Trick or Treat?
My gut is telling me a few things:
1. Dollar may start to weaken again. Consider that the dollar rose only after the threat of action (or inaction) by The Fed and the ECB. the Fed talked tough about inflation, but did nothing. The ECB talked tough about inflation but did nothing. A lot of nothing in the face of inflationary fiscal and monetary policy tends to play out one way: weak dollar and continuing inflation
INVESTMENT IMPACT: Good for multinational US companies, exporters, and commodities.
2. Return of commodities. The past few days, oil has steadily weakened but I noticed that the oil/gas/coal/energy stocks have stopped crashing. Better yet, some positive comments are coming out - mostly saying "wow, these companies sure look cheap!"
INVESTMENT IMPACT: Demand is uncertain and supply increases each month. I was opportunistic when I bought these calls on the pullback, but I bought too soon. We'll see what the next month brings us - maybe we can narrow the losses a bit. I also want to close DUG and I am going to put an order in for $39.50.
3. End of the mini-rally sparked by short covering. The lurch up last week and the sudden lurch down this week both indicate that options expiration on Friday was playing a role. In essence: short covering. Consider AN. Since the news was released last month that the Gates Foundation took a stake, the stock shot up from $8 to $12.50 last week. In fact, in 6 trading days, it rose from $11 to $12.50 by Friday. Then today it dropped back to $11.
If I am right about this, Dow will be <11,000
INVESTMENT IMPACT: Great for our Ultrashorts and our puts. Bad for our calls, unless energy rallies from being oversold.
4. Financials back in trouble. Suddenly everyone is realizing that the credit crisis has a long way to go and that Financial institutions are not being honest. FNM, FRE, Merrill, and others are about to shock the world with the bad news.
We have a long way to go yet for our options to show the returns we want. I will be posting the portfolio update this weekend.