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Thursday, March 28, 2024

Wobbly Weekly Wrap-Up

Berkshire giveth and Berkshire taketh away!

We started the week watching BRK.A as a leading indicator and they immediately showed us where to top of the market was on Monday morning as they dropped half a point at the open.

That put us on full-time canary watch by Monday night but I will say that the DIA $123 puts I picked up Monday are only up 16% so how bad has the week really been?  Tuesday seemed like we might have a recovery but FDX scrapped the Transports on Wednesday, a move from which they were unable to recover.

On Wednesday morning, I called the dollar as stabilized (for the moment) and decided that would be trouble for gold and oil, which it certainly was as things got so bad later in the week that even GS had to downgrade the energy sector!

In comments, Zman and I were the only two oil analysts in the country who saw that 6Mb draw in crude in this week’s inventory as bearish for oil and immediately advised everyone to short energy stocks – a move that gave us a week of winners.

Oil did indeed finish the week just 1 cent over my Wednesday target of $62.40.

By Thursday morning, following our three canary rule, I said:" I still don’t want to hold much over the holdiays unless it is well covered so I will be reducing naked positions across the board and knocking out the underperformers.."

Thursday did indeed give us an ominous "thump" in the markets and we noticed that Mr. Buffet had jumped ship and it had, indeed, been a good day to cash out.  This was superb timing as we walked away at the top (or pretty close) and left us able to watch the carnage on Friday with amused detachment.

I reduced most positions to token amounts, rather than kill them entirely so there are still a lot of open positions on our spreadsheet but not too many serious commitments, even our oil puts mostly came off the table but I still feel there is enough underlying strength in the market that I’d rather keep tracking 59 short-term plays with the new system we worked out in comments than take them all off my screens.

We fully closed 28 positions this week with a stunning 110% average gain on 23 average days held.  This was, in large part, due to 3 700% gainers, 2 from MGM and one from XOM and throwing those out leaves us with a more normal-looking 45% average gain with 12 average holding days.

Our 59 remaining short-term positions look good with a 40% average gain but that included a NKE position where our .10 basis is up to $1.45 for a 1,450% gain.  Without that shocker, the average gain is just 15% so far on 15 average days held.

When we see our average gains on open positions go down (and they were 64% just last week) and our average hold going up (was 9 days last week) it’s a sign that something has changed and our mix is no longer workingThis has always proven to be a reliable time for us to cash out and has predicted the last two major market corrections.

Our 21 remaining long-term plays are up an insane 377% over 32 average days held but that included a 6,300% gain on PD (.05 basis, now $3.15) and a 1,225% gain on our STN play (.20 basis, now $2.45).  Dropping those 2 down to a double yields a more in-line 44% return for the month.  I’m still working out some kinks in tracking the income producing plays as they tend to get to a negative basis after the third month of selling calls against them!

Please note that this is not normal market behavior, you can’t expect 17 out of 21 leap positions to remain in positive territory 2 months in a row – our job is just to be there when it happens but we cannot make this happen all the time...

In our closed positions for the month, we had just 4 losing trades, 3 of which were cover plays on oil and there were a couple of oil puts that came in even as we lightened up for safety (although I wish I had those COP and CVX $70 puts back right now!).  We had 7 doubles, including the very old MGMs, a couple of nice AXPs, XOM puts, PFE and GE calls.

The latest spreadsheet will be posted on the members site over the weekend and I’m not going to do a huge analysis as it’s Christmas and I don’t even know if anyone cares!

I am going to do a very in-depth analysis of our remaining long-term positions for the members before the new year, as soon as I finish closing out our "Forgotten Trades" which are not on the spreadsheets as they predate the majority of the membership.

This way we can all be on the same page as we start the new year which I think is going to be very important as good position management (as can be seen from our long vs. short performance) is going to be key in making money as the market turns choppy!

 

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