Terrible Tuesday Wrap-Up

January 8, 2008

92

Arrrrrrrrrrrrrrrrrrrrrg!

Wow was that awful! Things were going OK until exactly 2:30, with the Dow at 12,866 (the pivot point we've been watching) when it turned sharply lower and dropped almost 300 points into the close. Blame is being placed on AT&T's CEO Stephenson, who said the company is disconnecting more home phone and broadband Internet customers for failing to pay their bills. He also said the company is experiencing "softness" in its broadband and phone line businesses due to slowing economic growth. Shares of T plunged to the 5% rule along with the entire telecom sector.

As is often the case on big down days, we had a lot of comments (600) and ended up talking politics as there was nothing to buy. At least this time we didn't have to discuss the reality of global warming on a 70-degree day in NY in the middle of January! I will take a few minutes to stress to those of you who had a bad day how different your days can be if you take the time to learn to balance your virtual portfolios.

We discussed our performance to for the year (just 3 days) in the weekend wrap-up and it was off to a lousy start with the Dow dropping 500 points in the first week of the year yet here we are down another 210 points 2 days later and the markets are, as Tom and I have been pointing all week, looking very dire indeed. As I mentioned this morning, I told members I was ready to throw in the towel after Bush's speech yesterday, which gave us a clear signal that the government doesn't have a clue and sent gold flying to an all-time high in a Global vote of no-confidence in our leadership.

While I wish I would have just gone to cash (or gold!) then or, better yet, last Thursday when we were 500 points higher! I said Thursday morning that $100 oil would be the straw that broke the markets back and it did. Nonetheless, I was determined to give the market a chance to keep me bullish and I've kept a generally bullish posture in our virtual portfolios but balance (we were talking about balance) allows us to take that chance without being too badly damaged. Although the $25KP would have taken a 5% hit had we not touched it, our $10K virtual portfolio, which we were playing safe, actually would have gained $200 without us making a move.

But we did touch our virtual portfolios and I'm going to review the moves that were suggested on two crazy market days where the Dow made 7 100-point moves in 2 days. The original comments will be copied over to the free site so everyone can see them in context and get some idea of what we do all day:

Monday

9:33 – Short COP at $86, now $82.51 although it was the $85 puts we were talking about at $1.40, now $3.08.
9:54 – INFY Feb $45s (an existing trade) $1.15 at the time, sold 1/2 today at $1.80 but our basis is $1.90.
9:54 – Although I noted that BSC was "falling to hell" I was too dumb to just get out.
9:54 – DIA Feb $128 puts at $3.40, now $4.62
10:05 – Noted GOOG looked awful – too dumb to get out!
10:05 – DIA Feb $126 puts at $2.90, now $3.65
10:16 – Called for general cover of DIA puts against 30% of exposed virtual portfolios.
10:28 – CROX "Don't buy yet"
10:30 – GOOG $660s, average entry $14.10, sold at 12:46 for $16.50.
10:35 – "At least today the Vix is acting like it cares but it’s so much lower here than it was on our previous bottoms I’m not sure we’re even close to the end of this sell-off!"
10:34 – Rolled Apple to $170 calls and covered DIA Feb $128 puts by selling Jan $128 puts at $2.25, now $2.97.
11:02 – ELN Feb $25s at .95, now $1.25
11:05 – Sold C $27.50 puts at .57, now $1.25 The premise was we'd be happy to own C (with a 7.6% dividend) for $27, today we are not so sure!
1:23 – BA at $83, now $79.91. Also, "AAPL $180 not looking likely but I’ll be happy if we close over $177 as that could lead to a gap above tomorrow." And that's what it did!
2:05 – " Bush coming soon, might be a good time to press those puts." I wish I hadn't been joking at the time!
3:01 – "The market’s down and the VIX is down and Bush’s idea to save us is to lower taxes – That’s it, it’s over for this country… I am so disgusted!" I was not joking here at all – I really thought he was going to have something good to day, how silly is that?
3:08 – "DIA/QQQQ puts – same as before, the Feb $128 puts, although now more expensive. Given what I just saw, I have to defer to Tom’s TA which indicates an epic bear run in our future. That means you can go long on QID as a good gamble as the Nas could drop another 500 pointsif it breaks below 2,500 (oops, there it is!). If we do not find some reason to rally by Wednesday, we are going to have to get very, very bearish. It’s hard to admit your own country is going down the tubes but that’s what we’re looking at here. Our government is selling the nation down the river in order to keep their benefactors happy while they take their last pound of flesh from America’s corpse."
3:23 – FSLR Mar $250s at $23, hit $29 at the close and $33 today.
3:26 – "As bearish as I am, I am trying to hold out for 2 more days – it’s kind of arbitrary but we have a loooooong time to make money on the downside if we break here."

