The TED Spread is not moving on the Ireland bailout and the possible 'contagion' to other Euro sovereign debt. TED has held under 15 since 11/24/2010. A sharp breakout would be an indicator to start protecting equity positions. Until then, the risk level is lower.
However, since November 5th, the EUR/USD currency pair has been falling, implying weakness in the Euro currency. And, the Emerging Country Sovereign Debt ETF PCY is showing short term support. I expect a retest of that support ($27.25), since everyone wants to see whether this is a real crisis forming.
The CSFB moved higher since November 5th, 2010, and fell back slightly on the 12th and 26th, both down days after either a running bull the day before. The cost of protecting a position is lower now relative to September 20th, and the market was 5% higher between September 20th and November 24th.
As the market has chopped around the SPY 120-118 range, the risk premium has gone nowhere but up between 11/16-11/29. A confirmed downtrend would be at least two consecutive days where SPY break lower, with a move lower in the CSFB.
Tuesday, November 30, 2010
Friday, October 1, 2010
Comfortable Churn
On a 3month, MidCaps are underperforming the Qs. The SmallCaps are struggling on the lows, but currently attempting to exceed the Qs on highs.
TED says banks/credit troubles are an afterthought, and continues to trend lower. This implies Euro debt is on par with US debt.
The fear barometer is holding flat as the market channels flat the past week, implying a comfort level in the /ESZ0 1140s.
TED says banks/credit troubles are an afterthought, and continues to trend lower. This implies Euro debt is on par with US debt.
The fear barometer is holding flat as the market channels flat the past week, implying a comfort level in the /ESZ0 1140s.
Friday, September 17, 2010
Projections for September-October
A test of 1120 is highly probable. A slice through /ESZ0 to 1109 indicates a broken uptrend, and a test of 1090 would be a short term support point (+2 points for each day forward). Breaking this uptrend channel implies a test of 1080 (+.5 points for each day forward).
Elliott Bears might imply an inverted cycle: 2007 high as start of "2", 2008 low as "3", April 2009 peek as "4", placing us headed toward cycle "5" (implying a violent test of the 2008 low and overshoot).
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Putting on my bull hat.. /ESZ0 could be in a cup & handle. Impulse ends at 1154 (+.5 points for each day forward.)
There is enough wiggle room for the /ESZ0 to fall to 1087 (+.5 points each day forward), and still launch to 1154.
Elliott Bulls (very few out there) ;-) Might say cycle: 1999 high = "A", 2001 low = "B", 2006 high = "C", 2008 low = uncharted territory, making April 2010 "1", July 2010 "2", and now heading to a "unattainable grab the pullback" that never comes as the market relentlessly lunges higher.
The positive bias in my days forward estimates is a good way to indicate a short term uptrend based on the technical channels I observed on the daily /ESZ0 1 year timeframe.
Elliott Bears might imply an inverted cycle: 2007 high as start of "2", 2008 low as "3", April 2009 peek as "4", placing us headed toward cycle "5" (implying a violent test of the 2008 low and overshoot).
---
Putting on my bull hat.. /ESZ0 could be in a cup & handle. Impulse ends at 1154 (+.5 points for each day forward.)
There is enough wiggle room for the /ESZ0 to fall to 1087 (+.5 points each day forward), and still launch to 1154.
Elliott Bulls (very few out there) ;-) Might say cycle: 1999 high = "A", 2001 low = "B", 2006 high = "C", 2008 low = uncharted territory, making April 2010 "1", July 2010 "2", and now heading to a "unattainable grab the pullback" that never comes as the market relentlessly lunges higher.
The positive bias in my days forward estimates is a good way to indicate a short term uptrend based on the technical channels I observed on the daily /ESZ0 1 year timeframe.
TED collapsed. Fear Barometer in Range
TED collapsed below 15 (from a recent high of 48.63 on 6/14/2010). There are no bank/credit fears priced in the lending market right now. Place your watch for a touch/break above 17.
The fear barometer is holding a range since July, but ignoring the volatility in flashcrash May, the range goes back to 4/28/2010. The upper and lower averages are decreasing. Currently, we are at the high of the 2 month channel. Short term says this uptrend may be contested, since the spreads are becoming relatively expensive. A swing down from 23.81 to 21 appears probable in a two week timeframe.
A move down paired with a lower SPY would continue to confirm a trading range. A test of SPY 110.50 is highly probable, given the decreasing impulse of the September rally.
A move down in the fear barometer with a higher swing low and breakout higher formed on the SPY implies an uptrend may be forming. Reasoning: the spread is pricing in the uptrend, and relaxed fear levels.
Coincidentally, a break above 24 with a higher SPY implies increasing fear of heights. This does not indicate the uptrend will stop, just the dominant trend's end will be swift and fast. A higher swing bottom and breakout of the fear barometer will help identify the market direction.
The fear barometer is holding a range since July, but ignoring the volatility in flashcrash May, the range goes back to 4/28/2010. The upper and lower averages are decreasing. Currently, we are at the high of the 2 month channel. Short term says this uptrend may be contested, since the spreads are becoming relatively expensive. A swing down from 23.81 to 21 appears probable in a two week timeframe.
A move down paired with a lower SPY would continue to confirm a trading range. A test of SPY 110.50 is highly probable, given the decreasing impulse of the September rally.
A move down in the fear barometer with a higher swing low and breakout higher formed on the SPY implies an uptrend may be forming. Reasoning: the spread is pricing in the uptrend, and relaxed fear levels.
Coincidentally, a break above 24 with a higher SPY implies increasing fear of heights. This does not indicate the uptrend will stop, just the dominant trend's end will be swift and fast. A higher swing bottom and breakout of the fear barometer will help identify the market direction.
Thursday, September 16, 2010
Terminology
Three words I encourage you to use today..
Mysterysis: A system that has memory, where the results of the current input (or stimulus) to the system output a highly questionable result.
Liqrudity (or Licrudity): An unnatural state of liquidity.
Contestigate (Contestigation): A form of investigation where all data collected is used to contest a hypothesis.
Mysterysis: A system that has memory, where the results of the current input (or stimulus) to the system output a highly questionable result.
Liqrudity (or Licrudity): An unnatural state of liquidity.
Contestigate (Contestigation): A form of investigation where all data collected is used to contest a hypothesis.
Wednesday, July 14, 2010
HFT Effects on the Stock Market
ZeroHedge offers up a perspective on a research paper regarding High Frequency Trading and the Stock Market.
The paper suggests that the normal distribution of random trade outcomes has become less random, and price movement has become more fractal in nature (from the daily timeframe into minute/second timeframes.)
The paper suggests that the normal distribution of random trade outcomes has become less random, and price movement has become more fractal in nature (from the daily timeframe into minute/second timeframes.)
Wednesday, June 23, 2010
CSFB, TED Continue 6/17/2010 Downtrend
Since last Thursday, the CSFB and TED Spread have headed lower. Both are above halfway through retracing their latest impulse. (CSFB, since 6/7, TED since 5/26).
On 6/7, the cost to protect a position was low, but it also proved to be a turning point for the daily trend. On 6/4, option put and future contract interest increased. The delta between 6/4 and 6/7 call options showed build-up, and put delta 6/4 to 6/7 was virtually opposite.
