Wheeee – that was fun!
I wasn't worried… OK, I was very worried, especially after my opening statement to members on Tuesday morning where I said: "Something is simply trashing the value of long calls and this is not the best time to sell them but is a great time to buy. I know it’s very hard to do that now but nothing has changed that drastically in 2 days that can’t reverse next week. It’s a sentiment thing and nothing else. Anyway, I doubled up on GOOG $540s at $9 and took out the callers. I’m taking out callers on other positions but, if we take another leg down, I will cover in the money 3/4 and use that cash to roll down wherever possible. XXX" There is nothing harder than sticking with a strategy near a turning point, it seems like everything is going against you, your strategy is failing and NOW we have to commit MORE??? Not a comfortable feeling.
We were so scarred last week that I'm still a little gun-shy, even though this afternoon, with the Dow flying and oil falling I was able to say "Everything is proceeding as I have foreseen" as our bets on the banks and the Dow components really began to take off. We took 3/4 covers with a mixture of July calls and index puts and hopefully we won't get burned to the upside tomorrow but it's not like we weren't going to sell August calls anyway and a 3/4 July cover can generally be rolled to a 1/2 August cover and that will be our plan if the market continues to roll higher.
Congratulations to all who stuck with the program, that was a truly amazing one-day comeback but we're not going to get all crazy just yet. I said at the beginning of the week that I need to see 11,800 on this run to regain confidence in the markets and, so far, all we have is a retest of last week's average. 11,400 was the high for July (sans occasional spikes) and THAT is still down 1,600 points from May 19th.
We committed a lot of cash to our new positions and, on the whole, I'd rather go back to cash or stay well covered than take a huge risk based on one or even two day's trading. We still have to get past GOOG and C earnings so, to make two Star Wars references in the same post, I'll say "Great shot, now don't get cockey kid!" I do believe I'm right, I do believe the market is way oversold and I do believe that we can have a great recovery here but we are not as flexible as we were before. We have to manage our capital and concentrate on getting back to a good balance so let's take some winners off the table, leave the ones that we have a lot of confidence in and OBJECTIVELY view the market action. If we are having a real rally, 13,000 is over 10% away from here, 10 days like yesterday to play and 13,000 is the bottom of the range we traded in last year after our spring breakout.
It is still all about oil and oil is a major wildcard that can turn on a dime. If oil collapses, then I'm willing to take a lot more upside chances but $133 is not a collapse yet, it's only testing the 50 dma at this level. We need a proper breakdown to go hog wild and pull off the covers entirely. I think we'll get it, we should get it, I want to get it so let's hope it happens because, as I said last week, it's the only thing that's really wrong with the global economy.
What has happened before is that market rallies on mild oil pullbacks have been taken as a signal that we can "afford" oil at that price and the NYMEX crooks have seized on that to create a bottom. What can save us now is what I talked about recently, that now the market is so beaten down that it is more likely that you will get a double investing in a bank than you will investing in a barrel so it now makes sense for the manipulators to rotate themselves out of oil and into the markets.
Remember the timing of rule changes support this theory (assuming you believe GS controls the universe) as the NYMEX margin requirements were doubled, making it harder for new buyers to come in and support oil and making it harder for new shorts to come in and make money to the downside, leaving the existing contract holders in control. Combine that with the new shorting rules on the banks and you have a funnel that allows money to move from oil to the finanicials with very little risk of loss. We're not going to complain about this as we were ahead of these guys for a change – we never complain about evil market manipulators when they're on our side!
