Weekly Wrap-Up – Go Go Google!

Wow another 500-point week!

We kind of had one last month (3/17- 3/24) as we gained 576 points over 5 sessions (Friday holiday), capping off a 2-week run from 11,740 to 12,548.  Our other 500 point run this year came in the first week of February, when we climbed from 12,200 to 12,743, completing a run from 11,971 the previous week.  We can discuss the technical ramifications of this next week but starting this run off a nice consolidation at 12,300 should bring us back to testing our predicted 13,000 to 13,600 range right on schedule (barring more financial shockers).

Of course we had a fantastic week, two of our virtual portfolios were Google heavy but our decision to keep the faith, even after we took a 12% hit from Google last week (and more pain into earnings) was the key to our success.  Because we were taking such a big chance on Google we played a lot of our other positons fairly conservative, which is just fine – if it's a real rally, we have a long way to go and plenty of cash to go there with.  As I often say, fundamentals do win out over time but, as John Maynard Keynes said: "The markets can remain irrational longer than you can remain solvent."  That's why balance is very important.

Balance was the key to our success the past couple of months as we rode out some very choppy waters but it's weeks like this that make all the frustration worthwhile.  As usual in a good run, our short-term virtual portfolio took a hit as that's where we keep our protective index puts but that was well offset by spectacular gains in most of the other virtual portfolios, where the bulk of our money was in play:

• Short-Term Virtual Portfolio dropped 9% for the week, now below 20% invested and up 228% for the year so far.  We are down to just 23 positions with only 11 open calls dwarfed in value by our puts (DIA and oil), which are nearly 1/2 of our invested position and down close to 40% overall for that group.  This is the price of success in our other virtual portfolios!
• Our Long-Term Virtual Portfolio has twice as much money at work and gained 21% for the week as our decision to take out callers and keep half covers was a huge winner this week.  That virtual portfolio is now up 116% for the year, very good performance for our "safer" virtual portfolio.  We have 45 position with just 9 fully covered – this is what all those STP puts are protecting…
• The Day Trading Virtual Portfolio is where we're supposed to take our chances and we went into the week holding $97,000 worth of GOOG covered by $30,000 worth of calls sold in our $265,000 virtual portfolio (started 3/3 with $100K).  After Friday's run we ended up with $210,000 in just Google stock with $78,000 of $510 callers sold against them and a virtual portfolio value of $314,328, up 49% over last week and up 214% in 6 weeks.  We will unwind this virtual portfolio this option period and start a new one for the summer on May 16th with a fresh $100,000 to allow new members to get in on the fun.
• I am very pleased to say our $10,000 Virtual Portfolio is now our $16,991 Virtual Portfolio, up 33% for the week and 69% since it's 2/19 start with $9,941 in available cash.  This virtual portfolio was down over 60% at one point so I could not be more pleased with the recovery as we are up 300% off the worst start we ever had for a small virtual portfolio.
• Our $25,000 Virtual Portfolio was not so lucky, holding dead flat for the week, up 30% since the 2/19 start, as our callers got the better of us for the period.  You can't say we're not well balance though, we gained a grand total of $15 for the week but we left almost everything uncovered (9 of 12 positions) as we go for it next week with 1/2 cash.
• The Stocks Virtual Portfolio has just 4 positions and put up a 7% gain for the week, up 58% for the year but I got assigned another set of MU as I missed them on Friday so let's hope nothing upsets the semis over the weekend!  This makes 2 years in a row that my stock system is working better than expected so I'm also going to reset this virtual portfolio for the summer as it's a nice, safe way to get a decent return.
• Complex Spreads is where we do the bulk of our Google trading and this virtual portfolio posted our 3rd best single week gain ever, jumping another 75% off our starting basis of $500K that we began with in January to a 221% gain for the year.  These were our GOOG Jan $420s that we had rolled and rolled down with Google's slide along with the April $500s we picked up for $2.80 last week, which did a nice job af capping our 1/2 cover of $450 callers with "just" a $30 gain.  Note that I rolled 1/2 the Jan $420s to the June $540s to effectively cash out but still allow us to roll the Apr $450 callers to 2x the May $530 callers, giving up just $20 of our gains. 

