Phil Davis submits: I'll tell what doesn't matter -- today's action! It doesn't matter what the Dow did (new high), or the S&P (another high), or any of the other indices did today. It doesn't matter that the transports broke 2,600, or that oil dropped to $58.45 (down $1.50), or that gold fell to $572. It just doesn't matter because it's officially earnings season!
That's right, it's put up or shut up time and for Dow components like Alcoa Inc. (AA), who put up a 19% gain in revenues and an 86% rise in profit. It just didn't matter because it was less than analysts expected, and they sold off 6% in after hours trading.
Genentech Inc. (DNA) put up a 58% rise in profits, which doesn't matter when your P/E is 56, and they went down 1.8% in AH trading.
When you are at record highs, you need record earnings to support them!
One company that won't be setting any records is Legg Mason Inc. (LM), who took a whopping 9% dive this evening as they lowered guidance due to acquisition fees and "less-than-expected revenue." As B4 suggested in comments, perhaps that housing bet didn't pan out...
Tomorrow we hear from Dow component Monsanto Co. (MON) (expected to lose .21) and Infosys Technologies Ltd. (INFY) (expected to earn .32 -- up 23%) before the bell as traders scramble to read the tea leaves off these early reports.
I doesn't matter if you're a builder, unless you also have options scandals, as KB Home (KBH) found out today. They "only" went up 2% today, while many in their sector, including, of course, Toll Brothers Inc. (TOL) ran into the 5% rule after DR Horton Inc. (DHI) said sales were off 25%.
Does it matter if North Korea conducted a second nuclear test? Word is they might have, and one has to wonder how Drudge ran that story from an Australian paper a day in advance...
It was a rough day in the oil patch as most oil stocks went up, even though crude dropped all day long. Tom confirmed Suncor Energy Inc. (SU), Schlumberger Ltd. (SLB), Anadarko Petroleum Corp. (APC) and Universal Compression Holdings Inc. (UCO) as plays that had chart support, and we started buying our puts.
We'll count this group as entered today, although we only took SLB in comments, but I will log them as follows:
- SU Nov $65 puts came in at just .65. Our original Nov $65 puts stopped out at $2.50 (up 25%) as they lost 20% of their profits early.
***Important note for new readers: Please read "My Trading Policies" for a general idea about entering and exiting trades. If you don't know what rules I trade by, it doesn't make much sense to look at my picks.***
The most important rule in a choppy market is the 20% Rule:
Once a trade nets 20%, I immediately set a stop at a 15% gain. Making 15% on a short trade is a lot of money!!! Whether you make $5 or .05 per contract, 15% is still 15% and you need to be able to live with that.
- SLB was one we waited for, with the Nov $57.50 puts coming down to $1.80 at 11:30, they finished the day at $2.
- Anadarko Petroleum Corp. (APC) Nov $40 puts came in at .85 and the stock was strong all day.
- Universal Compression Holdings Inc. (UCO) Nov $50 puts came down to $1.75 on fairly flat action.
- In comments we also took Devon Energy Corp. (DVN) $60 puts for .60 and .40, so we'll call it .50, and they closed at .45.
- I got the Valero Energy Corp. (VLO) $50 puts for .90 and they finished at $1.05.
- The ExxonMobil Corp. (XOM) $67.50 puts were irresistible at $1, now $1.15.
- Credit to Zman with the unrecognized call of the day when, just after noon, he said: "Hmmm, very frustrating. I like those protective calls down here at $53.70 United States Oil Fund ETF (USO)." Sometimes you just have to go with those instincts, as the sector rallied just after that!
- I called an official (and wrong so far) top on the markets at 12:29 with the Diamonds Trust Series 1 ETF (DIA) $118 puts for .55, now .60.
All October positions should have very tight stops at this point!
- Sprint Nextel Corp. (S) opened very low but went up so fast it was a no trade, too bad as it worked well!
- We closed the XOM $67.50 calls at .90 for a nickel loss, insurance well spent!
- We closed the Alcoa Inc. (AA) Nov $27.50s in comments this afternoon at $1.75 (up 84%), and (unfortunately it looks like!) let the Nov $30s ride at .65 (up 44%). It wasn't actually greedy to hold them as it was a roll of profits, but we'll see how happy we are about it in the morning... I did not think the earnings were that bad, but the AH traders disagree.
- I raised the stop on the Google Inc. (GOOG) Dec $400s to $40 and the Dec $420s to $25, as the profits from these more than pay for all the dead puts we have left!
- Oil Service HOLDRs ETF (OIH) $125 puts are a great example of how we stop out properly. It opened at $4 (up 33%, $1), and I set a stop at $3.80 (up 27%), which triggered right away, an hour later it was at $2.60, about where it finished the day. Even though we wanted to take new short positions, you still need to protect existing winners -- regardless! We keep a stop at 20% of the highest paper profits achieved.
Read all of Phil Davis's articles on Seeking Alpha.