretty much make the indexes say anything you want!

Last week, in the wrap-up, I said I was uncomfortable leaving cash in ANY position and we were in the process of cashing out what we could and Monday gave us no reason to change our minds as Asia got the week started with a huge sell-off.  We noted CNBC's ratings were way down, always a sign of a downturn in sentiment.  Now think about this, if the demographics of the network turn bearish as the bulls get fed up and stop watching, who is the network going to start catering to?  This is why the media is in a bearish frenzy, ratings say that's who's buying papers and watching TV – the bulls have all headed into PSW's new Bullion, Beans and Bullets ETF to hunker down for the duration.

We made a nice intraday recovery on Monday and the picture on the right from that wrap-up pretty much says it all for those of us who stayed in the market.  I noted at the time that there was "little conviction in the buying and no particular "good" news."  It was all about the dollar falling off a cliff and I said: "I’ve never seen a currency crisis like this where neither the Fed or the Treasury take any action whatsoever to support the currency" and what do you know but the Fed comes out on Friday and gives away more money!

As I said in last month's "Inflation Nation" article, we don't care what they do to the dollar as long as wages increase because we'd love to pay off that morgage and those credit cards with double the salary.  Unfortunately, if 63,000 people lose their jobs every month, we may have a little trouble with that salary issue.

Tuesday it was Dubai's International's turn to wreck the markets with a pronouncement that CitiGroup didn't have enough money to get through the credit crisis.  Those of you old enough to have voted for Reagan should be outraged that Dubai is able to influence our markets with a press release.  I mean really, what the hell have we done to this country?

There was also an unsuccessful attempt to take INTC down as they held $20 for the week, well above the $17.94 panic selling that gripped the tech sector on 1/22.  As I said on Tuesday morning, these are buying opportunities for long-term investors but it's hard to be a buyer when everyone else is running for the exits.  Tuesday's action was so awful that we ran a day-trade clinic on Tuesday for members as it's the only thing that seems to be working in this awful market.  Wednesday morning Bernanke said the government is not solving the housing crisis and needs to do more, backing my ForcloseShare program.

Wednesday's wrap-up was where I made the mistake of thinking we may have found a bottom as I felt oil had peaked out that morning (we took SU and tried to buy DIG puts but they were too illiquid).  I still believed that there would be some foreign CB intervention to support the dollar and that the fundamentals would have to kick in one day in the commodity markets but, so far, so bad on that prediction.  I called Thursday morning "Thoughtful Thursday" and laid out my reasons to be looking for a bottom but did say: "it's almost impossible to call."

The markets plunged along with the dollar but I liked the retail report but I absolutely blew it by trying to pick a bottom at 12,100 and none of our new plays, other than our day trades, are working so far and by Friday morning I was fed up and moving back to more cash as the news couldn't be more negative and the Fed's $200Bn injection being met with a big "so what" was just downright scary!  My morining parable was the story of Lot, and I sid we need to find 10 bullish analysts or we will need to leave these markets and not dare even glance back…

In trying to pick a bottom this week we bought out 52 callers but re-covered many by the week's end as we simply got fed up with the losses.  Hopefully the market won't whipsaw on us on Monday morning but, at this point, we'll be happy to see any sort of recovery.  As we wiped out many, many callers, our average gain on 99 positions closed was a whopping 205% but the gain on cash was just 37% and not enough to salvage the declining value of our longer calls.  All in all it was a very rough week!

As usual, the Short-Term Virtual Portfolio made money but not the way we want it to.  Once again the profits were centered on our index puts and we pared down to just 31 open positions with cash increasing from 79% to 81%.   Overall, we gained 7% on the week but, as I said above, it wasn't enough to cover the damage done to our longer positions. 

One reason we have just 31 open STP positions is that we opened our new Day Trade Virtual Portfolio, where I now make a lot of plays that were in the STP, and that got off to a rocky start bit managed to scratch out 6.8% for the week with GOOG and index momentum plays giving us our big wins and our bullish plays giving us nothing but heartache so far.  I don't know if anyone took my advice and didn't enter until we went into our second round on positions but I'd love to do a comparison study as we had to work very hard to save some of these!  Like good little day traders we are 75% cash at the end of the week but we'll have to cut and run on those calls if the market falls further next week.

Even our Long-Term Virtual Portfolio got hit hard this week, a rarity, as we dropped 5% despite the "gains" from our callers.  We are accidentally bullish there with 27 open calls (out of 44 positions) and I have to tell you I'm a little nervous about them as this virtual portfolio is 58% invested and up just 35% for the year.  This is supposed to be our "safe" virtual portfolio and seeing these positions get hammered indicates that nothing is safe in this market but, to some extent, also indicates that the dumping is indiscriminate and there are many bargains to be had for the patient investor.

The new $10,000 Virtual Portfolio is currently the $6,968 Virtual Portfolio, our second worst start ever as we certainly picked the wrong time to start a new small set.  Even if the remaining leg of the Russell spread finishes in the money, that will only add $1,740 back and we're not even certain that one is going to work!  Still, on the whole, our "Rutterfly" is up $8, which isn't too bad considering the blow-out we've had off our target.  As I pointed out on Friday, we have April BA and SNDK calls and June NDAQs so it's not like we're writing it off but we also have very little cash ($1,558) so we've made our bed and now have to lie in it.  This means, if the market really turns down, we may be forced to liquidate as $6,000 in cash will serve us better than $7,000 in positions if the Dow breaks 11,500.

Our new $25,000 Virtual Portfolio has fared little better, dropping 26% in it's short 2-week history.  This is why we cashed out our very successful January virtual portfolios, you don't leave gains like that on the table because you may give them all back the next month!  We have the same issue with the Rutterfly but it's CROX that betrayed us here, despite the additional flexibility that size gave us to make moves here.

The humble Stocks Virtual Portfolio actually held flat for the week despite a painful loss on the C Mar $25 puts we sold.  Perhaps there is something to these stock things as that virtual portfolio is up 31% for the year but, to be fair, most of the money came from options we sold.

Complex Spreads made a nice comeback, gaining 6% on the week but we are left once again with a lot of naked Apple calls so it's a very, very temporary 6% if we don't get a good open on Monday.  As the virtual portfolio is up 30% for the year we're taking a little chance because we can't resist Google and Apple at these levels but Google is mainly covered so you know which play we are favoring for now and certainly it was our Google puts, not calls, that saved the DTP.

It will be very sad if the markets can't get it in gear next week.  On the one hand, we have tremendous amounts of cash sitting on the sidelines as does everyone else on the planet apparently (actually my call was to put our cash into gold in mid-January, at $850 but I'm done with gold now), on the other hand, it's just so damn depressing it's hard to motivate ourselves to buy anything.