As we discussed last week we went into the weekend with a 50/50 mix of puts and calls and the puts were lagging behind the calls by a wide margin. Our short-term portfolio was up to $176K (up 37%) after we pulled off a bunch of winners and it left us bearish going into the weekend.
After today’s morning dip I decided I’d had enough and gave up on the half of the portfolio that had me most worried - the puts! We shut down $203K worth of positions this week, mainly puts and added very little to either side as we switched to defense on Tuesday. On Wednesday I said that the dip did not necessarily mean BUYBUYBUY, so we patiently waited and started lightening up on the "recovery." That recovery pretty much fizzled out today as the markets gave back much of Wednesday’s gains, despite Dr. Greenspan’s apparent change of heart.
After running our entire portfolio up to $379K (up 115%) in just one week, it seemed to me there was more risk in leaving our recent successes on the table than reward in letting them ride (as they were generally shorter positions). Due to the disparity in length, our longer positions weren’t quite so crushed (other than Google) and I set 15% stops on the remainder ($126K), hoping for a bounce but not really expecting it. Please note that some of this money (perhaps $50K) came from brand new trades so not all of it was made off last week’s base!
This all works out for the best as we are changing portfolios next week with a new and hopefully improved tracking system as the new system we experimented with did not hold up well in a super-busy week. I apologize to those who miss the intraday alerts, it’s a nice system for a dozen trades a day but we closed out 37 positions today alone and, like the NYSE, we weren’t prepared for the volume. Unlike the NYSE, we already have a plan in place to address the situation, just in time for the CNBC $1,000,000 Challenge!
While CNBC’s rules are silly, it will still be fun to see what we can do with $1M between now and May 25th but we’ll employ our usual strategy and see how we do against the "top traders" who invariably are the guys who bet the whole million on a single biotech stock that happens to pop.
This will not affect the Long-Term Portfolio, which works just fine as is, having gained 2% on the week so far, not too bad as we left those positions pretty much alone. All this despite the fact that we were way too bullish on that one (and shame on me as I’ve been saying for weeks we needed to find more puts to balance it out). Speaking of balance, we are now so out of whack in our long-term vs. short-term allocations that we really had to move a lot to cash anyway (should be 75:25, not $279K:$379K).
Meanwhile, back to the reason we moved back to cash, the markets were very unimpressive today, none of the indices held and we got some really ugly patterns forming if we can’t finish the week on a strong note:
That is some UGLY chart action!
The Nasdaq didn’t even bother to get back to yesterday’s low and I chose it as a put to cover our naked calls into the close. I was trying to take them as a spread but it never hit my bid. It’s OK though as Dell (DELL) and Novell (NOVL) both gave poor reports after hours.
I might have been a little more enthusiastic about a recovery if oil hadn’t broken through $62 (of course just pumped up there at the close, as usual). You know we’re in trouble when I dump almost all my oil puts, add some longs and Zman starts featuring E&Ps as a buy!
While a 3.5% growing U.S. economy might be able to sustain $65 oil, there is no way a 2% growth economy can! China and India are waving the caution flag as well as runaway commodity pricing is endangering the very global expansion that energy traders count on to use up all the barrels they are sitting on.
We’ll see how real this nonsense is tomorrow as neither Exxon Mobil (XOM), Chevron Copr. (CVX) nor Suncor Energy (SU) made it to positive territory today and they are our very reliable lagging indicators.
I’m just going to throw up the chart of today’s closed positions. Just one more day of this and we start a brand new portfolio, so everyone can get a fresh start for the spring (I will also unwind the old stuff as conditions permit).