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Weekly Wrap-Up

Was that the bottom?

After many disappointments this week actually ended about flat.  We continue to have an inverse relationship between the markets and oil that we discussed last weekend and I gave a play by play instruction book Wednesday on how to manipulate the markets to make Billions using just $50M on the NYMEX that it looks like someone took to heart on Thursday and Friday as oil went up and down 5%, yanking the markets up and down 2% in the process.

Monday was manic as usual, with very nice pre-market gains quickly turning sour.  We fell from 11,665 on Monday morning all the way back to 11,300 on Wednesday and finished the week at 11,628 – not exactly inspiring overall but we held our Aug 4th lows, which were better than our July 28th lows, which were better than our July 15th lows so it's kind of like progress only without the higher highs that indicate a proper recovery.  So it looks as though we may still be consolidating, and that means perhaps another trip to 11,800 and the next time back down we'll be hoping to hold 11,450 as a firm bottom to call it progress.

It's all going to depend on the first two days of this week, if we can race up to 11,800, we have a good chance of breaking up, if we can't get there until Wednesday, we can expect it to be "hump day" and back down we go.  From a data perspective we have July Existing Home Sales, probably not exciting, on Monday, followed by Consumer Confidence, July New Home Sales (blah) and the FOMC minutes on Tuesday.  Nothing there that sounds like we'll be making new highs is there?

[Earnings+cycle.bmp]Our best chance for a big rally is Wednesday's GDP, which may be even higher than the 2.7% projected (thanks to the stimulus checks).  It's very, very, very hard to sell a recession story when the economy is growing at 3%.  If we can couple a better than 2.8% GDP with less than 400,000 jobless claims on Thursday morning AND we're holding 11,800 from Tuesday THEN we may get back over 12,000, that's the best-case scenario for the week.

We get earnings from TMA on Monday evening and Tuesday we see AEO, BIG, CHS, SFD, TUES, BGP and JCG, which will give us a good look at consumer spending patterns.  Wednesday it's DLTR, FTD, SOLF, TLB, BNHN, JAS, MW and TIVO.  Thursday is our last big earnings day with SHLD (got 'em), TIF, WSM, ZLC, DELL, DDS, DLM, DHT, DLLR, MRVL (got 'em), PETM, SNDA, LNUX and WIND.  This group also sets us up for a possible rally on Thursday so if we're still over 11,800 on Wednesday, it might be time to be downright optimistic.

That will be all up to the Wednesday oil report, bogus though it may be as well as that GDP in the afternoon.  It would be nice if no banks collapse (Columbian Bank was shut down on Friday but they were very small).  Actually, "only" 8 FDIC insured banks have been shut down this year in 9 months vs. Whitney, Roubini et als' prediction that "hundreds" of banks would fail in 2008.  While there are still 4 months to go – they are pretty far behind their pessimistic schedule.  Since the doom and gloom predictions aren't panning out over here, the doom sayers have now shifted their focus to Europe, where a paper presented in Jackson Hole this weekend now says "European officials have an "urgent'' need of plans to cope with a failing bank."

This has caused Trichet (also at Jackson Hole) to defend the response of central banks to the credit crisis. "I would say…what has been done until now has been pretty well done under very difficult circumstances," Mr. Trichet said.   "We still are in a market correction, I think we have exactly the same problem of other central banks."  He joked that he used to be wary of invoking the word "crisis" to describe conditions, even going as far as to call it a "market correction of grave magnitude.  I stuck with that until, I would say, Bear Stearns," Mr. Trichet joked, and now "I speak of crisis."

Let's not forget that the markets looked like a crisis at the beginning of the week and we barely recovered so we do need to stay on our toes for the week ahead.  Last Monday we were cautious and that served us well by the end of the day when investors were stampeded out of FRE, FNM, LEH and then all the financials based on the same rumors as usual.  Tuesday we had the awful PPI report, which spooked the market but was absolutely no news to us (because we pay attention) so I said "I’ll be a little quicker to remove covers and jump on some momentum plays today if it looks like we’re heading higher – if we can shake off today’s data, we should be looking more forward to a retest of 11,700 than backward to 11,450.

We did not head higher and fell all the way to retests 11,300 in early trading.  We missed two factors in the morning – Oil went up to $115 again and the dollar pulled back, both were bad for the market.  Nonetheless, at the end of Tuesday I said: "All in all, a rotten day but the volume was low, the VIX was rejected at 22, HPQ had nice earnings so maybe, maybe, maybe GS is the final attack on the financial sector and we can get back to business tomorrow, hopefully along with a disappointing inventory report for the energy bulls."