6/7 was a "quiet" day in the futures, but the options pit showed an activity reversal at day end, although the market slipped lower. Some of this activity may have been due to contract roll-over, since June 18 was a futures contract expiration, and the oversold levels of the market.
Given the market is trending lower and the relative cost to buy a protective put is lower than last week, but still higher than two weeks ago, this downtrend may have a short term bullish reversal & bull failure approaching (in that order).
On 6/7, the cost to protect a position was low, but it also proved to be a turning point for the daily trend. On 6/4, option put and future contract interest increased. The delta between 6/4 and 6/7 call options showed build-up, and put delta 6/4 to 6/7 was virtually opposite.
6/7 was a "quiet" day in the futures, but the options pit showed an activity reversal at day end, although the market slipped lower. Some of this activity may have been due to contract roll-over, since June 18 was a futures contract expiration, and the oversold levels of the market.
Given the market is trending lower and the relative cost to buy a protective put is lower than last week, but still higher than two weeks ago, this downtrend may have a short term bullish reversal & bull failure approaching (in that order).
Monday, June 21, 2010
CSFB New High & TED Leveling Out
The CSFB made a near term bottom on 6/7/2010. It then proceeded to launch to a new high (6/17/2010 and 6/18/2010) with a strong uptrending week. This implies higher discomfort with the market level, which coincides with 6/11/2010 breaking the down channel resistance from May 2010.
Part of this run-up may be future contract rollover, since the ESU0 volume built as the ES-mini contract volume and open interest trended higher. A break below 1104 on ESU0 would seriously slow a further bull run.
6/7/2010 thru 6/18/2010 represents professional price-level confidence (shrinking spreads, lower cost to insure negative downside.) The market trended higher, and struggled/capitulated for a few days 6/16-6/18, as option expiration approached. This reversal (protective spread increasing, with equities heading higher) may have been driven by the oversold levels of the market at the time of the reversal on 6/7/2010, and the realization that the downward trend was in place, calling for lower protective put spreads.
Gold broke a new high on 6/18/2010, as the market retested the previous day's range. Gold has trended higher as the TED Spread has continued to decrease from it's recent highs near 50.
The TED Spread is still in a position to trend higher, implying that credit/lending risk has reversed from it's multi-year lows carved out this year. If the TED breaks and holds under 40, the market may have nothing else to do this summer other than sector rotation, to determine who carries the market into Q4 2010.
Beware if credit risk shown in the TED Spread spikes higher without notice by the equity markets. This could imply a major credit event readying to be uncovered. My target for credit risk fear is 75, then to consider 4-6 month protective puts on the 3-month highest flying asset class.
Part of this run-up may be future contract rollover, since the ESU0 volume built as the ES-mini contract volume and open interest trended higher. A break below 1104 on ESU0 would seriously slow a further bull run.
6/7/2010 thru 6/18/2010 represents professional price-level confidence (shrinking spreads, lower cost to insure negative downside.) The market trended higher, and struggled/capitulated for a few days 6/16-6/18, as option expiration approached. This reversal (protective spread increasing, with equities heading higher) may have been driven by the oversold levels of the market at the time of the reversal on 6/7/2010, and the realization that the downward trend was in place, calling for lower protective put spreads.
Gold broke a new high on 6/18/2010, as the market retested the previous day's range. Gold has trended higher as the TED Spread has continued to decrease from it's recent highs near 50.
The TED Spread is still in a position to trend higher, implying that credit/lending risk has reversed from it's multi-year lows carved out this year. If the TED breaks and holds under 40, the market may have nothing else to do this summer other than sector rotation, to determine who carries the market into Q4 2010.
Beware if credit risk shown in the TED Spread spikes higher without notice by the equity markets. This could imply a major credit event readying to be uncovered. My target for credit risk fear is 75, then to consider 4-6 month protective puts on the 3-month highest flying asset class.
Thursday, May 27, 2010
Fun-dumb-entrails & TED Spread Positioned to Remain High; Fear Barometer Lowers
TED spread at 38.33 @ 6:52 EST. Positioned to remain high, but it has been on an exponential tear lately, as banks re-evaluate their counter-continent risks. This says US bank lending is "safer" relative to European bank lending.
CSFB made a new low to 20.73 on a market move to the low 1060s. The comfort/consolidation zone has been increasing. The last time CSFB made a lower spike on a lower move was 1106 and 1070. The /ESM0 depth is shrinking versus CSFB depth, implying a controlled downside is expected. If we break a new high on CSFB, another 'uncomfortable' uptrend might occur.
Longer term, ideally, the bulls want protective spreads to shrink, with the market moving higher, solidifying the uptrend. A study of the logarithmic values of CSFB versus the logarithmic SPX value may identify if this index is influenced by large numbers.
Fun+Dumb+Entrails (aka Fundamentals):
As fear of a PIGS banking fallout looms, the ticker reads that Spain is backing their banks (bullish); Q1 GDP is almost on-mark, but lower at 3.0% (bullish); Q1 GDP Deflator is up fractionally (bearish); Initial and continuing claims are up slightly (bearish). The consensus was for slightly decreasing claims.
CSFB made a new low to 20.73 on a market move to the low 1060s. The comfort/consolidation zone has been increasing. The last time CSFB made a lower spike on a lower move was 1106 and 1070. The /ESM0 depth is shrinking versus CSFB depth, implying a controlled downside is expected. If we break a new high on CSFB, another 'uncomfortable' uptrend might occur.
Longer term, ideally, the bulls want protective spreads to shrink, with the market moving higher, solidifying the uptrend. A study of the logarithmic values of CSFB versus the logarithmic SPX value may identify if this index is influenced by large numbers.
Fun+Dumb+Entrails (aka Fundamentals):
As fear of a PIGS banking fallout looms, the ticker reads that Spain is backing their banks (bullish); Q1 GDP is almost on-mark, but lower at 3.0% (bullish); Q1 GDP Deflator is up fractionally (bearish); Initial and continuing claims are up slightly (bearish). The consensus was for slightly decreasing claims.
Today's Magic Numbers
Good for the /ESM0 (e-mini S&P500 futures). Given the high volatility, many of these numbers are fulfilled. Directionally, they often lay or become stronger Fibonacci retrace levels.
Gathered & past: 1087.25, 1085.25.
Targets listed in nearest order. Gathered at 7:35 CST.
1081.50, 1085.00, 1089.25, (maybe 1091.25)..
1095 ends a momentum up-leg from 5/25 5:30 thru 5/25 17:30.
1136 ends a H&S pattern using the overnight ES data. (1117, if the bulls fail.)
5min ES gives the illusion of a cup or bull H&S forming a right shoulder.
1077.50 (if a triangle forms)
1074.25 to pause a downtrend move.
1070.50 to pause a panic down.
1060.75 may slow any panic down.
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Higher confidence levels: 1074.25, 1085.00, 1117.00
Crazy overnighter's confidence (protective put spreads are more comfortable down here): 1061.00
Gathered & past: 1087.25, 1085.25.
Targets listed in nearest order. Gathered at 7:35 CST.
1081.50, 1085.00, 1089.25, (maybe 1091.25)..
1095 ends a momentum up-leg from 5/25 5:30 thru 5/25 17:30.
