Wheeee - the S&P is up 6 points this week! (Click to enlarge)
I know, I can hardly contain my own excitement either. It almost makes my cash-out decision of the 19th (where we did open at 1,166) seem silly what with us missing a 6-point (0.5%) rally this week and all... Of course, you have to look at the bigger picture like the year-to-date, which has us up a whopping 34 points since January 4th. Although, to be fair, 18 of those 34 points were gained by January 19th, then we had that sell-off thing and THEN we had a nice rally, all the way back to 16 points over the January 19th high. See, I’m not early with my top call - I’m 2 months late! We could have taken a vacation from January 19th to today and missed very little upside action.
We don’t cash out just because we’re at a top. Hell, we love playing tops, bottoms, middles - whatever… We cash out when it’s no fun to play. As many, many members commented this week - it’s much less fun to play when the market turns toppy and churny like it is now. My cash out call was for a Market Mental Health Break ahead of earnings season. We did have a very nice, relaxing week just hanging out in Member Chat and, yes, making the occasional play. But it’s more like when you go to the track and toss a couple of bucks on a race to keep it interesting - and that makes it fun!
We passed the Health Care Bill on Sunday. Yet instead of ending the universe as promised by Republicans and Tea Party enthusiasts alike, it actually sparked a huge dollar rally that gave us a full 2.5% run for the week, closing at a year high of 81.60. We were thrilled as we had taken gold shorts and SCO (ultra-short oil) longs the week before, when oil was testing $83 a barrel. It's now back at $80 on the nose to close out this week.
Seven banks were shut down by the FDIC last weekend (and 4 more bit the dust Friday night), Greece was still up in the air, Tiffany (TIF) missed earnings and the Four Seasons (FS) in Maui missed a mortgage payment. But what made me gladdest we were on the sidelines? It was the fact that the cost for the U.S. to borrow short-term funding (2 years) went higher than the cost for Berkshire Hathaway (BRK.A), Procter & Gamble (PG), Johnson & Johnson (JNJ) or Lowe's (LOW) to take out the same loans. That made TBT our "no-brainer" trade of the week.
DIA 3/31 $108 calls at .58, now .93 - up 60%
DIA April $109 calls at .79, now $1.09 - up 37%
TBT April $47 puts sold for .96, now .25 - up 74%
TBT artificial buy/write - on target
Oil futures short at $81, out at $81.05 - loss of .10 per penny per contract
USO April $38 puts at .58 avg., out at .70 - up 20%
TNA $55 calls sold for $3.30, now $2.80 - up 15%
TZA $6 calls for $1.20, still $1.20 - even
Seven for eight is not bad for a slow day at the track. Although I count TZA as even, the shares were up more than 20% for the week. Of course, they should have been cashed out as we are playing a cash portfolio and those are the rules. The same goes for our big winners on DIA and TBT. We’re not looking for big wins, we’re just looking to make a play, make 20% and get back to cash so we can have fun going to the window for the next race. I said about the overall action (the Dow was up almost 100 from the open) that afternoon’s Member Chat:
Today is a fantastic example of why I wanted to go to cash. Killed the bulls in the morning, killed the bears the rest of the day. As I said last week I want to give it until Easter to settle out and show us a real direction. This is another low-volume waste of time with Dow (volume) at 103M at 3:20. By the way, keep in mind the stock market is like an auction and trying to determine value and going so far as to draw charts based on the action in an auction house where 80% of the seats are empty and then applying that logic to $40T worth of merchandise is just a little crazy…
Tuesday was Chart Day at PSW and we looked at the very toppy Bullish Percent Index on the S&P. I’m happy to report it did hit our 83 target even while completing the anticipated "death cross" as the 50 DMA [daily moving average] slipped below the 200 DMA for the first time since January of last year (ah, good times!). We also ran the ever-popular Multi-Chart and I noted we should watch our leaders: XLY (holding up so far), XLK (holding) and XLV (uh-oh!) for signs of trouble while being wary of further weakness on XLB, XLE and XLU - oops!
