Option Investor

Parachute Time

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The market action this week convinced me even further that rough times are just ahead. The oil weakness has yet to find any follow through but if oil inventories next Wednesday show another build up it could be a sharp crash. We could still see one more bounce in equities with a dip in oil, end of quarter window dressing and some pre-earnings speculation but I don't hold out much hope for April. Time to buckle on the parachute and get ready for some volatility.

We were finally stopped out of the XLE position for a nice profit on last weeks dip and I am dropping ADSK for lack of performance. With potential market weakness ahead I am going to shrink the portfolio and trim us to trading weight for the opportunities ahead.

The watch list performed perfectly this week with prices moving toward our targets but nothing was triggered. I had been hoping to add the refiners VLO, TSO and/or PCO to the list ahead of the driving season but the refinery explosion sent them sharply higher.

RIMM is coming back to earth nicely after the +22 spike but I am not ready to risk another entry into a tech. Until the Nasdaq starts to show some life I am comfortable waiting.

Metals stocks like CLF and CMC are also cooling for a possible entry but Nucor (NUE) continues to trade flat and volatile at its recent highs. There is lots of indecision there.

I considered adding UNH to the list but it is currently at a new high at $92 and any post quarter undressing could see the high fliers targeted for profits.

That brings us back to the status quo. No new plays today and we will continue to watch for a new trend to appear. If we do get a bounce in equities I plan on buying put leaps on those most attractive at the time. We have several candidates on the watch list and a drop in oil should let them rise to our entry points. Just consider a drop in oil as their ski lift to the top of the mountain. Once there it could be a long drop for CAL, JBLU and company.

I do plan on loading up on oil but hopefully not all at once. A quarter is a long time to hold a losing position and I would like to see a bottom form before backing up the truck. Once we enter a couple positions I will lower the entry points on the rest.

It is hard to put a happy face on results in a market that has lost ground for nearly a month. We took some hits but our wins more than made up for it. Have patience and we will be rewarded.

Happy Easter!

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