Wild Weekly Wrap-Up

Ta-Da!  And he sticks the landing!

I wasn't worried, were you worried?  OK, I was just a little terrified as the market tanked way below our expectations of holding 11,000 on the Dow and certainly we weren't looking for 1,200 on the S&P, down 50 points from Monday's open.  The S&P isn't supposed to jump up and down 4% in 2 days, that's really not a healthy environment for 500 of our biggest companies.  Way back in August of last year I warned that if our government pursues Asian-style Central Banking policies they will subject our markets to Asian-style market swings and look what we have now!

Bernanke did not listen to me then (Aug 23rd) when I said "The Fed can not, MUST NOT lower rates" and the Dow has dropped 2,500 points since then despite putting up brief rally highs in October (which we are down 3,000 points from).  We have to get off this "quick fix, damn the consequences" attitude in this country and back to pursuing something that at least looks like fiscal responsibility.  I see that Phil Gramm left the McCain camp so I'll volunteer my services as the new economic capo di tutti cappo on the straight talk express.  My name is also Phil so it should be less confusing for Mr. McCain, who seems to be easily confused.

Last weekend we were very frustrated with the way things were going and a lot of you circulated my post on "How to Save the Markets, the Banks and Housing Tomorrow" and I guess Email is slower than we think as it took all the way until Tuesday for my post to turn the markets around.  Well, maybe it wasn't just me but at least our conclusion was, if it's all fixable then that means it's not unfixable which means we could expect a nice turnaround despite the overwhelming doom and gloom that was coming from the MSM. 

Last weekend, with oil at $145 and the Dow down another 200 points from where I had put my foot down on July 5th, it was very tempting to do a Cramer flip-flop and go all bearish but I actually REMINDED people what I said on July 5th, that oil would top out and the markets will recover BECAUSE I am a fundamentalist and there is nothing that GS, Whitney or Cramer are going to say that is going to make me panic out of positions in companies I feel are sound investments. As I pointed out in last week's wrap, we had gone from 70% cash to 75% invested with an expectation of a rotation out of commodities and into Tech and Financials.  We sure got our Financials off and running again this week!

I said on Sunday "I wish there were a more painless way to pick a bottom but the only way to get ahead of the curve is to take a little damage at the bottom."  Monday we were opening up but much too far up and for no reason for my tastes back to the manic/depressive market conditions we've noted in the past.  Oil was still up so there was no FUNDAMENTAL reason to be rallying and we played it cautious, which was a good thing as the "rally" lasted all of 5 minutes.

Monday's action left us REALLY depressed as we had a rotten finish.  I had called it right as soon as the market opened (my 9:49 comment as we were up 100 points – "Very unimpressive move so far.  Oil still at $145, moving up is still bad there let’s not forget") but still we were in the mood for a recovery and that drop was just like a kick in the gut for us.  In my closing post, I blamed Bush and I blamed oil and we discussed what a scam it was in great detail and maybe we finally got through to someone who matters because we finally got our dip the next day. 

Tuesday morning seemed ordinary enough and we expected the big Asian sell-off based on our Monday performance but I urged calm and I liked the earnings we were seeing and despite the horrible looking pre-markets I said in the main post "While there certainly are factors out there that we can legitimately worry about – the fact of the matter is that US equities continue to be the least sucky place to put our money as they have the best chance of giving us a return that beats inflation and I am still buying."  Just 10 minutes after the open with our risky LTP position down considerably 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."

We were tenative on Tuesday and did end up taking a lot of covers that had to be rolled but, on the whole, it was a very good bottom call and we added a lot of new positions that did very well.  By Tuesday eveining I was back on the phone saying "show me the misses" as we got another good round of earnings and, depsite ol coming down a bit, I wasn't going to let them off the hook and we discussed the "NYMEX Tea Party" in which crooked traders were dumping tens of millions of barrels scheduled for US delivery in order to create an artificial shortage of crude while the refining cartel was sending 1.4M barrels of product a day out of the country to deplete that inventory and make our "demand" seem to be 5% higher than it actually was.  

The barrel dumping continued this week and the changes were as follows (since Tuesday evening):

So after trading 1Bn barrels worth of contracts in 3 days at the NYMEX there was a net change of just 39M barrels but the big change was that 74M barrels that were scheduled for delivery to the US in August were CANCELED – they are NOT coming now.  I will tell you that by next Tuesday, just 48 hours from now, another 1/2 of those contracts will be canceled AT LEAST!   This has been going on month after month as the crooks at the NYMEX trade BILLIONS of barrels each month at outrageously high prices and they don't actually want ANY of them.  Well, OK, to be fair, we have seen as many as 42M barrels actually accepted for delivery so thats 42M barrels delivered divided by 6,000,000,000 traded equals 0.7% is the true demand for crude and the rest is SPECULATION!

