Thursday - Trading in an Untradeable Market
What a mess!
As we predicted, AAPL dragged down the Nasdaq yesterday but the rest of the market did fairly well with NYSE advancers outpacing decliners on decent volume. 71 stocks made new 52-week highs vs. just 26 making new 52-week lows and, as Dave Fry's AAPL chart shows - even AAPL managed to find some support at $536 for the moment.
We bought back our AAPL covers, as planned, and now we are hoping (not a valid investing strategy) for a bounce - preferably before we drop back to test that $505 line.
It was certainly unexpected to get such a sharp move down in a single day - AAPL lost the ENTIRE market cap of all but the top 83 of the S&P 500 companies in a single day ($35Bn), which is really amazing as just 30M $550 shares were traded ($16,500M).
Obviously we like AAPL down here (anything below $555) so I'm not even going to get into that one again. You can sell the 2015 $400 puts for $51 and that's a net of $349 on AAPL, which is another 35% off the current price. On Tuesday, we shared our $25,000 Portfolio positions and one of them was SVU, where we sold the Jan $4 puts for $1.60. Yesterday we got some good news regarding an asset sale and the stock flew up to $2.90. We'll probably take the quick profits and run because we're not loving the deal - despite the positive market reaction. (Try out Phil's Stock World here >)
There's no shame in cashing out our winners and getting back to cash into the new year. There will certainly be plenty of things to trade in 2013 if we have some cash to deploy.
In Member Chat on Tuesday, for example, we were discussing how to best play LULU, which had earnings this morning and my comment to Members early in the morning was:
If I were going to play it – I'd say the chance of them breaking $80 is pretty slim and you can sell the Dec $77.50 calls for $1.25 against the March $77.50/80 bull call spread at .90 so you have a .35 credit and some upside protection – just in case.
LULU had pretty good earnings this morning but guidance was wanting and there is no way they'll make $77.50 now so the profit on that spread is going to be .35 plus whatever value remains in the March spread, likely another .35 for a quick double.
THAT's how we play these silly markets - with some nice "hit and run" trades that make solid, quick profits while we wait for the market to finally pick a direction. Our trade idea for LULU had nothing to do with the fiscal cliff - it was simply a fundamental trade on the likely outcome of their earnings and those we can do every day - without worrying about what the next rumor out of Washington may be.
Yesterday, in Member Chat, we found a long play on FCX (hoping to get them closer to $30) and a short play on USO, which had a huge build in Gasoline (7.9Mb) and Distillates (3Mb) against just a 2.4Mb draw in Crude that in no way is doing anything to relieve the massive inventory pressure over at the NYMEX, where they still have 284M barrels worth of open contracts for January delivery and only until the 18th to roll them. But February is already uncharacteristically filled with 185,000 open contracts (1,000 barrels per contract) that nobody wants, so things can get pretty messy over the next 8 trading days.
Again, that's why we're short oil. No politics, no "death crosses" - just simple fundamentals that are likely to play out over any market conditions. If the mess over in Syria gets resolved - that will be a bonus for us. If we go over the fiscal cliff - that's fine too as oil will likely sell off. There's really no such thing as an untradeable market if you know how to be a flexible trader. It's a good time of year to practice that.
As we noted on Tuesday, the markets certainly have no reason to go up this week and now AAPL is forcing the dreaded "death cross" on the Nasdaq as the 50 dma threatens to cross below the 200 dma at right about the 3,000 line unless the Nasdaq can rally back over it soon - early next week at the latest. We get Non-Farm Payrolls tomorrow along with Michigan Sentiment and Consumer Sentiment. Then things get interesting as we wait on the last FOMC meeting of the year next Wednesday and, of course, that Fiscal Cliff deadline comes right down to the wire.
Watch that Dollar for signs of strength. Don't forget, going over the Fiscal Cliff is strong for the Dollar as we're raising taxes and cutting spending - so the push down from a rising Dollar coinciding with a panicked market could be strong indeed - if our so-called "leaders" were to let it happen. Meanwhile, we can have lots of fun with our short-term trade ideas - just don't take these markets too seriously and you'll be fine.