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What an amazing week! We closed just 18 positions this week for a 33% profit and an average hold of 4 days. We didn't take many new positions either, other than various oil plays discussed in the previous post, as I remained distrusting (but warming up) of the great rally of 2006.

Our 46 remaining open positions are down 2% after 11 average open days. As I said this morning, I am ready to pull the plug on the lot if this market keeps acting so strangely, and I am still being weighed down by the non-working ends of our Google spreads as well as the debacle with Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc. (NYSE:GS)!

As I said in the previous post about covering, we either play both sides of the market in uncertain times or we don't play at all. While I so do want to close my eyes, clap my hands and say "I do believe in rallies, I do, I do!" I just can't get it down yet!

The Dow finished with a bang, recovering from a morning drop to get 12 points closer to 12,000. Perhaps this weekend they will get their magazine covers...

The Dow is now up over 1,000 points in the past 90 days with 10 of 13 weeks positive. The last down-week for the Dow was the week before 9/11, when investors were understandably a little edgy.

As much as I may complain that the Dow is a useless indicator, it certainly tracked tick for tick with the S&P for the past 3 months.

Not to waste your time, everything was up and amazing this week with all the indices finishing at or near the week's high. We discussed in comments that it has a very 1999 feel to it, but with more people wearing suits this time.

Still, the 1999 rally began in 1995, Clinton's third year, and didn't end until Bush took office in January 2000, so these things can go on quite a while. During the Clinton Presidency the Dow went from 3,000 to just under 12,000, averaging 1,000 points a year for 8 consecutive years (not making a political statement, just marking the time).

Amazingly, that whole rally took place with oil under $30 (sometimes under $20!). So please forgive me for not being overly impressed that, 6 years later, we are back to where we started. On the other hand, as you can see from the Nikkei's 12-month performance, we still have a lot of catching up to do!

Speaking of oil, black sticky stuff plunged all the way to $55 Wednesday in European trading, but was rescued to keep the ticket above $57 in the U.S. markets. There was a failed attempt to break $59 today, and crude settled back at $58.65, well below our worry zone.

It's hard to worry when:

  • U.S. conventional gasoline inventories are up 10% since March
  • U.S. distillate fuel oil inventories are up 20% in 5 months
  • Propane levels are up 100% in five months

What you can worry about is (August prices):

  • Why are gasoline prices up 25%?
  • Why are distillate prices up 20%?
  • How can propane prices possibly be flat?

According to today's CPI numbers, fuel prices only fell 9% in September, when we know builds increased even more. Come on people, even the Chinese are learning about supply and demand now! Here's one even the President will understand! Before the oil bulls start spamming me -- here it is from your own network...

I'm not worried about oil anymore because I'm going to give my money to this guy

So don't worry -- be happy, we got out of our October oil puts relatively unscathed, and November is another battle, perhaps we'll get our trading places moment!

Gold and oil both held up well on the hopes that the dollar will be rejected from its 200 DMA, but, if the dollar breaks out to the upside, it is still more than 5% off it's highs -- levels that can knock $3 a barrel off oil prices and $30 an ounce from gold!

This Week's Picks:
As much as I keep wanting to take things off the table we apparently have reached some sort of perfect equilibrium between puts and calls on our open list, as it just remains almost even for a full week.

We've pulled-off a few winners and cancelled a few turkeys, but we have to give it at least a few more days and hope the market picks a direction, either through 12,000, or finally a consolidation of some sort.

  • Alcoa Inc. (NYSE:AA) Nov $27.50s were wisely taken off the table on the pre-earnings run at $1.75 (up 84%). The pre-roll Nov $30s are not doing so good at .10 (down 70%), but we picked up the Nov $27.50s again on the dip at .60, so far down a nickel.
  • Peabody Energy Corp. (NYSE:BTU) was bought and sold in today's comments as the sudden turndown made sense with natural gas going down. At 11:31 I said: "The literal canary in the coal mine... Up 10% this week, no news I see -- gas below $6 again is probably why. Excellent gamble play on the $40 puts for .60, looking for .80 get out at .50. " We took .75 off the table for a quick 25% on the day.
  • Devon Energy Corp. (NYSE:DVN) was an abandoned oil play that we were lucky to escape from after doubling down. The $60 puts gave us a nickel gain at .50.
  • Fannie Mae (FNM) Nov $60s stopped us out today as they dropped to .85 (up 70%)
  • The length of our Gannett Co. Inc. (NYSE:GCI) calls saved us as earnings were a disappointment, but they recovered nicely. We took out our caller for $2.95 (even) on the Wednesday dip, as it was unnecessary insurance after earnings. We still hold the Jan '08 $55 at $7.50 (up 17%) and the not very promising Jan $65s at .25 (up a nickel). The Jan $65s were upside insurance against the calls we sold and should be taken off the table on the slightest slip. I am setting a stop on this disappointing trade at $6.50 (up a dime).
  • We were lucky to get a dime off the table with our General Motors Corp. (NYSE:GM) $27.50 puts (down .15) and our second attempt at the $32.50 puts did not go well and cost a dime at .80. We should have left well enough alone after last week's great play. Greed is not good!
  • Petroleo Brasileiro S.A. (NYSE:PBR) gave us a good day trade on Monday as we took the $80 puts to $1.20 (up 50%).
  • Phelps Dodge Corp. (PD) is one we exited a little early as Monday's $87.50 call was cancelled on the dip at $2.80 (up 40%) -- I don't even want to think about what it's worth now!
  • Public Service Enterprise Group Inc. (NYSE:PEG) is driving me nuts; it keeps going up on bogus buyout rumors and time is running out on the $60 puts, now .50 (down 58%).
  • Sonic Corp. (NASDAQ:SONC) Nov $22.50s were a gift from Cramer, and it came off the table today at $2 (up 100%).
  • Suncor Energy Inc. (NYSE:SU) Nov $65s stopped us out at $2.50 (up 25%).
  • Sunoco Inc. (NYSE:SUN) $60 puts were just too painful to hold at .15 (down 50%), but we picked up the $65 puts in today's comments as .70 was just too attractive (or we are just gluttons for punishment!). They did pick up 43% to close at a dollar so far.
  • Tesoro Corp. (NYSE:TSO) was, on the whole, even, percentage-wise, with the $55 puts lost a dime at .60 while the $65 puts gained 19% to $7 (up $1.10). This is an issue with my tracking system as a .20 loss can cancel out a $2 gain -- I intend to fix this in the new system.
  • Valero Energy Corp. (NYSE:VLO) $52.50s were a cover play today that went very well and closed at $2.10 (up 133%) as my top call was dead-on -- for today anyway!
  • Cramer made a great point about liking Whirlpool Corp. (NYSE:WHR) as GE had tremendous earnings in home appliances. I go along with that logic, and WHR fits nicely with the Consolation Prize Team, so I'm adding the Jan $100s at $1.65 ahead of 10/24 earnings.
  • ExxonMobil Corp. (NYSE:XOM) $67.50s were played twice on the call side and three times on the put side with 4 of the positions bringing in a 60% average profit and one of the calls costing me a quick nickel as the timing was just not quite right.

Not a bad week but, as we expected, a far cry from the 90% returns we logged in the last few weeks as our caution about a market turn has proven, so far, premature.

Read all of Phil Davis's articles on Seeking Alpha.

Source: Options Trader: Weekly Wrapup