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Friday, March 29, 2024

Weekly Wrap-Up

Again the markets held up fairly well in the face of adversity.

We’ve been looking for a correction for a couple of weeks and, if that was all it is, we could be heading into a nice rally. This supposition is based on several factors that have held the market down this week can’t get worse: Oil heading to $70, interest heading to 5%, gold heading to $600, Iran has WMD capability, Iraq continues to be a quagmire… Also, a lot of people were taking profits off the table in a thinly traded week to pay taxes and that should be over by Monday.

Last year we had a 900 point Dow drop between Jan 1 and April 15 so it is understandable that many buyers (including me) had a wait and see attitude this year but, in both last April through July and the same period in 2004 we had 10% runs in the indexes. 2003 also had a very strong last 3 quarters and, although I would have liked to have seen more of a pullback (and still may see it), it does look like we are consolidating for a huge move up.

The Nasdaq is still resting on key support so we will look to that next week to gauge market direction but we need the S&P to get back over 1,300 in order to have real momentum.

Traders have cautiously trading as though we are in the mid ’70s when an the Arab oil embargo dropped the markets from 1,047 to 577 but this is a totally different situation. Back then oil went from $12 a barrel to $42 in just 2 years (to keep that in perspective, a new VW bug cost $1,995 back then) but it wasn’t the price of oil that killed the economy – it was the lack of supply!

There were many issues (Nixon resigns, we lose a war, stagflation) back then and here is a good summary article on the oil situation:
http://en.wikipedia.org/wiki/1973_energy_crisis#Chronology

Bush isn’t going to resign(so many jokes come to mind), we are not leaving Iraq for a long time (in the early 70s, when the war was a total disaster and everyone was protesting the Dow went from 662 to 1047) and there is plenty, plenty, plenty of oil. We did not have a 6 month strategic petroleum reserve back then, Canada did not have more oil than Saudi Arabia back then, Mexico did not have significant oil back then… At $100 we have all the oil we could want for the next 50 years!

So it’s just not the same. We may end up paying $100 a barrel for oil but the Europeans have been paying $4-5 a gallon for gas for the past 10 years and they adjusted just fine. So perhaps commodities are just expensive because we have a thriving economy and thriving economies use a lot of resources…

Oil did shoot up to $70.50 in London this morning but the Asian markets don’t seem to care. Europe is closed like us so I expect everyone to take a breather on Monday but I won’t be surprised if we see some buying later next week.

Chad has now threatened to cut off another 175,000 barrels of good (light, sweet crude) oil on Tuesday if the World Bank doesn’t change a policy that has frozen their funds so we will have a whole new crisis on Monday!
http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060415:MTFH92117_2006-04-15_15-27-50_L15738095&symbol=XOM.N&rpc=44

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I know gold looks overbought but so did oil at $40, $50 and $60 for the past 18 months! I think we are simply in the same consolidation you can see on the charts at $400 and $500 levels which means we are about to burst to $650 by May.
http://stockcharts.com/gallery/?%24gold

Copper is also nowhere near done going up and PD an PCU are only being held down into option expiration as they have run up 15% since the last expiration. I will wait until the end of the week but copper should get close to $300 and these stocks will make fresh highs in the near future.
http://stockcharts.com/gallery/?%24copper

MRB for $3.11 is still interesting to me. Like all miners, the value of the company is based on $180 copper, $400 gold and $6 silver (3 year averages). Production is increasing by leaps and bounds while end prices are going up. As a rule of thumb, it costs $340 to pull an ounce of gold out of the ground and great miners do it for $320 and poor ones do it for $360 but, at $600 an ounce, who really cares anymore? We originally picked this stock back in December at $1.80! If this company can learn not to use the mining term “Decline” in press releases they might really take off:
http://biz.yahoo.com/iw/060406/0121789.html

NAK at $6.50 is another miner that gets no respect. They are sitting on a huge Canadian reserve and will make a nice long term play.
http://www.northerndynastyminerals.com/ndm/Home.asp

If oil keeps going up, gold will follow but look out below if oil takes a big dip!
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We shouldn’t be holding any stocks so there’s not much to review but let’s see how the week went:

Even with a down week the AAPL $62.50s wound up at $4.80 (up 50%) but how could you still be holding those from $70?

ABX stayed down with the gold sector and the May $30s finished at .75 (down 5%).

ADSK peaked on Monday but the May $40s are still $3.20 (up 240%).

ADM has been on a tear but the May $40s are only up 10% to .45. We shouldn’t have been cheap as the $35s did much better so far.

AIR May $25s dropped a bit to $2.60 (down 10%) but if BA and BEAV continue strong they should catch up:
http://finance.yahoo.com/q/bc?s=AIR&t=1y&l=on&z=m&q=l&c=beav

If you didn’t take the triple on AH $60s and got burned earlier in the week, you were saved yesterday as it went back to a double at $2.

AN was up 30% but holding it was a huge mistake as the May $22.50s dropped to .20 (down 60%) but with earnings on the 24th I’m doubling down!

AVNX is why I hate small caps, you have to be way too patient and ride out horrific dips. It finished the week at $2.80 (down 20%) despite the best possible news early in the week.

BA May $80s never hit my $1.50 target but they did bounce from $1.80 back to $4.70 so I was just off on calling the bottom!

