What a relief!
Let's just hope it sticks, as I said early in the day, we still expect oil to shoot back up into inventories and it remains to be seen how far that takes the market down, possibly a lot if we get the draw-down we've been expecting since we first noted that the NYMEX crooks shorted crude deliveries by 20Mb for July. This is the likely spot they'll try to forestall declines in oil due to horrific demand destruction (MA reported that drivers used 4% less gas this weekend than last year).
The EIA set their expectations for cude for the year to an average of $127 a barrel, high but still lower than where we are now and indicative of a pretty rapid drop back to the $120s as we are already into Q3 so the longer oil prolongs its "island top" the harder the fall should be on the other side.
We had a totally fantastic day with all of our virtual portfolios making good progress. Our intra-day picks were almost perfect today with too many good calls to list as we hit the fall, the rise, the fall and the rise of the Dow right on the money as well as the fall and the rise of oil along with our usual good timing on GOOG. I have to say it was a nail-biter with the terrible looking pre-markets as we were just 75% covered on Apple and Google and we removed a lot of covers Monday afternoon but it all worked out in the end – now we just need some follow-through or we have to go back to covers…
It was very encouraging to see a relatively small rally do so much for our virtual portfolios. The STP jumped 10%, the LTP gained 8%, the DTP picked up 27% (over 100% in week 6!), our $10KP is now $11,340 (up 20% since Friday), $25KP fought back to $30,000 (up 10% since Friday), Complex Spreads jumped 16% and even our pokey old Stocks Virtual Portfolio picked up 2%. This is good, there is light at the end of the tunnel, especially if we can get oil below $125 and hit my 11,800 target by next Friday!
Of course, all these gains can be reversed tomorrow, so let's remember yesterday's lecture and be ready to cover, cover, cover if we have to. We uncovered our index puts yesterday to protect our gains and my initial reaction to any drop (like the one that may be caused by oil breaking over our $137.50 line) is going to be to grab index puts first, cover if I have to. At the moment, the best moving puts are going to be the DIA $113 puts, now $1.25 so be ready with the symbol (DIASI) and know how many you want to buy to protect yourself if things head down. Generally, I'll buy 1/2 a the drop of a hat and then scale in if I think I need more.
You should have very tight stops on these as they should be protecting your naked calls, so there is no shame to stopping out with a .10 or .05 loss if you miss it and then rebuying 20 minutes later when you get worried again. Better to lose a nickel 5 times as the market keeps going up while your open positions post gains than to be uncovered if the market plunges too fast for you to cover up. This is insurance, always know what you are willing to pay for insurance and understand how much insurance you need. In a very severe drop, these become mattress plays, which are very profitable but that is not why we regularly take them.
Our Transport call was right on the money this morning and it was one of the best performing sectors and, aside from commodities down at the 2.5% rule, energy was about the only sector that was down with a 1.5% pullback – a pretty mild unless you know you have a draw on inventories in the bag because you told your traders to cancel 5,981,000,000,000 of the 6Bn barrels traded last month on the NYMEX to make sure that the terminal at Cushing only got 1/2 of it's usual allocation of barrels while Bush put another 3Mb into the SPR despite Congress passing a bill telling him to stop. Only if you believed something that crazy was going on can you understand how well the energy sector held up as Crude drops 7% in 2 days.
Airlines amazingly popped 11% and IMB dropped 38% and seems about done. The fact that a run on this bank did NOT tank the financials, is a huge sign that we may have bottomed on the financials but it's going to be down to the wire with earnings season – very exciting stuff!
VMW finally proved out my bearish predictions as they toss their CEO and lower '08 outlook, it does make me feel better when fundamentals finally win out, although this one took a while. ODP gave a nasty warning and fell 32% in what Credit Suisse called "one of the least surprising misses of the year." The key will be to figure out if this is a true indication of corporate spending falling off 10% (ODP's decline in same-store sales) or are they just losing ground to SPLS, who were actually on my watch list for a turnaround (maybe at $20).
On the whole, earnings were great today with beats from GBX, PBG, HELE, AA and ZZ and only a miss from PRXI, who are pretty random anyway. Tomorrow we get early numbers from ACGY, FLOW, ISCA, NUHC and WWW – none of them market movers and later we hear from AIR, who should be strong, INTV, RECN, RT (big deal if they miss very low expectations) and SGR, who I mentioned over the weekend Iran could just buy and have access to all the nukes they want.
AIR impacts BA so we'll watch them closely and I can't understand why SGR has been selling off with this resurgence of interest in approving nuke plants. Maybe it's a knee-jerk reaction to McCain already looking like he's lost the election but Obama and the majority of Dems are fine with nukes. Who's been in charge of Congress since 1994? And before 1994 it was Bush/Reagan… NOW that the Dems have a majority, approvals are going through. Think about it…
