The range bound market may have been producing alternating triple digit days but for our portfolio it was boring. Oil stocks reported earnings that increased exponentially but analysts were still unsatisfied after marking up estimates almost daily for the quarter.
The only real excitement for the month was the buyout of Premcor by Valero. PCO spiked from $59 to $73 on the news and our leap soared right along with it. I suggested an exit in the Market Monitor at the time to capture the maximum premium. I repeated that recommendation in my Tuesday night market wrap. In the future I will be sending an alert email when we have unexpected news impacting a position.
After reaching a high of nearly $56 last Friday oil prices fell off a cliff only a week later and closed at $49.72 this Friday. This is exactly the 100-day average and a strong buy level. I believe the Friday sell off was related more to end of month portfolio rebalancing, tape painting and expiration of contracts in heating oil and unleaded gas than just a new trend beginning. However, we need to realize that this is the slowest demand period of the year and we could easily retreat further to the 200-day average at $47 or even lower. I believe every dip under $50 is just a better buying opportunity for long term traders. Near term volatility is guaranteed but that is why we buy insurance with the puts.
I considered a long entry on Martek (MATK) after the beating they took on Thursday but they have no leaps. For those who want to roll the dice I believe the sell off was way overdone and we should see a nice rebound into year-end. First Albany provided us with an example of coverage confusion this week. They downgraded MATK to Neutral from Buy back in March. When the news hit this week they downgraded them to underperform from neutral on Thursday. On Friday they upgraded them to a Buy. Sounds like they exited their shorts on the dip and went long.
I am not adding any new plays this week. The market can't decide which way it wants to go and I still believe the path of least resistance is down. We have plenty of positions and I would rather be adding to oil on the dips than trying to cover all the sectors with a token play.
I did add Anadarko Petroleum to the watch list as a potential takeover
in the oil sector.