Click to enlarge:
I pointed out what a disgusting shell-game con the NYMEX energy contracts were and who could argue the point when I had such a cool graphic to illustrate my point? Right in the morning post I said our plan was to short oil at $82. We got our entry there with both opportunities for quick profits on the futures and opportunities for massive profits into Wednesday. My suspicions about the rollover turned out to prove that you can, sometimes, win as oil fell all the way below $80, stopping us out at $80.50 for spectacular gains in the futures as well as on Monday’s USO puts and last week's SCO calls.
Hong Kong was dealing with record pollution, possibly from all the Google (GOOG) web pages the censors were burning in China as that issue came to a head. The Joke of the Day Award went to Greek finance minister, Papaconstantinou, who said "Greece has no need for financial assistance" during a week when Greece was begging everyone for financial assistance.
I mentioned that we went aggressively long on TBT in the morning post for the people who are too cheap to subscribe to our site. But I won’t count that as a buy on TBT (the Member play was short selling the $47 puts), even though the entry was $47 that morning and they finished the week at $49.24, up 4.7%. Our members know, of course, to take money and run at the 5% rule. On the whole, not bad even for the free advice - as was my TZA mention, which made a nice 5% rise off Tuesday’s open. Who says I don’t make any straight stock plays?
Oil futures short at $82, out at $80.50 - up $10 per penny per contract
USO April $38 puts at .50 (triggered Thurs) out at .75 (Friday) - up 50%
Sunpower (SPWRA) May $18 puts sold for $1.35, now $1.45 - down 7.4%
Citigroup (C) complex spread - on target
Baidu (BIDU) May $630 call sold for $27, now $25.90 - up 4%
TZA $7.50 puts sold for .90, now .66 - up 26%
EWJ May $11 puts at .65, now .70 - up 7.6%
The picture for this post says it all. To me the market is acting like a cartoon Superman with the buy bots holding up the indexes at all costs and we just keep wondering what kind of Kryptonite will finally kill the damn thing. As I expected Wednesday morning, three legitimate bits of bad news in one day was simply more than the market could handle. But all that did was push Mr. Stick from his usual afternoon spot into the after-hours, where a 60-point gain was tacked on into Thursday’s open.
We could have done better but my call to take the oil profits and run at $80.50 was the smart play ahead of inventories. As I often point out - in this market, greedy bears are quickly turned into bear-skin rugs on the turnarounds! Bank of America (BAC) was our green shoot of the day as it initiated the new Mortgage Reduction Program with its morning announcement on the same day that Mortgage Applications fell to record lows.
Freeport-McMoRan (FCX) April $80 calls sold for $3, now $2.10 - up 30%
UGL April $43/45 bull call spread plus short $42 puts all for net .10, out at net .50 - up 400%
DIA April $109/110 bull call spread at .40, out at .55 - up 37%
BIDU May $650/620 bear put spread at $18, now $20 - up 11%
BIDU May $670 calls sold for $19.50, now $14.80 - up 24% (pair trade)
Chesapeake Energy (CHK) artificial buy/write - on target
CHK complex spread - on target
TNA $56 calls at $3.40, out at $3.30 - down 3%
LOL - Yes, this is how we take the week off on PSW… "Just" 23 trade ideas in three days. Well, you’ll have to forgive us as we really LIKE to trade and when you cash out of your main positions, it’s just too tempting to pass on good opportunities. Still, notice that we only went long on CHK, C, SPWRA and, of course, TBT - as we don’t have a lot of faith in the short-term trends.