BIIB was a tease on Friday and has languished since, the $45s are down to .75 (down 35%) but, on the bright side, the premium is just .65 now!

BJS had a rough week and the May $37.50s finished at .80 (down 30%) but the stock is looking stonger now.
http://finance.yahoo.com/q/bc?s=BJS&t=5d

BSM was a good play from Daniel as long as you went into it with a 5% trailing stop. The stock went from $6.50 to $7.12 but quickly pulled back to $6 where it finished the week. With a stop, it was a 5-10% gain, without a stop it’s a 10% loss. This is why I usually don’t play these – far too day trady.

BVN dropped on election worries in Peru but PCU recovered so I’m betting they will too and I’m doubling down on the June $30s for .55 (down 40%) as long as gold is still over $595:
http://finance.yahoo.com/q/bc?s=PCU&t=3m&l=on&z=m&q=l&c=bvn

Even though I doubt he will win the election in the end, Socialist candidate Humala has been trying to reassure foreign investors lately:
http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-04-10T194031Z_01_N10339502_RTRIDST_0_PERU-ELECTION-HUMALA-PICTURE.XML

C $47.50s are already in the money at .95 (up 90%) but it’s too late to sell so we have to pray for a good earnings report at 8am!

DD still looks solid with the May $45s just .25 (down .05).

DIA May $111 puts were a great hedge this week as they moved up to $1.35 (up 40%).

DIS did not do us any great favors this week but the $27.50s finished at .50 (up 25%) but I think it’s time to roll it into the May $27.50s for $1.

DJ also picked up a dollar this week and if you didn’t stop out the $40 puts are now just $2.25 (up 120%).

Our EBAY $40s are down 15% from our original buy at .90 but we did say to buy only 1/4 per day and the DCA should be flat at .75 into earnings. The May $40s are hanging tough at $1.30.

ELN just could not get anything going and it was my bad for trying for the $15s instead of the more stable and lower premium May $12.50s as this is unlikely to move before options expiration (but it will move!).

GAP made a bit of a comeback since the dividend payout but the May $35 puts are still $1.75 (up 75%).

I’m rooting for LVS to run to $70 (p/e 90) where I will be happy to short it into May 1 earnings!

The MCD May $35s took a big hit yesterday and are now even at .90. Lucky for me I sold!

I couldn’t have gotten excited about MDT at a worse time but I also expected a pullback (just not the same day!) and the Jan $45s held up OK at $1.70 (down 10%).

I called the dead top on MTU Friday, up 66% on the Aug $12.50s was indeed enough as the stock gave back 10% this week.

N had an erratic but up week:
http://finance.yahoo.com/q/bc?s=N&t=5d

I would have hoped for more but we really can’t complain about the RIMM $80 puts ending up at $3.70 (up 250%).

SBUX is a great example of why I hate this kind of market – what a hard way to make 20% as the May $40s finish at .65:
http://finance.yahoo.com/q/bc?t=5d&l=on&z=m&q=l&p=&a=&c=&s=sbux

SNE was so easy it felt like cheating as a rash of good news and a low Thurs. open already gave us a nice pop on the May $50s to .70 (up 25%):
http://finance.yahoo.com/q/bc?s=SNE&t=5d

SPY $130 puts were also a good hedge, picking up 20% to finish at $1.50.

TIE gave us a scare Tuesday but recovered like a champ and the May $55s zoomed to $3.70 (up 70%):
http://finance.yahoo.com/q/bc?s=TIE&t=5d

TGT is a huge disappointment with the $52.50s winding down to .20 (down 70%). I still like the stock but nobody likes this sector so we need to give up.

Those UNH $55s are going to be a nail biter (if you still have them), finishing down at .75 (down 40%) with earnings on Tuesday.

We didn’t play it but USO had a wild first week but with a fairly disappointing 4.5M shares a day traded so far:
http://finance.yahoo.com/q/bc?s=GLD&t=5d

Here’s a nice article on the fund and why I can’t wait for options to open on it!
http://yahoo.smartmoney.com/etffocus/index.cfm?story=20060412&afl=yahoo

WAG got hammered all week and the May $45s finished at .55 (down 20%).

We originally picked the YHOO $32.50s at $1 and they jumped 40% but crashed the rest of the week and finished at .60 – this week’s poster child for taking profits off the table. At .60 I am going to buy them back into earnings!

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On 3/31 we took a Google spread of the May $450s for $4.60 and the May $340 puts for $6.70. The $450s peaked Tuesday at $10.50 and the $340 puts proved resilient, never going below $3.40 that day.

When I play a spread on a volatile stock I usually cash out a double and let the other half ride, hoping for a pullback, which would have been perfect here looking at Google’s recent drop but the $340s finished the day at just $3.20, even though the stock dropped $16 since Tuesday!

This indicates to me that no one is buying this drop and sentiment is still very strong to the upside. It will be interesting to see what happens next week as Thursday’s action was meaningless on volume of just 6M. (I bought more calls!).

The May $500s I started buying at $2.25 dropped all the way down to $1.35 and, if Yahoo disappoints on Tuesday this could be a disaster (or an opportunity, who can tell?).

In my new spread I filled 4X May $490s for an average of $1.90 and picked up 4X May $330 puts for an average of $2.15. I think I am done with this bracket and will now wait to see which way the wind blows before committing more capital.

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