It's funny to review my comments for the day and watch myself turn bearish!
While I was cautious in the morning, I was cautiously optimistic. We saved HUM by rolling it down, AET was a fantastic play although I ended up doing a mo play rather than the '09s, we got a good entry on SIGM (we thought) and then got a cheap roll (we thought) but they got KILLED on earnings despite incredible gains because they had to make an order adjustment to a major client. This is still a BUYBUYBUY on the dip so we're going to DD on the '09 $25s if they stay down here in the morning.
I often say to members the single most profitable strategy in following trades at PSW is to wait until we double down, it means you are getting in at a much better price after we have taken our lumps, reviewed the situation and decided we want to not only stick with a position, but to commit more capital to it – much better than paying retail!
So the day started off well enough and luckily we were too busy closing out our March postions (as noted in the morning post) to take on new ones as the market climbed. As early as 9:46 I was warning to cover Google into the rally and we closed out Apple in the DTP and got out of C, thankfully, even. XOM puts got our morning off to a good start but CAL calls are not looking so good so far. At 10:02 I warned on taking BSC off the table before we blew the gains and our CROX calls came back in the money (we covered later).
The draw in oil was huge (6.2Mb) and we had a nice rally off of that number as crude pulled back sharply but the pullback in crude, and the market rally were quickly taken down by two events. Steve was right on the ball and called our attention to the fact that Admiral Fallon, Fallon, the military commander of US Middle East operations who said an attack on Iran would not happen "on my watch," suddenly resigned – this sent rumors flying that military action was imminent. Of course, with THIS candidate on deck to lead us – it's not all that surprising.
On top of fears that the US was about to enter into another $1Tn war, our pals at Goldman Sachs thought it would be a good time to dis the dollar. Both GS and C came out with comments today that the Fed's latest $200Bn money drop was NOT going to be enough to save the markets and sent the dollar, once again, to record lows, saving oil from it's power dive and rocketing it back to the $110 mark. Also not helping, was a comment from Fed Gov Donald Kohn who said credit-market turmoil and slower growth pose a “greater threat'' than inflation, driving the euro above $1.50 for the first time.
By 11:10, just as the Fallon news broke, I noted the Dow hitting my target for the rally saying: "12,250 – Mission accomplished, now let’s see if we can hold it…" Sadly, we could not but rather than give us any news of the day, CNBC was having a "Death to Spitzer" party during this critical market turn so thank goodness for the news gathering power of our group as we managed to call the turn pretty much on the button.
At 12:52 I noted "lunch not going well so far" and we were already cautious from 7 straight weeks of observing the Wednesday high of the week followed by the Thursday Thump. We got our expected pop at 1pm but when we failed to even get close to the day's highs we knew it was over and then we heard there was an influenza outbreak in Hong Kong that was shutting down the schools, leading us to take BIDU puts shortly after. Goldman's outlook hit just about 1:30 and you can see the market just give up and die on that news.
I went with the old reliable QID $51 calls again at 1:45 and made a general call to cover and thus ended our day. It goes back to our two main themes, oil and the dollar. $110 oil does kill the economy, weakening the dollar and driving up the price of oil. One of these two variables has to break the cycle or we will enter a stagflationary spiral that will be very hard to pull out of.
My bullish outlook was based on oil having a top and the dollar having a bottom, today, both of these things looked untrue so let's be ready for anything this week – we need more Fed help and we need it now but if the Administration continues to let homeowners twist in the wind, then the only winners will be the bankers, who were just given plenty of money to pay the repo men and lawyers to take those homes away.
