Market Dumps and Oil Rebounds

The Financial News is still rolling in, some new, some several days old. Treasury Secretary Paulson is still pursuing the government plan to spend up to $700b to buy bad mortgage-related debt from financial institutions. Also, the Fed approved a conversion of GS and MS to banks from brokers, and that my friends, is the end of an era on Wall Street. So we'll probably hear some follow up with more details, and how it all came to this, but there it is, no more big securities firms on Wall Street.

Oil is continuing the bounce all the way into the $107's this morning. Many Energy and Commodity stocks may gap up, so I'll watch to see what the spreads are like and if any of those are playable for calls today - if the gap isn't too big.

Stock market futures are down, which means that we could be starting a 1-3 day consolidation off the huge moves on Thursday and Friday. The consolidation was to be expected, so that's not an issue. What we need to see is an orderly consolidation and not a sell-off. We shall see.....

8:00 am MT: The market opened down in “consolidation mode” which I expected. Energy, Gold and Commodity stocks are on the move to the upside, which I also expected. The market is probably going to churn and gyrate and push and shove today as Big Money gets a handle on whether uncertainty has diminished or if we’re just seeing a rearranging of the deck chairs on the Titanic.

Energy and Commodity stocks are catching a bid from a bullish halo effect in Financials, but they are also catching a bid from the consolidation in the Dollar on Friday and today. The Energy play may be over in the next day or two, so I’m just looking for a possible short swing or intra-day swing.

8:15 am MT: It’s tough to find any spreads under .30 - .40 cents out there. I did manage to find a couple in Energy and Gold. I nibbled on some OXY calls.

8:45 am MT: I nibbled on some AEM calls and added a little to the OXY calls. If we get a bounce in the next hour or so I will look to sell the next intra-day swing.

9:00 am MT: I sold the OXY calls for a small .05 cent gain. I’m not sure if I’ll keep futzing around with this stuff today, it may not be worth it. I don’t think there’s much left in the current Energy swing, so I’m probably trying to squeeze something out of nothing. I like the Gold play a lot better. Today is shaping up just how I thought, there really isn’t much to do but wait for the news hysteria to play itself out.....

10:30 am MT: I continued to add to the AEM calls all through the Bull Flag intra-day. It’s starting to bounce now, so I picked up a little more to finish out the position.

11:25 am MT: I started the process of profit taking on the AEM calls.

11:35 am MT: I’ve locked in profits on half of my AEM calls.

12:15 pm MT: I sold the last of the AEM calls for a total trade of a $1.01 profit or 14.5% gain. So I made $850 on my “paper” trades today and I’m probably done. I need to see the option spreads start to come down on a whole lot more options in order to step back in with heavier trading.

3:00 pm MT: Market Wrap: The good news is that option spreads started narrowing towards the end of the day. It may mean that option trading will get back to normal, although normal is a relative term these days.....The bad news is that the Dow finished down 372 points and the market had a deep consolidation off of Friday’s move. The major indexes need to be a little more orderly in the next couple of days or this is probably going south again.

The huge $700b bailout proposal by the U.S. Treasury and the price it will cost taxpayers is crushing the Dollar. That, in large part, led to a MASSIVE short-covering rally in the October Oil Futures contracts - spiking those futures as high as $130 per barrel as shorts screamed to cover before they expired. The November contracts now become the front month futures, and that means the price of oil traded to about $108 - $109 today. Today was the biggest one-day price gain for oil in 10 years. The violent moves across all the major markets – stocks, oil, dollar, etc. continues to create a tremendous amount of short term turmoil.

Those of you who have followed me since January know that I have been just pounding the table for the government and financial institutions to focus on the 30-year Mortgage rate and get it down to 5.00% by increasing stability on the long end of the yield curve. And you also know that I called out financial institutions to sacrifice some profits and re-work ARM's and "at risk" mortgages to low, fixed-rate loans rather than risk losing the loan altogether AND the speculative CDO's on those loans AND the credit default swaps on those loans AND possibly driving their own companies into bankruptcy AND possibly driving the Financial Sector into a massive implosion AND possibly driving the economy into a depression....unfortunately.....most financial institutions decided to try and stay as competitive as possible (i.e. greedy as possible) and stubbornly refused to do budge an inch on their own corporate profits. It would have been better to lose some money rather than the whole company.....Well, Lehman is a classic example of a financial institution that refused to budge, refused to take a financial hit and eventually a lower buyout price, and stubbornly tried to keep behaving like their assets were worth more than they were.....And Lehman is GONE, G-O-N-E, GONE! Way too many financial institutions behaved this way ALL YEAR.

Now we see that the U.S. Treasury is going to go after those same "at risk" type mortgages that I have been YAPPING HARD about all year. The U.S. Treasury is intervening because the financial institutions (and this means even financial institutions outside the U.S.) have insisted on staying greedy and competitive to the point of massive, world-wide financial failure. They refuse to do anything on their own part to alleviate the huge risk in the "at risk" mortgages. It's jut ASTONISHING to me to see these principle officers and CEO's behaving with such competitive self-interest when the future of the global financial markets is at stake. Just AMAZING to watch. I realize that political corruption started the whole mess and then it moved into corporate corruption.....But now it appears that most financial institutions painted themselves so far into a corner that only a Hank Paulson (former CEO of Goldman Sachs and current Secretary of the Treasury) and Ben Bernanke (Federal Reserve Chairman) led bailout can stave off the absolutely CATASTROPHIC failure of the financial markets that we would otherwise be headed for. Hank and Benny are doing exactly the right thing given the circumstances. I don't want the government running insurance or mortgages for longer than a year or two at most, but for now, they did what they had to do in order to stave off economic Armegeddon.

In addition to the Financial sector news, including the end of investment banking on Wall Street, there were several major repurchase announcements. MSFT, HPQ, and NKE all announced big share buy-back programs. I like the fact that some big name companies aren't afraid to buy stock, that makes me and the rest of the market breath a little easier, not alot.....but at least a little.....The market is still very news, and still very volatile, and I’m still not holding directional trades overnight.....