Wednesday morning we talked about the oil con game and the fact that a bounce off $110 was expected so we thought the markets were overreaction to it with the sell-off.  During the day, there was a surprising 9Mb build in crude inventories yet strangely oil went higher, this was our lucky break of the week as we knew that was complete BS and we picked up several good trades there.  Also on Wednesday night we came up with our "foolproof" FRE plays, let's hope we don't end up looking like fools by sticking with  FRE in our Stocks Virtual Portfolio

Great VideoThursday morning we were disappointed with Wednesday's action but we stuck with our plan, removed our covers and had faith in Bernanke being the excuse to pivot the markets on Friday.  That plan could not possibly have gone better as we were choppy in Thursday but did pick up 100 points from our lows (66 officially) and we spent most of Wednesday and Thursday discussing our LTP and looking at adds and rolls there.  By Thursday night, I had to do a Long-Term Virtual Portfolio reveiw as we haven't been this bullish on our LTP in a very long time.   Friday morning I said it was time to stop the madness.  I said in the morning post: "Our bets are already made as we jumped all over the financial meltdown and laughed off the "oil rally" for the farce that it is.  We are heavy long in GOOG and heavy short in SU in the Day Trading Portflio along with our UYG calls so that’s the best indication of our stance for the day."

That couldn't possibly have gone better for us on Friday and we went into the weekend still mainly uncovered but we're not going to get carried away, it's all about the POO next week as well as the new data we'll be getting.  Who knows what shenanigans will be cooked up by the financial hyenas over the weekend – there's still a lot of fear in the air and we need to make our levels to become comfortable.  While I was ready to risk the weekend uncovered, I'm not so sure about risking the week – this is where it starts to get interesting!

  • After a busy week last week we closed just 42 positions with a 58% average gain. As is typical in the early part of an expiration period, our spreads make our virtual portfolios look ugly but FRE made our $10KX look ugly as our Oct $5 calls took a huge hit and the $7 puts we sold got clobbered too.  That has knocked this virtual portfolio down 30% for the week, now up just 10% overall.
  • Our $25KP rode out the week quite nicely as it is our least risky strategy mix and we added 6% on the week.
  • The Day Trading Virtual Portfolio also added 8%, to 21% overall in this 3-week old virtual portfolio but we have $10,000 worth of FNM common so that may change quickly!
  • Stocks Virtual Portfolio also got hammered by FRE and lost 9% for the week, we're down 12% on the common and hoping to get back out of half at $3.21 or better which will leave us well covered on the remainder.
  • Our Butterfly Collection did very well, gaining 4% on the week in our safest strategy.  A rapidly declining VIX hurt our callers and we made a couple of good directional calls on BIDU and GS, leading to more than normal gains this early in the month.
  • Our timing was perfect with the Long-Term Virtual Portfolio but it gained just 2% on the week overall as the VIX hurt our long-term positions and we took the opportunity to buy some more length, rolling back to a lot of relatively cheap 2010 positions – something we've been waiting to do since July. 

So a 58% gain on 42 positions closed with flat to declining virtual portfolios.  That means we're still taking profits off the table quickly in a choppy market but these were our covers so this had better be a bottom or we're going to have to scramble to re-cover this week:

