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Weekend Wrap-Up


Well, what's to be said?

It was the best week in the markets since 1933 – the only question is: Was it real?  The fact that the market did not stop going up despite a terror attack in India made us think not and at 12:32 on Friday, with the Dow at 8,760, I decided it would be a good time to take the DIA puts and DXD calls to cover, leaving us 50/50 into the weekend as it was just hard to buy into the rally even though the Dow did finish 60 points higher for the day.

We have moved our concentration of shorts from financials to the Dow as I think enough money has been plowed into the financial sector to take a collapse mostly off the table.  Last weekend I put the "only 450-point drop" into perspective and we did enter this week bullish.  I said in last week's wrap-up: "Whether it takes one year or 5 for the markets to turn around, turn around they will and our job is simply to stay in the game so we can be there when opportunity knocks.  Meanwhile, we stay well hedged and ready to take advantage of the small trends we do see."  Little did we know that we would get gains in the high teens just 5 days later – more than the markets usually give us in two years! 

To some extent, it was on oversold bounce, of course but we made some good technical levels and now all we need to do is hold that 8,500 line and we can at least begin to refer to it as a bottom without looking over our shoulder constantly.  Finding a real bottom is the key to being able to move to a 70:30 bullish posture when we get low enough and mama – that's where the fun is… but let's not get ahead of ourselves as we're still in a very dangerous, very choppy market.

Hello Bill?  Cancel my Mayback.  No, not the red one.  No, not the blue one - the white one...  I'm cutting back...  I have to go, I have a really hot chick with me... I think.From Monday's open at 8,048, where C alone was given $326Bn to Thursdays close at 8,829, over $2Tn of global funding was committed to the markets last week.  The US total alone is now in for over $8 Trillion in assistance and both gold an oil came off the floor as currencies diluted themselves but oil is following gold on a false premise that it's precious – but it is only made so by artificial supply controls and OPECs failure to tighten up this weekend can send it crashing back down quickly.  That's the reason that we're still shorting the oil-heavy Dow as well as re-upping our XOM puts as they hit a ridiculous $80.

My Monday moring pick to focus on the transports using UXI was dead on as they did provide steady leadership for the week.  They came in at $17.50 and finished the week at $22.24, far exceeding our 20% target gain so you are on your own if you don't have a 5% trailing stop on these!  My other Monday morning pick was UWM, who shot up from $14.20 to $19.38 for the week and the Apr $15s flew from $3.95 to $7.10 – these are not bad gains for 4 days folks!  If you were sticking with it, the Dec $22s were the cover at $1 on Friday but not taking an 80%, 4-day gain off the table is rarely a good idea…

Tuesday morning, we discussed the roller coaster physics of this market but we got away with only a small dip as the government continued to apply plenty of outside force to keep us moving up hill.  Of course there will be hell to pay on the other side unless and even greater force (more money) is applied until they can get us to jump the tracks (have I mentioned what a good idea a gold hedge is lately?).  As I was dubious of the pre-market boost Tuesday morning, I cited the DXD Jan $75s at $12 (now $9) and the DIA Jan $85 puts, which fell from $6.50 to $5 during the rally (but we did call them dead as a profitable day-trade on Tuesday).  Even if you stuck with them, It's fine to lose 30% on your protection while you gain 80% on the long side – that's what balancing a virtual portfolio is about.  We were 60:50 bullish and now we've rolled our remaining protectors to better strikes and moved to a 50:50 stance but having that downside 40% is what allowed us to make the aggressive upside bets as we ride the market waves.

On Wednesday I was very pleased with how we were behaving within our levels but we didn't get the 8,200 test I expected in the morning, bottoming out at "just" 8,330 as we had a sharp recovery off pre-market lows as China stepped in with lower rates.  While I did expect Wednesday morning to be a bottom, I wasn't feeling brave enough ahead of the holiday to go on a buying spree in the morning post but by 9:45, in the member chat, I did call a bottom at 8,345 saying: "I’m seeing buyers off the bottom, good time to take profits on short-term put plays at around 8,300 and see how we handle 8,400 before repositioning"

We didn't go crazy but we couldn't resist GE at $15.47 (hedged, of course), TIE at $8 (hedged down to $5.50/6.50), a TM leap spread (haven't seen many of those we like lately), and a PTR leap spread.  Two leap spreads in one day is a sign that we're a little more confident with our bottom but we also made a $60/$66.50 hedged entry on the DXDs – so we're not exactly out of the long-term protection game.

On Thursday I talked about the mis-allocation of bail-out recourses but the global markets were in a thankful mood and Wednesday's momentum pretty much carried into Friday's shortened session.  We will find out on Monday if Friday was really a day retailers went into the black but, as I said in the morning post, it was a meaningless, low-volume day that could be very quickly undone by real trading the next week.

As I warned in my closing commment "I’m going out on limb and expecting what passes for a tight range these days, between 1.25% up and down.  In a break down, we will get a little more bearish but a break up will not get us more than 60:40 bullish, no matter what number they print in a low-volume rally because, if retailers finish today far out of the black – Monday may be a very black day for the markets so be very careful out there!"  In fact, the way we went up on Friday made us more bearish and we did end up covering back to 50:50, looking to lock in those nice gains for the week, whatever happens on Monday.


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  1. Good morning everyone! Thanks Phil for the excellent wrap-up. One question I have for this week…
    In the typical hedged entry we’ve been using lately, what exit options do we have if the underlying shoots up siginficantly? I’m in DIG at 23 and short the Dec 23 calls (4.53) and puts (4.13) for a net entry at (14.23/18.67). While I’m happy with the 8.66 profit, I’m wondering if there are any other exits available, other than having the stock called away at expiration at 23. DIG is currently trading at 30-32.

  2. Phil, I like the Mon, Tues, Wed .. breakdown of your advice. Nice structure for the weekly wrap-up I think.