1136 ends a H&S pattern using the overnight ES data. (1117, if the bulls fail.)
5min ES gives the illusion of a cup or bull H&S forming a right shoulder.
1077.50 (if a triangle forms)
1074.25 to pause a downtrend move.
1070.50 to pause a panic down.
1060.75 may slow any panic down.
----
Higher confidence levels: 1074.25, 1085.00, 1117.00
Crazy overnighter's confidence (protective put spreads are more comfortable down here): 1061.00
Friday, May 7, 2010
Perspective from Monday, April 19
My perspective was: "But, what will it take to scare away investors to stay in treasuries long enough to keep the rates down? Just watch the charts, and be aware of the paths it offers."
Yesterday's market crash (large -8%+ intraday low) may be the new direction for the PPT: Make an unbelievable panic day, to create uncertainty and a rush to Treasuries. Well, it worked. This morning, mortgage rates are again below the magic 5%, while the US Dollar has broken a new high.
This is a win-win scenario. The Euro/Greece crisis made the US Dollar a great place to park cash. The market crash moved significant interest into treasuries. Oops? Did someone forget about the bond market's reaction?
Regarding money flows:
SPY topped buying on weakness, large inflow of money on a falling price.
AGG (iShares Barclays Aggregate Bond ETF) topped Selling on Strength, for large outflows of money on a rise in price.
Yesterday's market crash (large -8%+ intraday low) may be the new direction for the PPT: Make an unbelievable panic day, to create uncertainty and a rush to Treasuries. Well, it worked. This morning, mortgage rates are again below the magic 5%, while the US Dollar has broken a new high.
This is a win-win scenario. The Euro/Greece crisis made the US Dollar a great place to park cash. The market crash moved significant interest into treasuries. Oops? Did someone forget about the bond market's reaction?
Regarding money flows:
SPY topped buying on weakness, large inflow of money on a falling price.
AGG (iShares Barclays Aggregate Bond ETF) topped Selling on Strength, for large outflows of money on a rise in price.
Indicators Still Point to Range/Downtrend
Unfortunately, the range created by yesterday's exploits provides for possibly further 2% swings in the market. This is already apparent in the overnight ES-mini futures 10 to 11 point price gyrations between 1022 and 1034.
If acceptance kicks in while we are down-trending, expect a test of the recent low. If acceptance arrives when it shows life of an uptrend, then yesterday's low will be a significant resistance point.
My TED Spread commentary holds: "If the other shoe to drop coincides with a break down of the TED spread, expect that climax-sell day's low may become a support point." My context was for the market to 'climax' over the next couple of weeks, not that same day.
My comment from yesterday regarding the Fear Barometer holds: "A break in the Fear Barometer's pattern may indicate a reversal to long or start of a short term ranged market forming."
On 5/6/2010, the fear barometer went lower from 22.62 to 20.85, touching the lower support of the fear channel. The longer term pattern shows an elliptical increase in the cost to protect a position with an option collar, if yesterday's close of the fear barometer holds. So, it may become unfashionable to hold Puts, in case a volatility crush occurs. I would expect this if the fear barometer breaks yesterday's low of 20.85 significantly. This would say the option writers are comfortable with the short term market activity.
If acceptance kicks in while we are down-trending, expect a test of the recent low. If acceptance arrives when it shows life of an uptrend, then yesterday's low will be a significant resistance point.
My TED Spread commentary holds: "If the other shoe to drop coincides with a break down of the TED spread, expect that climax-sell day's low may become a support point." My context was for the market to 'climax' over the next couple of weeks, not that same day.
My comment from yesterday regarding the Fear Barometer holds: "A break in the Fear Barometer's pattern may indicate a reversal to long or start of a short term ranged market forming."
On 5/6/2010, the fear barometer went lower from 22.62 to 20.85, touching the lower support of the fear channel. The longer term pattern shows an elliptical increase in the cost to protect a position with an option collar, if yesterday's close of the fear barometer holds. So, it may become unfashionable to hold Puts, in case a volatility crush occurs. I would expect this if the fear barometer breaks yesterday's low of 20.85 significantly. This would say the option writers are comfortable with the short term market activity.
Rumors from the News
The blame game (confusion) continues for yesterdays epic collapse of the DOW/SPY/QQQQ:
A) European banks stopped lending. The rumor spread like wildfire. This rumor was quickly proven to be false, but that fact circulated the net very slowly.
B) A Citigroup trader 'fat fingered' a 16M(illion) trade as 16B(illion). Citigroup of course came out overnight saying they was "no evidence" of "erroneous trades," which is neither confirmation or rejection of their potential selloff activities.
C) Sell programs kicked in to knock out the supports of major index stocks. This is possible, but probably more accidental, given those programs are probably triggered live by unusual market activity.
D) The NYSE breakers started to kick in, but exchanges outside NYSE continued trading without the breakers.
So, once the SEC/media dispels all those rumors, does this market have the bulls to go higher?
A) European banks stopped lending. The rumor spread like wildfire. This rumor was quickly proven to be false, but that fact circulated the net very slowly.
B) A Citigroup trader 'fat fingered' a 16M(illion) trade as 16B(illion). Citigroup of course came out overnight saying they was "no evidence" of "erroneous trades," which is neither confirmation or rejection of their potential selloff activities.
C) Sell programs kicked in to knock out the supports of major index stocks. This is possible, but probably more accidental, given those programs are probably triggered live by unusual market activity.
D) The NYSE breakers started to kick in, but exchanges outside NYSE continued trading without the breakers.
So, once the SEC/media dispels all those rumors, does this market have the bulls to go higher?
Tales from the Pit
Option spreads were horribly wide. Last tick 5.72; Bid 4.40; Ask 5.85. That spread is a deal breaker for exiting a position. Volatility was high, because there were no buyers AND no put sellers (except me apparently). This was obvious when I placed my limit order at 5.70 and it sat there, then at 5.20, and it sat there. Before the close, the spreads were getting better.. Bid 4.90; Ask 5.60. I took that opportunity to exit unfavorably, but at least lower my Put exposure.
Another interesting note. On the IWM Puts, there were 4732 contracts floating at bid AND ask limits. Each time I moved my limit, Mr Market Maker or HFTs came in right in front of my limit order, so I effectively was fighting to get out of a position with the market maker, because my puny position was eclipsed by the 4732 contracts floating at the same limit. Great liquidity, huh?
ThinkOrSwim (TOS) posted a message @13:45:39 "Intraday Futures Requirements have been raised to 50% due to market volatility."
In the futures, with supposed "high liquidity" offered bid/ask spreads that were tight, but jumped 3-5 points within seconds! No sooner had I grabbed a long ESM0 at 1093.25 @13:48:46, and it plunged to 1084.50 @13:49:48. At 13:51:10, the market was showing signs of stabilizing, and printed 1097.25 and at 13:54:52 it printed 1109.25.
Hitting buy/sell in the TOS trader took 3-8 seconds to complete. This showed the system was overstressed. The orders once received by TOS had a less than 1 second transaction time, but the network delay was horrible.
It's possible that as everyone "tuned in" to their trading platforms or websites, the performance degraded greatly.
E*Trade was the most responsive and allowed me to do realtime quotes (although horrible bid/ask was present).
