Courtesy of Phil’s Stock World
Wheee, what a great way to end the week!
As I mentioned in yesterday’s post, we had gone into the day flipping our short firepower to BG $60 puts at $1.30 and TOT $55 puts at $1.20 as wel as our remaining DIA $84 puts at .84. We went back to cash for the weekend but consider that the DIA $84 puts finished at $2.04 (up 142%), BG $60 puts finished at $2.10 (up 61%) and TOT $55 puts finished at $2.83 (135%) and you can see how even small allocations out of cash yield very nice one-day returns on put options. You do not have to take big risks to make big rewards, playing put options allows us to stay flexible and mainly in cash without “missing” too many market market moves.
We blew right through the upper targets I set in the morning and the Dow flew right down near enough our 8,250 (June lows) target that it looked bouncable, as the other indexes were holding up better than the Dow we felt we could play it for a small recovery over the weekend. We picked up some DIA $85 calls for .76 but elected not to DD at our scale-in target of .64 into the close as we already had bullish plays on ZION as well as Dow components AA, BA, GE and PFE, all longer-term plays that we are looking forward to adding to cheaper if they keep heading down. VLO and SNY were added in the afternoon as well as a UNG spread since they decided to just give it away at $13 again.
While we are just dipping our toes into some long postions, it is the first time in a month we’ve been happy enough with the pricing to even take a chance. Of course we maintain our long put covers (just in case) but what’s the point of having protection if you have nothing to protect? On the whole, the volume simply wasn’t that impressive and we attribute much of this drop to people who were “shocked” that the economy isn’t as good as they thought it was (cough, Cramer fans, cough, cough) but it’s EXACTLY as weak as we thought it was and that means there are certain price points we are willing to hit long-term. Kudos to all who patiently waited with us for pretty much the whole month of June – now comes earnings, where we will really separate the men from the boys!
Keep in mind we are not bullish, this is a shift to neutral from 100% bearish in our unhedged positions (as opposed to the $100K Portfolio) but nothing has happened to change our mid-range target of Dow 8,650, where our trading range is expected to be 5% down (8,217) and 5% up (9,082) as we consolidate and build a proper base. These low volume “rallies” have simply not been enough to justify a move outside of the range and I’ve been saying that since Labor Day and it’s really kept us out of trouble but let’s not confuse my bearish attitude at 9,100 with a bearish stance 10% lower than that. While we may overshoot the range to the downside, unless something gets fundamentally worse, we will continue to to bargain hunt at what we hope is going to be an established bottom through earnings.
All we ever wanted was a proper bottom retest, something the pump-monkeys were afriad to give us in June. Just last Friday, as we came off Thursday’s massive stick save, I said “Just Stop the Madness Already” where I pointed out: “The media can do their sunshine and lollipops dance all day long and I guess that’s one of the reasons I start turning negative – just trying to balance out the nonsense. I am optimistic that, long-term, we can work our way out of this crisis but we need to do it through hard work, not make-believe games that everything got magically better with no pain at all and, until the market begins to embrace that reality, I will continue to watch the sky for signs of cracks, just in case.” So THIS is what we want to see, media sentiment has turned sharply negative in just 7 days, forcing Cramer to flip-flop like a goldfish that jumped out of his bowl and NOW we can see what levels hold up.
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