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Wednesday Wrap-Up

Another impressive day for the markets!

Mr. Jones said boo to 12,100 but finished at a new closing high of 12,176 with a strong finish.  Just like we were looking for in the morning, we tested and held Monday’s gains – giving us a very good signal.

The best signal was at 12:50 when we heard Rumsfeld resigned and I said at the time “that’s great for the markets!”  It sure was.

The S&P made another attempt at 1,390 and finished right in the middle at 1,385.   The NYSE came to a rest at the high of the day, just 15 points off a new record at 8,857. 

The Nasdaq was the star of the day with another new (this decade) high of 2,384 and they accomplished it without the SOX, who flatlined for the day.

The transports also put in a lame performance on disappointing oil movement but, like I said in the morning, we were just thrilled to have them hold 2,600!

I know I’m starting to sound crazy (and I am doubting my own sanity with this oil stuff) but check out today’s NYMEX contracts.  Yesterday I pointed out that we got a $1.09 drop in the current month but a $1.40 drop in the forward months.  Well today we have a .90 recovery in the current contract but, once we get into ’08, just a .60 average recovery off of yesterday’s huge drops.

Contrary to the CNBC ticker, NYMEX crude settled at $59.83Oil jumped on an inventory draw but it was really due to an unexpected drop in refining capacity, not an increase in demand.

Refining capacity dropped .8% this week.  They were projected to make 2% more (450Kbd) but instead they made .8% less (-75Kbd) leading to a draw of 2.7Mb of gasoline in 7 days.

Merril Lynch has joined my camp and thinks this natural gas run is BS and, looking at page 11, we can see, as I have been saying for months, that gas prices are being supported by a record “open futures interest” that is 100% higher than last year and 300% of the historical average.  The same is true, to a slightly lesser extent in the oil market.

On page 21 we can see why XOM and CVX have been doing so well – since mid-August, gasoline marketing margins have gone from .30 to over .50 per gallon! On this chart you can see how refiners took the opportunity earlier this year to double their margins from .30 to .69 per gallon!

So the cost of speculation and the cost of tremendous oil company profits will not go away quietly, no matter what the actual price of crude is!  It will be interesting to see if the Dems change the rules that have allowed this to happen.

All that being said, we are ready to move on and away from this ridiculous sector.   It’s not so much that someone manipulates the NYMEX to raise the price of oil .80 in the last 10 minutes of trading as it is that this kind of activity goes without any media comment whatsoever!

Gold dropped $9 as the dollar made a mild recovery as the Democrats gained ground all day.

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AXP $57.50s were taken off the table at $1.70 (up 100%) leaving us with a free $60 at .20.

XOM Dec $67.50 puts were rolled into the Dec $70 puts for .75 but they finished the day at .55 for yet another .20 spanking!

I went in and out of VLO $50 puts for a nickel loss as we just can’t take these oil stocks anymore!

We got into the LMT $85 puts for .85 a little early as they finished the day at .70.

Sunrise decided TWX was extended and we picked up the Dec $20 puts for .50 (now .60)

TOT $70 puts finished the day at $1.20 (up 20%) but I will be out of this today unless something really great happens.

MRK Dec $42.50 puts finished the day at .50 (up 40%).


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  1. Morning Phil,
    I wanted your opinion of the MSFT Dec. 30s for .15. Alternatively, the Jan 32s for .10.


  2. any opinion up or down on amzn after the csco euphoria wears off?


  3. Hi Phil…

    How do you read Zune affect on MSFT and AAPL (you mentioned something like this earlier…if i recall) just curious..

    I am trying to stay from oils :-)

    - ramana


  4. I just can’t believe, I let my self to destruction w/ oil puts.


  5. Join the club.


  6. I’m in those MSFT’s but not for long if they can’t get it going on a firm Vista date! Jan $32 is a stretch, not worth the exra month for a 10% gain but they might both be winners if anyone does the math on how much money MSFT will make on 1Bn upgrades.

    ===============================

    AMZN is a manic/depressive stock where people think they’re a .com stock and then think they’re a retailer. Since they really are a retailer I don’t like to buy them at 56 times earnings!

    But the do tend to do well in Q4…

    ===============================

    I think Zune is a plus for MSFT that can quickly turn into a minus if sales falter while the reverse is true for Apple. As a long-term Apple holder, I have no worries about Zune or anything other than WiMax, which still looks a ways off.

    ===============================

    Oil puts – yep if these Dec and Jans don’t come back I’m taking my worst hit of the year on these things. I’m really mad because I even said last month that we should stop betting against the Valero Rule but it’s just way too tempting at these prices!

    I’m done here though, if it doesn’t come back in 2 weeks I take my 50% or so losses and pack it in on that sector (even though that’s what I did last September and missed what would have been a triple on the first drop).


  7. Thanks, Phil

    Im in on MSFT DEC 30 calls got them @0.20


  8. Phil,
    Our oil puts were disaster.


  9. Phil,
    Forget about oil puts, give us something else to recover our huge lost.