Fidelity was horrible. Log in took over 2 minutes. Refreshing a position page took over 3 minutes. Submitting an order took over 2 minutes and for the three times I could get to an order page after 3pm EST and hit "Submit" on my order, NOT ONE of the three orders transacted.
Fidelity gets my "Epic Fail" award as a broker. Let me fight the spreads, not your unresponsive website and order processing weakness.
This goes to say that the broker giant Fidelity CANNOT handle the traffic.
Attempting to call Fidelity during "panic" will park you in line behind the thousands of others also calling.
Another interesting note. On the IWM Puts, there were 4732 contracts floating at bid AND ask limits. Each time I moved my limit, Mr Market Maker or HFTs came in right in front of my limit order, so I effectively was fighting to get out of a position with the market maker, because my puny position was eclipsed by the 4732 contracts floating at the same limit. Great liquidity, huh?
ThinkOrSwim (TOS) posted a message @13:45:39 "Intraday Futures Requirements have been raised to 50% due to market volatility."
In the futures, with supposed "high liquidity" offered bid/ask spreads that were tight, but jumped 3-5 points within seconds! No sooner had I grabbed a long ESM0 at 1093.25 @13:48:46, and it plunged to 1084.50 @13:49:48. At 13:51:10, the market was showing signs of stabilizing, and printed 1097.25 and at 13:54:52 it printed 1109.25.
Hitting buy/sell in the TOS trader took 3-8 seconds to complete. This showed the system was overstressed. The orders once received by TOS had a less than 1 second transaction time, but the network delay was horrible.
It's possible that as everyone "tuned in" to their trading platforms or websites, the performance degraded greatly.
E*Trade was the most responsive and allowed me to do realtime quotes (although horrible bid/ask was present).
Fidelity was horrible. Log in took over 2 minutes. Refreshing a position page took over 3 minutes. Submitting an order took over 2 minutes and for the three times I could get to an order page after 3pm EST and hit "Submit" on my order, NOT ONE of the three orders transacted.
Fidelity gets my "Epic Fail" award as a broker. Let me fight the spreads, not your unresponsive website and order processing weakness.
This goes to say that the broker giant Fidelity CANNOT handle the traffic.
Attempting to call Fidelity during "panic" will park you in line behind the thousands of others also calling.
Thursday, May 6, 2010
TED Spread Going Higher; Fear Barometer Leveling Out
The Euro/US bank lending rate (TED Spread) increased above 23.67 this morning, and has created a short term uptrend. Risk implied by European banks (bailing out Greece, riots in Greece, and "Who's next?") is raising fear. A break above 25 implies further bank/lending stress. It is likely Portugal's dirty laundry will be aired soon. If the other shoe to drop coincides with a break down of the TED spread, expect that climax-sell day's low may become a support point.
The Fear Barometer for the past three market days (4/30-5/4) has held around 23.02-23.09. During those market days we have seen one of the largest intraday up days and a complete reversal, leaving the Q's 5% behind. A break in the Fear Barometer's pattern may indicate a reversal to long or start of a short term ranged market forming.
The Fear Barometer for the past three market days (4/30-5/4) has held around 23.02-23.09. During those market days we have seen one of the largest intraday up days and a complete reversal, leaving the Q's 5% behind. A break in the Fear Barometer's pattern may indicate a reversal to long or start of a short term ranged market forming.
Friday, April 30, 2010
TED Spread Up & Fear Barometer Makes a Higher Low
Over the past week, the Fear Barometer settled down (protective spreads decreased) as the market settled into the /ESM0 1190 to 1200 range. This indicates a "comfort" zone around the 1190-1200 range. But, on 4/29/2010, the Fear Barometer recoiled higher to 23.93, making a higher low, as the market rebounded from 4/27/2010's Grecian fears. This reinforces that the option market expects a near term ranged market, or potentially a downtrend forming. In this scenario, as the market goes higher and the risk/reward becomes less favorable, the cost of protecting a position increases.
Google trends shows 'emerging markets' are increasing in popularity. This has matched the recent rise in the MSCI Emerging Market ETF.
The TED spread (Euro bank vs US bank lending rates) has remained elevated around 17-18, although the European Banks gave verbal commitment to bailing out Greece. Greece was downgraded to Junk bond status, followed with a Portugal downgrade by S&P. Yesterday, 4/29/2010, the TED Spread broke 19 basis points. A sustained trend to 25 indicates another financial disaster awaits to be realized. Given the movement this year, Greece and Portugal prove to be the weakest areas of the world economy.
If sovereign debt turns sour (e.g. Greece or Portugal defaults), expect EEM to turn with it.
Google trends shows 'emerging markets' are increasing in popularity. This has matched the recent rise in the MSCI Emerging Market ETF.
The TED spread (Euro bank vs US bank lending rates) has remained elevated around 17-18, although the European Banks gave verbal commitment to bailing out Greece. Greece was downgraded to Junk bond status, followed with a Portugal downgrade by S&P. Yesterday, 4/29/2010, the TED Spread broke 19 basis points. A sustained trend to 25 indicates another financial disaster awaits to be realized. Given the movement this year, Greece and Portugal prove to be the weakest areas of the world economy.
If sovereign debt turns sour (e.g. Greece or Portugal defaults), expect EEM to turn with it.
Monday, April 19, 2010
This Weeks Market Forecast
How about a ramp & camp Monday (scared shorts, blaming the PPT), with more sideways action until the teeth of a reform bill, or additional charges are exposed. My view: sideways range this week, unless $TNX sinks down into no-mans-land.
The option spreads widened on Thursday, then tightened on Friday as Thursday's fear was realized on Friday. If option spreads continue to tighten, and the market continues a sideways to negative move, the option writers are tell us a new trend is forming. This should be observable by Thursday or Friday.
If option spreads widen, and the market blasts higher or lower, expect a reversal in the current trend.
Let's see if the 0.5% dip buyers show up today, or if Friday's dip buyers are feeling like knife catchers, and drop the knife today.
The option spreads widened on Thursday, then tightened on Friday as Thursday's fear was realized on Friday. If option spreads continue to tighten, and the market continues a sideways to negative move, the option writers are tell us a new trend is forming. This should be observable by Thursday or Friday.
If option spreads widen, and the market blasts higher or lower, expect a reversal in the current trend.
Let's see if the 0.5% dip buyers show up today, or if Friday's dip buyers are feeling like knife catchers, and drop the knife today.
10-yr Treasury Note Rate Volatility Increases
Rightly so, many want to see housing values stabilize, and mortgage defaults to decrease. The Fed (banks like free money), Treasury (cheap US Debt is the best kind of debt), Congress (constituents have been restless), and our President (it's a win-win scenario, do it!) all want this. So, again, interest rates must stay at historic lows for an extended time.
However, the risk in holding 10-yr Treasury Notes ($TNX) has gone up (the demand for equities has lowered the demand for treasuries, and therefore yield must go up). Since January 2009, T-Notes have been on a rise, each time making a lower support trend line, and failing it. Only then to move slightly higher, except for the most recent move, which did not break the June high.
With the recent Goldman Sachs fraud charges, and increased talk of financial reform legislation, the political arm has swept in to potentially break the lower resistance of the T-Notes.
This is a most dangerous game, because the recoil of a failed breakout at the 3.5-3.8% level could land T-Notes into the 5% range. Not a horrible place to land, but uncomfortable in this climate.
