Rough Weekly Wrap-Up

Wow, that was a tough one!

We clawed our way back to even at the close but, on the whole, we're getting the consolidation we needed.   As we noted in the Dow chart of last week's wrap-up, a flat week is certainly the norm after a big down week like we just had.  We ended this week committing a little more capital by rolling down our long positions and we'll be doing a little bargain-hunting next week as well.

One place we can start with is our bank stocks as it is time to get back into the banks we abandoned in May.  We can go back to my April 28th post "How to Buy a Bank" as, amazingly, some of our favorites are now selling for 50% off the prices we were looking at then.  We've treaded water on our C's by selling callers and the XLF play is down 22% in the LTP but I think I like them all now, we'll decide next week if we are going to go for it but I'm kind of excited about playing the beaten-down financials ahead of earnings.

Our virtual portfolios mainly treaded water this week as we did a whole lot of work just to stay about even:

• Short-Term Virtual Portfolio picked up 12% for the week, up 379% for the year.
• Long-Term Virtual Portfolio gained 3% for the week, up 139% for the year.
• Stock Club Virtual Portfolio held steady, down 10% for the year so far.
• Stocks Virtual Portfolio gained a whole point this week, up 7% after its first month.
• Day Trading Virtual Portfolio lost 10% for the week, up 17% after the first month.
• $10,000 Virtual Portfolio is at $23,135 after 30 days, a 3% gain on the week.
• $25,000 Virtual Portfolio as usual had bad luck – down 11% on the week, up 88% overall.
• Complex Spreads gained 4% thanks to GOOG's last minute recovery (and the fact we went 1/2 naked Thursday), up 326% for the year.

So – nothing thrilling but nothing horrible and, combined with the 1,000-point drop we've had since May 19th, I think we have to go with the old Air force adgage that any crash you can walk away from is a good one while we strap ourselves in for the rest of the ride. 

We closed just 47 positions for a 22% average gain as we continued to toss dead weight overboard, leaving us with a very empty Short-Term Virtual Portfolio (just 20 positions) and a Long-Term Virtual Portfolio with 31 open long positions against 2 puts and 17 spreads.  Going naked into expiration week is always risky but, with the VIX down, it just wasn't worth capping our potential upside, so we rolled first and crossed our fingers.  As Option Sage reminded us in last week's post, "Only those who dare to fail greatly can ever achieve greatly."

We went into the weekend well prepared and we were pleasantly surprised that we held up on Monday morning.  I began my week-long project of pointing out the bubble-like properties of oil and we were all set to get the Nasdaq moving after the WWDC conference but the rumor mill had other plans for AAPL, which dropped so low we had to roll our covers down. We expected a sell-off, but this is ridiculous!  Everyone was attacking the Financial sector on Monday, including Fed President Geithner, who announced additional regulations on credit derivatives, sending the XLF to a low of 22.4 on Wednesday. 

Stock and Options Trades gave us a call on Tuesday morning that Bernanke's comments made an rate raise more likely, which was right in line with my bottom call on the dollar the week before.  Tuesday morning I was looking for 12,200 to hold and it just barely did and I continued to call for more, very painful, consolidation days – because we needed them to put in a proper bottom.  There was no bottom to China this week but Japan seemed to think about making a turn at the end of the week.

Tuesday evening I said "It's all about the Benjamins" and we focused on the dollar and the POO as the main drivers of the markets as the two moved almost perfectly against each other this week.  I noted "it’s really just oil and agriculture that are out there on a limb, betting very, very heavy against a dollar recovery so we’ll be watching the dollar with great interest as there is a lot of room for a major adjustment in food and energy."  I said we should look out for a "shocking resurgence of the dollar" and our currency tore it up this week with a 2.7% gain, finishing near the highs and well on the way to a retest of the 200 dma at 75.

Wednesday morning it was obvious that change was in the air and we happily rode out what is hopefully the last 100-point drop for the Dow as we thought the rise in oil was completely unsupported by the inventory data and that oil was the sole factor driving the Dow lower that day.  In the Wednesday wrap-up I said "That was one hell of a bad day, let’s not do it again…" as our virtual portfolios were telling us we were a little too bullish for 12,000.  Still I put my foot down and called a bottom – we'll see if it sticks next week.

I looked at the WSJ poll's rejection of Bush and pretty much all of his policies as a big plus saying "Change is good and, as much as you "stay the course" conservative types (all 10 of you according to this poll) may not like it, this poll is a great signal to foreign investors that it may be safe to get back in the US waters – yet another positive for the dollar and right in line with my premise that we don’t have to have a great economy to attract foreign investors, just one that doesn’t suck as much as theirs."

By Thursday morning we were ready to don our rally caps again but there was a little overkill at the open and Whitney and Cramer attacked the financials so we ignored the BTE retail numbers and watched and waited (hence the low turnover this week).  I warned the EU vote in Ireland could be a dollar booster despite the renewed panic in the financials and the dolar finally punched through 73.50 after 3 months of trying.  We took advantage of the (hopefully) final drop in LEH as I said: "Our markets are looking pretty good ahead of the open but not as good as they were before LEH canned their CFO and COO.  I don’t think holding people accountable for losing Billions of dollars is a bad thing so I’m going to ignore that and focus on oil, which should be retesting $132.50 again this morning."

We had such a disappointing finish on Thursday that I had to have Julie Andrews sing to our members but we stayed the course as our evil plan for 2008 came together and I reminded members "Let’s remember my overriding premise for the year is that US markets will be the "least sucky" place to put money in 2008.  We expected the global economy to suck, we expected runaway commodity prices to cause a global crisis and we expected the dollar to bottom out.  Well check, check and check!   Things are going according to plan and it’s time to buy." 

Friday morning Bloomberg decided to back me up with their own article on the oil bubble and Sage was right on top of things putting up the chart I asked for that clearly shows the incredible similarity between the rise of crude and the rise of the Nasdaq pre-crash.  We are still playing conservative with our oil puts because, as I said "Just because something is ridiculously priced, doesn’t mean you can’t find another round of suckers."

I know the market has been very confusing these past few weeks but that is a good thing as we enter what is effectively our 6th month of consolidation between 12,000 and 13,000 after a 3-year run that took us from 9,000 to 14,000.  Way back on New Year's Eve in my Index Round Up, I quoted Alice Cooper saying "We have problems on the North, South, East and West, New York City, Saint Louis, Philadelphia, Los Angeles, Detroit, Chicago, everybody has problems, and personally, I don’t care" to make the point that it doesn't matter how much George Bush screws up this economy, it's still resilient enough to ride out his lame-duck final year.

We were looking for the Dow to bottom out at 12,500 ahead of Q2 earnings and I may have been a little optimistic calling for new highs in the summer but I'm still looking for a retest of the highs we hit last year.  As I said at the time, it's all about oil and the transports and it still is…  The results of the G8 this weekend and the special OPEC meeting on the 22nd will likely make or break that predicion next week.

For this week, we closed out 47 positions with an average gain of 22% with big gains on our Apple puts and XOM calls (of all things) and our GS play that we took off the table on Friday's run: