I’m working on a new format for my portfolio progress that will integrate well with my blog. I’d like to have a bit more in terms of disclosure as well as some graphs and tables to help visualize my portfolio and progress. If anyone has any suggestions, please let me know.
Tuesday (9/18): The FOMC cut the federal funds and discount rates by a surprising 50 basis points. The market in turn shot up almost 200 points after the announcement with the DJIA closing out a 300+ point gain. Almost all stocks rallied as a result although I believe the effects would have been much greater had it not been for options expiration week. Lehman Brothers also came out with their earnings with a decrease in profits overall but beating expectations. LEH’s earnings report set the stage for the rest of the brokers for the week.
Wednesday (9/19): The market was still in rally mode closing up almost 100 points from the euphoria from the FOMC rate cut.
Thursday (9/20): Goldman Sachs came out with earnings citing an over $6 / share report, handily beating the estimated $4 / share. GS fell slightly on the news but Cramer reiterated his $300 price target for GS (although not by year’s end but in time).
Although I had turned a profit last week (and thus a special portfolio progress), I’m back in the red this week after a couple of options plays I have pending. I’m currently long Bank of America (BAC) and Level 3 (LVLT), although Level 3 appears to be in free-fall mode until it’s CFO recovers from surgery. I’m currently long EMC Oct 19 Calls with a cost basis of about $1, or $100 per contract. EMC was upgraded this morning by Bear and Citi to buys as a result of EMC’s spinoff of VMWare (VMW), which is currently trading in the mid to upper 70s.
I’ll be working on a cleaner, more colorful way of presenting my portfolio and weekly progress during the week. If I can’t get things to work out well, I’ll update my portfolio progress mid week with numbers. Good luck out there this week. Safe investing!
The FOMC Has cut both the Federal Funds rate and the Discount Funds rate by 50 basis points each! The Dow has jumped over 150 points as a result. Inflation readings have improved modestly and as a result allowed the FOMC to make such a large cut.
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent. Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
And so the waiting game begins this trading day. Bernanke and his crew will discuss the status of the economy around 14:15 EST today. Most investors expect a rate cut of at least 25 basis points, or 0.25%. Until the FOMC speaks this afternoon, I’m sure the market will behave almost identically to yesterday’s action… pretty much no action. Although the market sold off a bit yesterday, volume was light. To be honest, it felt as investors had to trade because it’s their day job. If they had the option, I’m sure most would have taken the day off. Expect light traffic again this morning until the rate cut is announced (or not announced, which would just be plain bad).
We have a busy week of trading ahead of us. Tuesday brings on the Fed’s economic advisory speech at 14:15 EST. Most analysts expect a 25bp cut in the Federal Funds rate. I think the market’s already priced a 25 point cut into prices but we’ll see.
We have options expiration week this week as well. From the first couple of months I’ve been investing, I’ve noticed volatility is huge during options week. I think my strategy for options week will be to stay out of options week! I’d prefer to invest in something a bit more stable so if I do play on buying into new positions, expect those positions to be small, almost exploratory purchases.
Financials report earnings this week with Lehman reporting Tuesday. It’s been said that depending on how LEH does, it would be wise to invest in either Morgan Stanley (MS) or Goldman Sachs (GS) as both have less subprime exposure than LEH. MS reports Wednesday while GS reports Thursday. I may pick up one or the other if LEH’s earnings are favorable and it has enough of a pop after the report.
Hunker down this week. It’s going to be a rough ride!
So what turned my portfolio around? I purchased some EMC Oct 18 calls at $1.40 per call. If you remember, each contract would cost 1.40*100, or $140. I purchased two contracts at the $1.40 price and quickly sold it two days later at $2.00 a contract, leaving me with a profit of $0.60 per contract, or $120 for my total purchase (I only had two contracts open as a result of my small capital investment).
As of today, I’ve made a 4% return in the market. A 4% return in 3 months may not be grand, but it’s definitely a start. Quick recap of this week’s news so far:
Monday (9/10): FOMC Presidents around the country weighed in on possible rate cuts and how deep those cuts may or may not be next week during the FOMC meeting. Market ended flat for the day on a relatively quiet news day.
Tuesday (9/11): 6th year anniversary of the 9/11 attacks. Ben Bernanke spoke in Germany regarding the world economy. Not much was said in regards to the U.S. market and the potential for rate cuts. FOMC is now in a self-imposed silent period until their meeting next Tuesday. Market jumped 1-2% yesterday based on the possibility of a rate cut.