What a morning it was! The pre-markets were on fire on rumors that Greece was all fixed and Dubai was bailed out. Dubai WAS bailed out but Greece totally fell apart in the afternoon and the market dropped 100 points into the close, right back to where it was before all the BS began. THIS is exactly why we are in cash - who needs this aggravation? And this is not "sour grapes" - we played for a move up. But, just because we can make money on market manipulation that’s destroying this country doesn’t mean we have to approve of it…
With nations that are in the process of running up massive debts bailing out nations that have already run up such massive debts that no one will lend to them anymore - what can possibly go wrong? I mentioned in the morning post that we had decided that April 5th or 12th were our most likely "Black Monday" targets, which is no change to our "CASH" plan at all. However, it’s worth mentioning here as we’re only one week away.
C complex spread - on target
DIA April $108 puts at $1, out at $1.20 - up 20%
Oil Futures short at $81, out at $80.75 - up $10 per penny per contract
Amazon (AMZN) April $135 calls sold for $3.60, now $3.80 - down 5.5%
TZA April $7.50 puts sold for .95, now .66 - up 30%
Oncothyreon (ONTY) November buy/write at $2.20/2.35 - on target
QID July $18/21 bull call spread at .47, now .55 - up 17%
QID April $16 puts sold for .25, now .16 - up 36% (pair trade)
C 2012 $4 puts sold for .80, now .79 - up 1%
The QID play came in conjunction with a very well-timed top call at 1:34 in Member Chat. I drew the following chart to illustrate why I was still bearish:
Notice what these volume patterns generally lead to. Also, we have high MACD and high RSI at the same time AND the 200 WEEK moving average is 11,124. If that doesn’t count for something then the TA people may as well throw away their Voodoo dolls. I count 8,000 as the real support for the Dow on the big dip (throwing out the panic spike) and that puts 11,000 right smack-dab at the Fib[onacci] 50% zone. That clearly was support back in the fall of ‘08 so this is the crux of my cash logic: We either get a normal retrace here of as much as 20% of the 3,000 point gain (10,400) or we pop through 11,000 and we can BUYBUYBUY there, expecting it to once again firm up as strong support. We have a pretty clear shot to 11,700 once we’re over 11,000 so lots of ways to make money with our cash on a 700-point run but, at the moment - I’d rather sit back and watch the show.
"Nobody panics when things go according to plan, even if the plan is horrifying" is a great quote to sum up the Global markets and their reaction to our so-called leadership. As I said in the morning post, the market exhibits all the classic signs of Bi-Polar Disorder. Indeed, as the rally ages, the cycles do tend to become closer together. Thursday’s action was very good evidence of how, in the course of a single day, positive and negative comments on Greece could send the Dow up 100 and down 100 in a single session. With Turkey, the U.K., Portugal, Italy and Dubai still up in the air - cash is definitely still king!
Keep in mind this is the move we got in the market AFTER Obama and the banks rolled out a mortgage modification plan to simply knock up to 30% off people’s home debt - not very impressive…
SMN complex spread - on target
TNA $55 puts sold for $3.50, out at $3.40 - up 3%
GLD $109/108 bear put spread at .50, still .50 - even
Ah - see, now that’s how to take a day off! Just three trades that go nowhere - nice and relaxing! Thirty five trades for the week and only 4 in the red is a nice, relaxing week anyway and not bad at all considering all the chop. Of course, we still have our disaster hedges so we are generally bearish. It does surprise me how few bullish plays I liked this week - there’s simply so little that seems reasonable to me at these levels.
We do still expect the markets to go up on low volume next week as the final push to paint the end of the quarter gets underway. It doesn’t make a lot of sense for us to fall off a cliff on Thursday as we’re not even open on Friday. Also, if we assume funds are driving the market higher in order to sucker money in off the sidelines - surely they are going to want the "good" market news to carry into the holiday weekend where they hope the table conversation will be "I can’t believe you’re not in the market!" There will be two days of Asian trading before we open again on Monday the 5th, which is why I am concerned about it as we may be forced to play catch-up if they take a dive. But, for now, we stay in cash and plan to enjoy the holiday without having to worry about the markets.