Stock

Description

Type

  Basis

Open

 Sale Price

Sold

 Gain/Loss

%

BAC 100 Feb 2009 22.50 BAC CALL (BACBT) LC  $  50,010 7/10  $109,380 8/22  $   59,370 119%
BAC 200 Sep 2008 30.00 BAC CALL (BACIF) SC  $  19,420 8/14  $  43,380 8/20  $   23,960 123%
BHP 20 Sep 2008 70.00 BHP CALL (BHPIN) LC  $    2,210 8/19  $    4,490 8/20  $     2,280 103%
BIDU 2 Jan 2009 330.00 BIDU CALL (BDUAE) LC  $    8,172 7/23  $    9,190 8/22  $     1,018 13%
BIDU 4 Sep 2008 320.00 BIDU CALL (BDUIC) SC  $    4,730 8/12  $    7,790 8/18  $     3,060 65%
C 200 Sep 2008 17.50 C CALL (CIR) SC  $  17,410 8/14  $  15,390 8/21  $    (2,020) -12%
COH 60 Sep 2008 30.00 COH CALL (COHIF) SC  $    4,210 8/12  $    7,790 8/21  $     3,580 85%
DIA 200 Sep 2008 115.00 DIA PUT (DIAUK) SP  $  35,810 8/18  $  55,390 8/22  $   19,580 55%
FDX 40 Sep 2008 90.00 FDX CALL (FDXIR) SC  $    3,410 7/17  $    6,390 8/21  $     2,980 87%
FNM 5000 Fannie Mae (FNM) LS  $  25,510 8/20  $  23,590 8/20  $    (1,920) -8%
FNM 5000 Fannie Mae (FNM) LS  $  20,910 8/20  $  22,390 8/20  $     1,480 7%
FRE 2000 Freddie Mac Corp. (FRE) LS  $    5,210 8/22  $    5,770 8/22  $        560 11%
FRE 200 Sep 2008 6.00 FRE CALL (FREIQ) SC  $    5,020 8/14  $  19,980 8/20  $   14,960 298%
FRE 60 Sep 2008 5.00 FRE CALL (FREIA) SC  $    2,410 8/18  $    5,390 8/20  $     2,980 124%
FRE 12 Sep 2008 5.00 FRE PUT (FREUA) LP  $    2,050 8/20  $    2,510 8/20  $        460 22%
FRE 12 Sep 2008 5.00 FRE CALL (FREIA) LC  $      790 8/20  $       770 8/20  $        (20) -3%
FRE 5 Oct 2008 7.50 FRE PUT (FREVU) LP  $    1,125 7/25  $    1,840 8/19  $        715 64%
FSLR 5 Sep 2008 260.00 FSLR PUT (HJQUY) LP  $  13,260 7/24  $    7,740 8/18  $    (5,520) -42%
GOOG 20 Sep 2008 480.00 GOOG CALL (GOPII) LC  $  46,930 8/18  $  46,740 8/22  $       (190) 0%
GOOG 25 Sep 2008 500.00 GOOG CALL (GOPIO) SC  $  25,510 7/31  $  26,990 8/21  $     1,480 6%
GOOG 1 Sep 2008 500.00 GOOG CALL (GOPIO) SC  $    1,210 8/12  $    2,120 8/20  $        910 75%
GOOG 1 Sep 2008 500.00 GOOG CALL (GOPIO) SC  $    1,210 8/12  $    2,120 8/20  $        910 75%
GOOG 20 Sep 2008 490.00 GOOG PUT (GOPUK) LP  $  19,610 8/15  $  24,990 8/18  $     5,380 27%
GS 5 Sep 2008 160.00 GS PUT (GPYUL) SP  $    4,260 8/20  $    4,890 8/22  $        630 15%
IBM 20 Sep 2008 125.00 IBM CALL (IBMIE) SC  $    3,410 8/14  $    6,390 8/21  $     2,980 87%
IYT 20 Sep 2008 90.00 IYT CALL (IYTIR) SC  $    4,810 7/18  $    6,390 8/20  $     1,580 33%
MCD 35 Sep 2008 65.00 MCD CALL (MCDIM) SC  $    1,760 8/12  $    6,990 8/21  $     5,230 297%
MCD 40 Jan 2009 50.00 MCD CALL (MCDAJ) LC  $  31,410 1/11  $  56,985 8/18  $   25,575 81%
MDT 40 Jan 2009 50.00 MDT CALL (MDTAJ) LC  $  10,530 9/6  $  31,190 8/21  $   20,660 196%
SHLD 20 Sep 2008 95.00 SHLD CALL (KTQIS) SC  $    3,510 8/14  $    4,790 8/21  $     1,280 37%
SHLD 40 Sep 2008 70.00 SHLD CALL (KTQIN) LC  $  24,370 5/6  $  85,380 8/18  $   61,010 250%
TM 60 Sep 2008 95.00 TM CALL (TMIS) SC  $    9,850 7/15  $    5,390 8/21  $    (4,460) -45%
TXN 50 Sep 2008 25.00 TXN CALL (TXNIE) SC  $    3,260 8/14  $       240 8/21  $    (3,020) -93%
USO 20 Sep 2008 90.00 USO PUT (UNAUL) LP  $    6,010 8/20  $    7,790 8/20  $     1,780 30%
UTX 30 Sep 2008 65.00 UTX CALL (UTXIM) SC  $    4,510 7/17  $    6,590 8/21  $     2,080 46%
UYG 60 Sep 2008 22.00 UYG CALL (UYGIQ) LC  $    5,710 8/18  $    5,990 8/22  $        280 5%
UYG 10 Sep 2008 22.00 UYG CALL (UYGIQ) LC  $    1,110 8/18  $    1,090 8/22  $        (20) -2%
UYG 5 Sep 2008 22.00 UYG CALL (UYGIQ) SC  $      410 8/15  $       940 8/19  $        530 129%
VLO 6 Sep 2008 35.00 VLO CALL (VLOIG) SC  $    1,418 8/6  $    1,226 8/18  $       (192) -14%
WFMI 100 Sep 2008 20.00 WFMI CALL (FMQID) SC  $    3,310 8/15  $    5,790 8/21  $     2,480 75%
WMT 40 Sep 2008 60.00 WMT CALL (WMTIL) SC  $    2,890 8/15  $    2,790 8/21  $       (100) -4%

 

 


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  1. Phil,
    I will be away from my computer the next two days, and want to place stops on my FRE OCT 5 CALLs (40 averaged @ $1.11) and FRE SEPT PUTS (-5 @ 2.25).  Where would you recomend placing them as I don’t want to go back in the RED on the CALLs, then again I don’t want to be stopped out and miss out on potential gains.
    These are moves in my 10KX folder, I believe I have 20 more OCT CALLS than you.  Thanks for your help.