After the close I made my statement that I didn't buy the closing rally as it seemed forced (see comments for whole logic).

Tuesday

9:34 – "Don’t buy an Apple rally without a Google rally."
9:42 – Reminder to sell the FSLRs with tight stops and buy LDK Feb $45s for $5, now $5.85. Jan $45s sold for $2.40, now $2.62
9:59 – OIH $185 puts at $3.75, now $5.95 but I chickened out early.
10:06 – LVS Mar $95s for $6.80, now $4.65 (ouch). Also a note to roll up (to higher levels) the index puts. We're going to roll the LVS to the $90s for + $2 and hope they come back.
10:07 – WFMI May $35s for $4.35, now $4.38 (woo-hoo!)
10:08 – Setting 20% stops on calls we sold (luckily not too many triggered)
10:24 – DRYS $75s at $2.70, died at 2.35 I also thought GRMN looked like a buy at $85, not my best picks…
10:42 – Covered NEM calls that remained. Sold $55s for 1.35, now .80.
12:14 – GOOG $660s for $12.50,
12:19 – SU Jun $115 puts at $12.75, now $13.85
12:44 – Sold AMGN $47.50s for $1, now .60
12:46 – CROX Feb $30s for $3.30, now $3.80, sold Jan $30s for $2.35, now $2.20
1:57 – "On the whole you guys are way too gloomy. I said 12,500 before 14,500 and this is what it looks like. The big problem is this ridiculous lack of capitulation from the oil market which either means the entire rest of the market is wrong (we hope) or that is going to be on mother of a melt-down one day. Don’t forget we are just 3 days away from bank earnings so perhaps this is the last chance for bear manipulators to “foment” a bottom in that sector which is why the rumors are flying hot and heavy this week."
2:21 – "Don’t forget that statistic that shows Wed am is the top of the market for the week so if this is going to be as good as it get, it sucks!Today wee need 12,900, 2,525 and 1,425 at close otherwise today is a bust and we’ll have to be super careful tomorrow and probably shorting into a pop in the morning. Of course we have Bernanke on Thurs so that’s a nice wildcard to deal with too. CROX going insane now! WFMI looking good. SIGM very nice. TEVA at ATH, ABT too – my biotech premise holding up as the first sector to get rotation. Next should be semis if you are brave enough to buy them down here. I’ve got MRVL May $12.50s at $1.15 and SNDK Aapr $32.50s for $2.65 as XXX plays. CFC and ETFC resumed downtrend only now BSC doesn’t seem to care. GS not looking all that strong.

Right after that it all hit the fan. Cap noticed BSC was breaking down at 2:36 and by 3 pm we found out it was the T story that sank the market. I decided it wasn't a good enough reason for this drop at the time but hearing about the cancellations due to customers who are losing their homes after hours made me a little more nervous.

Notice the very different tone to Tuesday's trading, as I noted in the morning post, a lot of hope was gone today and the broader markets reflected that. We now have just 8 days for the Fed to take some emergency action, it will be too late if they wait until their meeting. Usually I am no fan of Federal interference but this is a real panicked market and we can't let it get worse as there is now too much wrong with the economy to wipe out people's equity positions as well.

Our finish was terrible but I took a chance on GOOG and BSC at the close, both seem ill-advised at this point but we'll have to see what tomorrow will bring. I hope your day wasn't too bad but, as you can see from our picks – there's money to be made in even the worst of markets, but not if you have to spend all day trying to protect what you already have because you aren't well balanced!