I nailed the action on the Transports in my closing paragraph on Tuesday and we've got 10 of the 20% I was looking for and the Dow has 400 of the 1,200 points we're looking for so let's watch both of these closely next week.  Wednesday morning we had all the normal concerns but the POO kept falling and WFC scored for us pre-markets and let us laugh off a dreadful CPI report and a very surprising build in oil gave us just what we needed to to get off the floor, hopefully for good.

Thursday morning we got decent housing numbers and a bad Philly Fed but the market move had shifted noticably and a couple of worrying bits of economic news weren't going to keep it down.  In the morning post I said I would prefer a nice, relaxing gain to a sharp rally and that's pretty much what we got and we turned out to be a little too conservative with our July covers but our plan to roll to 1/2 August covers served us well and the DIA calls I suggested in the morning took the sting out as the market climbed another300 points.

Andrew Wilkinson suggested picking up "Anything that's been hurt by fuel" in his mid-day post and that was a great suggestion.  GOOG missed in the afternoon and we thought the sell-off was overdone, which led to some losses on Friday as we played for a bounce that wasn't there (but we're back on that horse for next week).   We also took the opportunity to take out our AAPL callers ahead of earnings, dropping to 1/2 Aug coverage and it was very encouraging that GOOG was unable to tank the markets on Friday morning.

On the whole, it was a pretty good week and we are closing down a lot of our virtual portfolios to start a new set based on risk factors, hopefully having learned something from our experiences during the long drop of the past month:

• We say goodbye to the Short-Term Virtual Portfolio, up just under 500% at 481% for the year.  This virtual portfolio had our very large and very risky bets on C, BAC, LEH, JPM and XLF, which all pulled off doubles this week while we cashed in some of our DIA puts which had made ridiculous amonts of money on the way down.  This virtual portfolio going away for now so we can concentrate on our newer, strategic virtual portfolios.
• Our Long-Term Virtual Portfolio will remain the same, recovering 30% on the week as we had taken also a very risky profile with a very heavy weighting in financials.  The Stock Club virtual portfolio went the opposite way, falling 10% further down as we had covered much more and we'll have to let time heal that wound over the next month or two.  Both of these virtual portfolios will continue forward but, for the LTP, the STP puts will no longer be there for protection so expect the mix to change to add additional risk, hopefully to buffer moves that go against us.
• Our $10,000 Virtual Portfolio took a $2,500 hit (25%) the same way the Stock Club did – we plowed a lot of money into a Google spread and, while the front-month premiums are against us, the numbers look horrific.  These positions are being rolled into the $25KP, which will follow a conservative strategy to get to $50K while the $10KP will terminate in favor of a new high-risk $10KP Xtream, which will have a goal of getting to $100K as quickly as possible.
• The $25,000 Portflio had a good week and gained 24%, also dragged down by our Google spread at the moment.  This virtual portfolio will continue as it and will prick up the Googlefly from the $10KP for tracking purposes.
• We'll say goodbye to Complex Spreads, which will go back to their original purpose of being a Butterfly Collection but ended up holding all of our AAPL and GOOG trades along with a lot of CROX calls.  This virtual portfolio made 372% for the year so it's a good time to take the money and run anyway!
• The experiment we started with our Stocks Virtual Portfolio on 6/22, when I asked "Can You Be Satisfied Making 20% Returns Each Year?" was a huge success and we gained 34% this expiration week thanks to our faith in FNM and FRE at the bottom.  The Stocks Virtual Portfolio was only just reset on May 19th but we're going to reset it again not that we've shown that trying to make 20% a year does NOT mean you are only going to make 20% a year, it just means you can take less risk and still make money!
• Of course our Day Trading Virtual Portfolio, which was also reset on May 19th, will remain the same as they are Day Trades, so you are not missing anything if you start today!  We had a fantastic week, up 37% as our 100 BAs and 100 XLFs and 240 HOVs from last weekend's wrap-up all had spectacular weeks.  We are up 140% in 2 expiration periods and it's still a nice, choppy market for day trading…

Overall, it was a good week.  We closed out 85 positions with a 26% average gain, a little low for an expiration week because we were forced to roll a lot of our callers forward into August, rather than close them out.  If we continue to rally, we'll have to buy back a lot of covers at losses so we're not doing cartwheels just yet.  Of course we don't want the market to go down either but it would be nice to see some actual consolidation just for one period!