A higher T-Note rate will put additional pressure on the interest rate.
So, the recent SEC fraud charges and increased bank reform talk has again created a needed break in equities. However, what damage has this done, if any? A new support range may be formed. My three day rule says, many panic down days ripple for three days, and stabilize in the third day, as the news has finally made a full circle.
As demand for the "safety" of US Treasuries has increased, therefore the T-Note interest rate will decrease as investors cram into Treasuries.
But, what will it take to scare away investors to stay in treasuries long enough to keep the rates down? Just watch the charts, and be aware of the paths it offers.
However, the risk in holding 10-yr Treasury Notes ($TNX) has gone up (the demand for equities has lowered the demand for treasuries, and therefore yield must go up). Since January 2009, T-Notes have been on a rise, each time making a lower support trend line, and failing it. Only then to move slightly higher, except for the most recent move, which did not break the June high.
With the recent Goldman Sachs fraud charges, and increased talk of financial reform legislation, the political arm has swept in to potentially break the lower resistance of the T-Notes.
This is a most dangerous game, because the recoil of a failed breakout at the 3.5-3.8% level could land T-Notes into the 5% range. Not a horrible place to land, but uncomfortable in this climate.
A higher T-Note rate will put additional pressure on the interest rate.
So, the recent SEC fraud charges and increased bank reform talk has again created a needed break in equities. However, what damage has this done, if any? A new support range may be formed. My three day rule says, many panic down days ripple for three days, and stabilize in the third day, as the news has finally made a full circle.
As demand for the "safety" of US Treasuries has increased, therefore the T-Note interest rate will decrease as investors cram into Treasuries.
But, what will it take to scare away investors to stay in treasuries long enough to keep the rates down? Just watch the charts, and be aware of the paths it offers.
Thursday, April 8, 2010
"SEC eyes IDs for High Frequency Traders"
File this under "Why hasn't this been done yet?"
Is the SEC qualified to analyze this data? (Funding the SEC and the failure to identify and penalize wrongdoing has been noted recently.)
The mountain of data will likely hide any manipulation.
The fact that 60% of future volume could originates from HFT 'inside the spread' trading should be worry enough. The traditional supply demand equation now has an artificial inside force generating pseudo-liquidity and false presence of investor supply/demand.
Making volume readings artificially inflated will have a direct impact on market strategies relying on more traditional views of supply/demand and volume.
Tagging the HFT trades should expose the real supply/demand or lack thereof underneath.
--Mike
-----------------------------------------------------------
Originally published on http://www.hedgeworld.com/
-----------------------------------------------------------
SEC eyes IDs for High Frequency Traders
By Reuters
Wednesday, April 07, 2010
WASHINGTON (Reuters) U.S. securities regulators are considering a plan that would require high frequency traders to reveal who they are and disclose their trades to the Securities and Exchange Commission, the agency said on its web site on Wednesday [April 7].
The SEC can force large, non-broker firms such as proprietary traders and hedge funds to use an ID number when trading, giving the regulator information about their executions and their effect on the wider market.
The proposal, to be considered at an April 14 meeting, comes as the SEC examines whether additional rules are needed to curb fast traders, or firms that use sophisticated algorithms to buy and sell stock in a fraction of a second.
The rapid trading is estimated to account for some 60% of all U.S. equity trading and has been scrutinized by some U.S. lawmakers.
"I applaud the SEC for moving forward with a proposed rule to require tagging of high frequency trades," said Sen. Ted Kaufman (D-Del.). "This is the first step to ensuring the SEC can better understand high frequency strategies and detect any manipulative algorithms."
By Rachelle Younglai
Original Story:
http://www.hedgeworld.com/news/read_news.cgi?story=legl2511.html§ion=legl
-----------------------------------------------------------
This story brought to you by HedgeWorld.com.
Copyright 2010 all rights reserved.
For more news stories visit:
http://www.hedgeworld.com/news/
Is the SEC qualified to analyze this data? (Funding the SEC and the failure to identify and penalize wrongdoing has been noted recently.)
The mountain of data will likely hide any manipulation.
The fact that 60% of future volume could originates from HFT 'inside the spread' trading should be worry enough. The traditional supply demand equation now has an artificial inside force generating pseudo-liquidity and false presence of investor supply/demand.
Making volume readings artificially inflated will have a direct impact on market strategies relying on more traditional views of supply/demand and volume.
Tagging the HFT trades should expose the real supply/demand or lack thereof underneath.
--Mike
-----------------------------------------------------------
Originally published on http://www.hedgeworld.com/
-----------------------------------------------------------
SEC eyes IDs for High Frequency Traders
By Reuters
Wednesday, April 07, 2010
WASHINGTON (Reuters) U.S. securities regulators are considering a plan that would require high frequency traders to reveal who they are and disclose their trades to the Securities and Exchange Commission, the agency said on its web site on Wednesday [April 7].
The SEC can force large, non-broker firms such as proprietary traders and hedge funds to use an ID number when trading, giving the regulator information about their executions and their effect on the wider market.
The proposal, to be considered at an April 14 meeting, comes as the SEC examines whether additional rules are needed to curb fast traders, or firms that use sophisticated algorithms to buy and sell stock in a fraction of a second.
The rapid trading is estimated to account for some 60% of all U.S. equity trading and has been scrutinized by some U.S. lawmakers.
"I applaud the SEC for moving forward with a proposed rule to require tagging of high frequency trades," said Sen. Ted Kaufman (D-Del.). "This is the first step to ensuring the SEC can better understand high frequency strategies and detect any manipulative algorithms."
By Rachelle Younglai
Original Story:
http://www.hedgeworld.com/news/read_news.cgi?story=legl2511.html§ion=legl
-----------------------------------------------------------
This story brought to you by HedgeWorld.com.
Copyright 2010 all rights reserved.
For more news stories visit:
http://www.hedgeworld.com/news/
Tuesday, April 6, 2010
Commerce Secretary Wonders How a Closing a Loophole Subsidy Becomes A Corporate Loss?
On the Monday, April 5th WBBM-780 noon business hour, the US Secretary of Commerce stated that companies have been exercising a loophole for health benefits, granting them a significant subsidy paid for by the government. Part of the Health Reform Bill supposedly plugs this hole, and companies are complaining about the extra tens or hundreds of millions it costs them over the next ten to twenty years. However, this "loss" is just the government plugging the hole in this free money. Either way, the employed will end up paying the difference, as companies push the previous subsidy amount onto their employees.
Compare this to taxpayers complaining that their favorite tax credits are being removed or "expired." Yes, it's happening in 2011, unless Congress renews or revises the existing taxpayer benefits (e.g. reduced tax table rates, reduced capital gains taxes, etc).
Compare this to taxpayers complaining that their favorite tax credits are being removed or "expired." Yes, it's happening in 2011, unless Congress renews or revises the existing taxpayer benefits (e.g. reduced tax table rates, reduced capital gains taxes, etc).
Saturday, March 20, 2010
Caterpillar Woes the Health Reform Bill
Caterpillar says health reform costs their shareholders $100M over 10 years. This is FUD, since the predominant trend has pushed health care costs into wage reductions. Investors will rally the stock when the company says the cost will become their employees cost.
