Oh boy.. could the past week get any wilder? First, Lehman Brothers reportedly will be filing bankruptcy sometime in the next 12 hours due to failed talks between LEH and suitors. The Fed tried to broker a deal between LEH and Bank of America / Barclays, but talks fell through at the end due to the Fed not wanting to bank some of LEH’s toxic paper as was done with JPMorgan and the Bear Stearns mess.
Lehman Brothers, R.I.P.
On the flip side, Bank of America has offered to buy Merrill Lynch for $29 / share, or close to a 75% premium over Friday’s close. Talking heads are saying MER was the firewall holding up the rest of the financial system and with BAC’s purchase, the transaction has helped to offset some of the instability from the LEH mess. BAC’s on a takeover tear. First Countrywide and now Merrill. Anyone worried BAC may end up turning into another Citigroup?
Futures right now are pointing toward a 300 point lower open tomorrow. Asian markets are closed due to holiday (Autumn holiday?). Personally, my portfolio is split evenly: 6 calls and 6 puts. Hopefully my puts actually fall because I know sure as hell my calls are going downhill tomorrow!
Keep your battle gear by your bedside because tomorrow bulls and bears alike will fight the epic battle.
This week should promise to be full of excitement as the FOMC meets Tuesday and Wednesday to decide the fate of the U.S. economy. Well perhaps not the fate, but they will decide on new interest rate policy. At this point, any further rate cuts will probably signal financial suicide, so expect the FOMC not to cut rates. However, some analysts in the financial world are figuring a rate increase from the Fed this week in order to battle inflation and to make an attempt in strengthening the dollar against the rest of the world. Futures this week are showing rates will remain stable at 2.00%. A rate increase at this point would be more symbolic than helpful as it would signal that the inflationary pressures the U.S. has been experiencing are indeed real and a priority. As most of you know, it’s gotten a bit expensive to eat and drive into work. Expect a stronger inflationary statement from the FOMC this week.
On Tuesday, we have consumer confidence at 10:00 am EST. Wednesday brings Durable Goods (8:30 EST), New Home Sales (10:00 EST), and the FOMC announcement (02:15 EST). Thursday’s a fairly important economic day with last quarter’s GDP and Jobless Claims (08:30 am EST), as well as Existing Home Sales (10:00 am EST). And rounding out the week on Friday is Consumer Sentiment at 10:00 am EST. Details can be found here.
Futures were up over 50 points last night but are currently up about 10 points. I’m looking for some sort of a dead cat bounce, but at this rate, I don’t know if it’ll happen. We’ll see!
Quick update on the crude front. Crude just hit $139.89 early this morning which may be the reason why futures have taken a large hit pre-market. Crude is currently trading at $138.35. I know Goldman and others were predicting crude to $150, but who knows. Maybe we’ll see $150 by the end of the week?
Okay.. someone explain to me what the heck just happened. Here’s a 1 minute chart of the Q’s.
Around 2:30 (yes, that 2:30 reversal period), the Qs and the rest of the market went right down the toilet. I think the bears were mocking the bulls and were loading up just to give them some false sense of hope before they brought out the bombers and obliterated any rally today. Now that the carnage is over, how’d I do?
Trades Taken
- 2 x NQ
- -1 x JASO June 25 Call
- 1 x LVS June 65 Put
- 1 x BBD June 25 Call
Profit / Loss for the Day: $132.50
Profit / Loss Currently Open: $32.50
I think something odd happened when I sold half of my JASO position. I sold one JASO contract at $2.75 for a profit of ($2.75 – $1.25) $150. However, my P/L for the day in JASO is $87.50 (JASO declined during the nasty selloff). Anywho, on the NQ front, I managed to escape with $80 on the day. I need to begin letting my NQs run a bit more. I could have easily captured another 5-10 points on the NQs had I let them run and watched my indicators. But that’s how one learns. It’s a matter of learning by experience.
Took a position against LVS near the close. LVS in the past has been very good to me so we’ll see if it cooperates with me this time around. I have a very tight leash on it with an entry near $72.20 and a stop around $72.50 + 0.5%. I also went ahead and increased my max risk level on BBD. Over the past couple of days, I’ve noticed BBD consolidating. While it’s close to violating my trendline, it’s still in play and so I increased my position to my max risk (using the initial purchase price for my BBD contracts).
Options expiry is Friday and I’m glad I’m done with my May options. Another options cycle is close to being in the books. Any thoughts on what tomorrow’s action will bring?
Overall, while still another loss, it wasn’t a bad day. Once again, however, tight stops on futures got the best of me. It’s a work in progress though. Once I refine my futures trading skills, I’ll be able to post more consistent profits. I did notice around lunch time trading in a zone somewhat. Remember that scene from Office Space where they head to the psychoanalyst and that funky music plays in the background as Peter’s hypnotized? Yeah, it was almost like that. Anywho…
Trades taken
- 2xNQs
- 1 June 95 V Call
- 2 June 25 JASO Calls
- 2 June 25 BBD Calls
Today’s Profit / Loss: -$25
Minor loss although off my lows for the day. Some strength near the close helped cut my NQ losses in half. Other than that, while I’m concerned I’m overly bullish, I couldn’t find many put plays today. I noticed the Option Addict boards discussing Valero (VLO), but if oil prices do begin to come down, I think VLO and other refiners benefit due to the decrease in crack spreads, making it more profitable for them to crank out the good stuff. Volume was awful as well as I’m sure others are saying. I haven’t been trading long enough to understand what the differences are between a low volume and a high volume day, but it appears there is quite the difference.