Our biggest failing of the week was our oil puts.  The DIA puts we can live with as they are a balancing protection against disaster but we did make a stand on oil two weeks ago and oil has certainly stood on us since then!  I'm still having a lot of trouble reconciling a major turn in the market with $115 oil and we'll see if we get a reverse back to $110 next week as the May NYMEX contracts expire.  All but 99M barrels were cancelled last week though, so there is not much work left to do as it seems the traders over there have this con down to a science now (with well-timed Nigerian rebel attacks allowing them to sell off 60M barrels on Friday at top dollar).

We started off the week on Monday promising a wild ride and, as we had predicted the week before, the Hang Seng came crashing down but we held our own and that was our first clue that things were going to be different.  We were hoping the G7 meeting would lead to a larger commodity sell-off and Monday night we discussed how G7 Minister Lagarde was herself surprised that their strong statement had little effect on Monday but I pointed out that so many amateurs trade the currency markets these days that it takes quite a while for those markets to start to turn, even on big news.

Stock and Options Trades got us started on the right foot on Tuesday with a bold prediction that the S&P would pivot at 1,325 on Tuesday stating: "This month that old resistance may well turn into support again and we believe that the next 24 hours will prove crucial."  Kudos to the boys for calling it ON THE BUTTON as the S&P bottomed out at 11:30, right on the mark, and never looked back – with all the indicies following their charts to a T!  Very nice job…

My Tuesday morning advice was to get serious and even GS's Senior Energy Analyst tried to call a top on oil but the NYMEX pump crew would have none of it as they dumped 87M barrels of oil off the May delivery schedule this week in their own perverse version of the Boston Tea Party, creating an artificial shortage of 22M barrels a week next month in order to sustain these ridiculous prices.  Now they have jacked up the June barrel order to 379M barrels at $114.45 per barrel and we can pretty much set our watches now for a Nigerian rebel attack or other pipeline "accident" on May 16th so they can cancel those contracts at the top as well…  Tuesday was otherwise uneventful and we turned our energies to solving the housing crisis that evening in a special post.

Wednesday Morning Intel got us off with a bang reporting solid earnings and raised guidance.  We limboed under low expectations with WM and BAC and JPM coming in not too bad – that was good enough for us to take advantage of Google's morning dip and jump on the $460s for $9 that morning, a free pick that should have paid for a lot of annual subscriptions (basic membership discount period ends in 10 days)!  Speaking of subscriptions, Optrader posted a free peek at his wildly successful Swing Trading Virtual Portfolio on Wednesday along with a great post on the strategies involved, this is a must read for short-term traders in a strategy that has posted 23 winners and just 6 losers this month.  Wednesday was simply a fun day, posting 1/2 our week's gains but we remained cautious ahead of GOOG and CitiGroups earnings.

After sleeping on it and rereading my own analysis of C, I was comfortable enough about $23 holding to call a buy on the April $25s at .15 on Thursday Morning, which topped out at $1 on Friday, another nice pick for the free readers!  We had a lot of earnings misses on Thursday morning but I felt the hits outnumbered them by a comfortable margin and we went for it with the message of the morning's sell-off being "Don't Panic."  We were more in euphoria mode on Thursday evening as Google's post-market announcement and incredible after-hours rally made our single largest position a huge winner.

This put us in such a good mood on Friday that we didn't want the week to end although, given the tremendous gains we made on Friday, we took a fairly cautious stance into the weekend as we still need the dollar to perk up and oil to come down or this may be a very short party with a very big hangover.  As the month is pretty much over and we have upwards of 500 reporting companies next week, anything can happen.  We're looking for a continuation of last week's generally good reports although I'm very worried about consumer sentiment shifting further down as gas prices move up.   

The CEOs of financial companies are already depressed, with 88% of them predicting a recession so expectaions remain nice and low and that's a good thing when you want to bet on earnings so let's look forward to another fun week followed by a slightly calmer May where we can place bets on the stragglers.

Although our virtual portfolios did very well, much of the gains came on our longer positions while a lot of the positions we closed were very painful losses so our 117 closed positions actually lost 5% on the week, our first loss in quite a while as we were forced to buy back a lot of callers that did very well.  This is why we went into the weekend well protected, we haven't been able to get much off the table so far.  The 5 Google callers we bought out (rather than rolled) in the DTP cost us $126,000 of our cash – that's something that really needs to be addressed next week!