The fear: US based companies may become less efficient compared to other business environments. Higher employee costs could translate into further outsourcing, or worse, complete US corporation entities being reborn overseas to avoid the US business climate. (e.g. Seagate closed shop in the Cayman Islands and moved back to Ireland, potentially due to closing US offshore accounting loopholes.) As more US corporations move overseas, expect US Tax receivables to plummet.
Hourly pay will remain the same, but employees may walk away with a smaller weekly paycheck.
The fear: How does the working, employed class foster economic growth, if more of their paycheck gets stuffed into health insurance coverage?
The uninsurable will be insurable, and be able to move between insurance providers. The potential deaths prevented will create additional tax payers, to offset the program costs. Hospitals won't need charity or Pro Bono work, since everyone will have health insurance. Then again, hospitals charge 2-4x over typical cost for uninsured folks, because often they cannot reclaim the losses, so hospital losses should shrink. However, any "profit" they were gaining on writing off the losses will go away. So the hospitals with the most write-offs will come under the most fundamental scrutiny from investors.
The deal is getting sweeter for being unemployed, while employers are pressured again to cut costs, cut benefits, or push costs onto employees.
The fear: US based companies may become less efficient compared to other business environments. Higher employee costs could translate into further outsourcing, or worse, complete US corporation entities being reborn overseas to avoid the US business climate. (e.g. Seagate closed shop in the Cayman Islands and moved back to Ireland, potentially due to closing US offshore accounting loopholes.) As more US corporations move overseas, expect US Tax receivables to plummet.
Hourly pay will remain the same, but employees may walk away with a smaller weekly paycheck.
The fear: How does the working, employed class foster economic growth, if more of their paycheck gets stuffed into health insurance coverage?
The uninsurable will be insurable, and be able to move between insurance providers. The potential deaths prevented will create additional tax payers, to offset the program costs. Hospitals won't need charity or Pro Bono work, since everyone will have health insurance. Then again, hospitals charge 2-4x over typical cost for uninsured folks, because often they cannot reclaim the losses, so hospital losses should shrink. However, any "profit" they were gaining on writing off the losses will go away. So the hospitals with the most write-offs will come under the most fundamental scrutiny from investors.
The deal is getting sweeter for being unemployed, while employers are pressured again to cut costs, cut benefits, or push costs onto employees.
The Four Horsemen of Options Trading
Also known as the four greeks bearing gifts, the four horsemen are swift and merciless. Delta tears you to shreds when the price moves against you. Gamma mutilates any chance for recovery as you approach option expiration. Theta slowly bleeds your position to an anemic size. And finally, the lesser mentioned Rho accelerates the decay of your hope that some day the position will improve.
For instance, plot the risk/reward for any strategy you deploy. If it looks "too good to be true", such as a spread with a 100% reward at expiration for 5% risk, the option writers have a very good idea you may never see that reward.
For instance, plot the risk/reward for any strategy you deploy. If it looks "too good to be true", such as a spread with a 100% reward at expiration for 5% risk, the option writers have a very good idea you may never see that reward.
Your Broker Says, Risk Only 1% Per Trade
E*Trade has recently been offering trade strategy advice, where one risks only a 1% loss on their portfolio per trade. This of course is a great way to increase commissions, as your stops fire quickly in the almost daily 10 point /ES swing (roughly 0.8% in the past weeks).
Thursday, March 11, 2010
Apple Product Line Observations
A couple factors may be delaying Apple's Core i5/i7 MacBook Pro. Given all of the observations below, if a mid-May 2010 release does not occur, the next window is WWDC in late June 2010. Or prove me wrong, Apple, and release it sooner..
* Mid-Jan 2010: Intel announces Core i Series for sale. Dell lead times about 4 weeks.
* Jan 27, 2010: iPad Announced. Teaser dates set. iPad hype starts.
* Feb 9-13, 2010: MacWorld Expo. Expect no major Apple product announcements during MacWorld Expo anymore. Apple wants to prove that MacWorld Expo is an unnecessary venue where they cannot control the message.
* Mar 5, 2010: iPad release date confirmed for April 3rd.
* Mar 16, 2010: Intel announces Xeon 5600 Series. Potential candidate for MacPro. Last time, Apple had an exclusive MacPro Xeon release about 3 weeks earlier than everyone else. Well, it did not happen this time.
* Mar 31, 2010: International 'Free iPod Touch w/Purchase' campaign ends. (See here.)
* Apr 3, 2010: iPad release party. Sorry, no Mac line will steal the spotlight.
Tentative:
* Apr 15, 2010: Potential XServe and/or WWDC dates announcement (2 months prior to WWDC). Will probably build anticipation for iPad developer sessions. An early April XServe announcement is critical for IT purchasers to plan their quarterly expenditures.
* May 4 or 11, 2010: Potential MacPro announcement date. Apple likes Tuesdays, and this marks two months from the Xeon 5600 announcement.
* May 25, 2010: Potential MacBook Pro announcement date. Apple likes Tuesdays, and this marks four months from the Core i7 announcement.
* Jun 27-Jul 2, 2010: WWDC rumored dates. Potential iPhone announcement.
The new product introduction of the iPad disrupted the typical MacBook release cycle. iPad introduction/sales start April 3rd. Apple wants everyone's focus on the iPad. Distraction due to a new MacBook might hurt iPad demand.
Internally and historically, Apple OS resources will likely be positioned and prioritized for the iPad release.
Speaking of MacBook demand, Apple's first quarter was strong, and MacBook sales were strong. This may be fueling a decision to continue selling the Core 2 Duo MacBooks, until the demand wanes, or Intel cuts off the Core 2 Duo supply.
The Intel Core i3/i5/i7 line was introduced mid-January 2010. Apple has set precedent to release speed bumps or new platforms (Core 2 Duo) four months from Intel's public release dates. Using this observation places a MacBook delivery around mid to late May. This hedges any weak demand for the iPad, because there is a significant amount of pent-up demand for a Core i series MacBook Pro. (e.g. Read the rumor forums.)
Competition-wise, Dell's Studio XPS 16 w/Core i7 and Alienware M17x both have 3.5-4.5 week lead times as of today (4/7/10 & 4/814/10 respectively). This has not improved much since the beginning of February. There is either significant demand for these processors, or the supply/yields are low.
Given the lead time, Apple may be waiting for Core i3/i5/i7 supply to be sufficient to satisfy the instant gratification crowd.
A rumor exists for a "Magic Trackpad". Rumor sites have said this is for an unreleased consumer product (like an iSlate, which I believe was a secondary, reserved name for the iPad), while it makes sense this is likely a reference to the trackpad on an upcoming MacBook model.
Have you noticed that WWDC's dates have not been announced? It is likely WWDC will be in late June, to coincide with the announcement of a new iPhone. Given the initial adopter's of the iPhone 2G will be expiring, this is Apple's prime time to introduce a next generation iPhone.
Watch for a WWDC date announcement shortly (1-2 weeks) after the iPad launch.
Apple does not have a history of overlapping product line announcements (e.g. MacBook Pro, iMac, and MacPro), except when there are significant platform changes (e.g. 680x0 to PPC; and PPC to Intel).
Just a view from my dartboard.
* Mid-Jan 2010: Intel announces Core i Series for sale. Dell lead times about 4 weeks.
* Jan 27, 2010: iPad Announced. Teaser dates set. iPad hype starts.
* Feb 9-13, 2010: MacWorld Expo. Expect no major Apple product announcements during MacWorld Expo anymore. Apple wants to prove that MacWorld Expo is an unnecessary venue where they cannot control the message.
* Mar 5, 2010: iPad release date confirmed for April 3rd.
* Mar 16, 2010: Intel announces Xeon 5600 Series. Potential candidate for MacPro. Last time, Apple had an exclusive MacPro Xeon release about 3 weeks earlier than everyone else. Well, it did not happen this time.
* Mar 31, 2010: International 'Free iPod Touch w/Purchase' campaign ends. (See here.)
* Apr 3, 2010: iPad release party. Sorry, no Mac line will steal the spotlight.
Tentative:
* Apr 15, 2010: Potential XServe and/or WWDC dates announcement (2 months prior to WWDC). Will probably build anticipation for iPad developer sessions. An early April XServe announcement is critical for IT purchasers to plan their quarterly expenditures.
* May 4 or 11, 2010: Potential MacPro announcement date. Apple likes Tuesdays, and this marks two months from the Xeon 5600 announcement.
* May 25, 2010: Potential MacBook Pro announcement date. Apple likes Tuesdays, and this marks four months from the Core i7 announcement.
* Jun 27-Jul 2, 2010: WWDC rumored dates. Potential iPhone announcement.
The new product introduction of the iPad disrupted the typical MacBook release cycle. iPad introduction/sales start April 3rd. Apple wants everyone's focus on the iPad. Distraction due to a new MacBook might hurt iPad demand.
Internally and historically, Apple OS resources will likely be positioned and prioritized for the iPad release.
Speaking of MacBook demand, Apple's first quarter was strong, and MacBook sales were strong. This may be fueling a decision to continue selling the Core 2 Duo MacBooks, until the demand wanes, or Intel cuts off the Core 2 Duo supply.
The Intel Core i3/i5/i7 line was introduced mid-January 2010. Apple has set precedent to release speed bumps or new platforms (Core 2 Duo) four months from Intel's public release dates. Using this observation places a MacBook delivery around mid to late May. This hedges any weak demand for the iPad, because there is a significant amount of pent-up demand for a Core i series MacBook Pro. (e.g. Read the rumor forums.)
Competition-wise, Dell's Studio XPS 16 w/Core i7 and Alienware M17x both have 3.5-4.5 week lead times as of today (4/7/10 & 4/814/10 respectively). This has not improved much since the beginning of February. There is either significant demand for these processors, or the supply/yields are low.
Given the lead time, Apple may be waiting for Core i3/i5/i7 supply to be sufficient to satisfy the instant gratification crowd.
A rumor exists for a "Magic Trackpad". Rumor sites have said this is for an unreleased consumer product (like an iSlate, which I believe was a secondary, reserved name for the iPad), while it makes sense this is likely a reference to the trackpad on an upcoming MacBook model.
Have you noticed that WWDC's dates have not been announced? It is likely WWDC will be in late June, to coincide with the announcement of a new iPhone. Given the initial adopter's of the iPhone 2G will be expiring, this is Apple's prime time to introduce a next generation iPhone.
Watch for a WWDC date announcement shortly (1-2 weeks) after the iPad launch.
Apple does not have a history of overlapping product line announcements (e.g. MacBook Pro, iMac, and MacPro), except when there are significant platform changes (e.g. 680x0 to PPC; and PPC to Intel).
Just a view from my dartboard.
Wednesday, March 10, 2010
$3T Parked on the Sidelines
Do you believe that $3T is parked on the sidelines watching this bull rally? Or is it a bear rally? The increase in the fear barometer says there is discomfort at the recent highs. (Another post will follow up on this in more detail.)
10 Dow stocks up 100%.
Market up 60% from last March.
Ultimate pump & dump scenario setup?
10 Dow stocks up 100%.
Market up 60% from last March.
Ultimate pump & dump scenario setup?
TED Spread Update & Fear Barometer Watch
Are we still hearing crickets over in the TED spread trench? It is cutting new lows, lower than during the previous 2004-2007 bull rally.
European debt is apparently equal risk to US debt. The debt bubble is world-wide, and the banks are comfortable with it. Worldwide, governments are willing to take on more stimulus (debt) to seed growth.
Meanwhile in the equity markets, the Credit Suisse Fear Barometer (CSFB) is making monthly highs, as QQQQ, IWM, and SPY all reach for new year highs. The spread to 'protect' a portfolio is widening, meaning option writers are willing to take risk in exchange for higher premiums as the market touches and carves out new highs.
The higher premiums are for those afraid to risk, and let the index gains offset their portfolio protection. Similar to 6/2006-10/2006, the market could climb for another few months with spread premiums climbing on higher-highs, if implied volatility drops. A side-ways scenario is also being priced in, where butterfly strategies will likely be less profitable in the near term, since market movement has been both volatile and trending.
Pick your strategies wisely, the daily 10 point SPX swings are being priced in.
If implied volatility drops, and price drops, this is very bearish, since option writers are confirming the downtrend, risk premiums increase accordingly, and bearish spreads will likely shrink.
European debt is apparently equal risk to US debt. The debt bubble is world-wide, and the banks are comfortable with it. Worldwide, governments are willing to take on more stimulus (debt) to seed growth.
Meanwhile in the equity markets, the Credit Suisse Fear Barometer (CSFB) is making monthly highs, as QQQQ, IWM, and SPY all reach for new year highs. The spread to 'protect' a portfolio is widening, meaning option writers are willing to take risk in exchange for higher premiums as the market touches and carves out new highs.
The higher premiums are for those afraid to risk, and let the index gains offset their portfolio protection. Similar to 6/2006-10/2006, the market could climb for another few months with spread premiums climbing on higher-highs, if implied volatility drops. A side-ways scenario is also being priced in, where butterfly strategies will likely be less profitable in the near term, since market movement has been both volatile and trending.
Pick your strategies wisely, the daily 10 point SPX swings are being priced in.
If implied volatility drops, and price drops, this is very bearish, since option writers are confirming the downtrend, risk premiums increase accordingly, and bearish spreads will likely shrink.
Monday, February 8, 2010
Today's Market Episode Brought to You...
by the letter... "M". (Example, see /ESH0 2/08/2010 @ 6:30am; 7:00am; 7:35am; 8:25am; 8:50am)
A strong impulse, followed by 25-50% pullback, followed by a retouching or eclipsing the left high of the M, and falling back to the base of the M.
This pattern was quite noticeable and frequent during the first and middle stages of Oct 2008 descent. It later morphed into what might be called "the bat signal", where the impulse started slower then quickened to an exponential height at the peaks, ending in a exponential fade.
Beware, if it carves out a larger bat signal, where wings are evident on the left and right side, this is a sure sign of further weakness.
Watch for it to morph into a W or weaker lowercase w or m formation, signaling a potential trend change.
A strong impulse, followed by 25-50% pullback, followed by a retouching or eclipsing the left high of the M, and falling back to the base of the M.
This pattern was quite noticeable and frequent during the first and middle stages of Oct 2008 descent. It later morphed into what might be called "the bat signal", where the impulse started slower then quickened to an exponential height at the peaks, ending in a exponential fade.
Beware, if it carves out a larger bat signal, where wings are evident on the left and right side, this is a sure sign of further weakness.
Watch for it to morph into a W or weaker lowercase w or m formation, signaling a potential trend change.
Friday, February 5, 2010
TED Spread
Lots of noise in the equity trenches, but it's crickets over in the TED spread trench.
( http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND )
If European debt is a true problem, why are the banks willing to risk dollars versus Euros at almost the same risk? At this point, Eurodollar versus US dollar lending is in longer term, 'normal' territory.
If European credit-worthiness were at risk, the spread should widen, unless both parties (US & EU) are being weighted as equal risk of default. Last read, Greece was given 20% odds of default.
( http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND )
If European debt is a true problem, why are the banks willing to risk dollars versus Euros at almost the same risk? At this point, Eurodollar versus US dollar lending is in longer term, 'normal' territory.
If European credit-worthiness were at risk, the spread should widen, unless both parties (US & EU) are being weighted as equal risk of default. Last read, Greece was given 20% odds of default.
Wednesday, February 3, 2010
Breakout, Fakeout, Continuance?
Afterhours perspective as of 5:44pm EST. Commodities in the commode. Equities flat. USD strengthening. Treasury yields rising (money flowing toward USD?)
UUP did breakout, and fell back late in the trading day. But afterhours, the breakout, then fallback (aka. fakeout), and an upside breakout continuance may be forming.
Futures Last Change Change %
Crude Oil 76.98 -0.25 -0.32%
Natural Gas 5.42 -0.04 -0.73%
Gold 1112.00 -6.00 -0.54%
Dow 10248.00 +7.00 +0.07%
S&P 500 1097.60 +1.20 +0.11%
Nasdaq 100 1790.00 +4.50 +0.25%
Forex & Bonds Last Change Change %
EUR/USD 1.3890 -0.0077 -0.55%
USD/JPY 91.03 +0.65 +0.72%
GBP/USD 1.5886 -0.0090 -0.56%
5-Year Treasury 2.402 +0.045 +1.91%
10-Year Treasury 3.703 +0.068 +1.87%
30-Year Treasury 4.632 +0.082 +1.80%
UUP did breakout, and fell back late in the trading day. But afterhours, the breakout, then fallback (aka. fakeout), and an upside breakout continuance may be forming.
Futures Last Change Change %
Crude Oil 76.98 -0.25 -0.32%
Natural Gas 5.42 -0.04 -0.73%
Gold 1112.00 -6.00 -0.54%
Dow 10248.00 +7.00 +0.07%
S&P 500 1097.60 +1.20 +0.11%
Nasdaq 100 1790.00 +4.50 +0.25%
Forex & Bonds Last Change Change %
EUR/USD 1.3890 -0.0077 -0.55%
USD/JPY 91.03 +0.65 +0.72%
GBP/USD 1.5886 -0.0090 -0.56%
5-Year Treasury 2.402 +0.045 +1.91%
10-Year Treasury 3.703 +0.068 +1.87%
30-Year Treasury 4.632 +0.082 +1.80%
Predatory Credit Squeeze
I just read Mish's article on Business Loan Margin Calls.
In short, bank "Margin Calls" on business lines of credit or loans can lead to a bank issuing 'perfect' interest letters to your accounts receivable. Some blame the credit cards for lowering credit lines, making many businesses cash strapped. Who owns the line of credit? It is the same banks that are calling in the margin!
This should be called predatory credit squeezing---where a bank squeezes credit card lines of businesses, so they can call in business loans and liquidate a business.
Very underhanded, but it may help thin the herd of companies in higher leveraged, lower margin business practices.
In short, bank "Margin Calls" on business lines of credit or loans can lead to a bank issuing 'perfect' interest letters to your accounts receivable. Some blame the credit cards for lowering credit lines, making many businesses cash strapped. Who owns the line of credit? It is the same banks that are calling in the margin!
This should be called predatory credit squeezing---where a bank squeezes credit card lines of businesses, so they can call in business loans and liquidate a business.
Very underhanded, but it may help thin the herd of companies in higher leveraged, lower margin business practices.
Friday, January 29, 2010
ES H&S
Looks like the full moon brought out the wolves, the futures carved out a new low, right after midnight.
Pull up the /ESH0 5m or 30m. You may see an ascending H&S after yesterday's downtrend (strengthening the H&S success rate). Left: Thurs 18:34 @ 1075; Head: Friday 00:00 @ 1070; Right: Friday 4:25 @ 1076.50. Projection: +10 points, ascending the bullish H&S channel.
Unfortunately, over the past few days, bullish H&S patterns have broken down quite easily on the right shoulder line, and the overnighters have been getting squeezed on morning gaps up.
The swings lately have felt like I need a T-square to plot the reversal direction. :-)
Pull up the /ESH0 5m or 30m. You may see an ascending H&S after yesterday's downtrend (strengthening the H&S success rate). Left: Thurs 18:34 @ 1075; Head: Friday 00:00 @ 1070; Right: Friday 4:25 @ 1076.50. Projection: +10 points, ascending the bullish H&S channel.
Unfortunately, over the past few days, bullish H&S patterns have broken down quite easily on the right shoulder line, and the overnighters have been getting squeezed on morning gaps up.
The swings lately have felt like I need a T-square to plot the reversal direction. :-)
Thursday, January 28, 2010
Ominous Sign of Further Correction?
On Thursday's down day (after a week of "correction"), a coworker said "this market is headed toward 1200 before it heads down, I just hope it gets there, so I can sell my 401k."
This kind of hope to reach higher could mean the stage is already set for those holding the bags before another more significant correction.
This kind of hope to reach higher could mean the stage is already set for those holding the bags before another more significant correction.
More Stock Based Banker Compensation
Quote: "Jan. 22 (Bloomberg) -- James Gorman, who became Morgan Stanley’s chief executive officer at the start of this year, was awarded deferred stock grants valued at about $8.6 million for his performance last year, when the shares rose 85 percent even as profit lagged peers. Gorman, 51, will get 194,590 restricted shares, valued at $5.7 million at yesterday’s closing price of $29.34, plus the right to at least 97,295 more shares that would be granted in 2013 if certain company goals are met"
Morgan Stanley™'s Gorman Gets $8.6 Mln Stock Bonus (Update1)
This is the writing on the wall, but what does it say? A bunch of restricted stock (of which the details are not disclosed) and essentially a free three year call option, tied to "certain company goals". Those company goals can be guaranteed to be 100% attainable. This is possibly a politically driven action, where large salaries have been news, while stock based (supposedly "performance based") compensation is being offered to quiet the masses. Does the Morgan Stanley CEO expect the deferred stock grants to be worth more than today? That depends on the call option's strike price, and whether mark to magic remains in place.Mark to magic is the removal of the previously required "mark to market" pricing of a company's assets. This effectively erased all long term losses from the bank's books, as they amortize (aka hide) the potential risk and losses over the term of the asset class. Maybe in 20-30 years, the banks will finally take their hit, once their stocks reach new highs, they will offset the long term losses.
Apple BusinessModel & Product Line Analysis
Disclaimer: I own and use Apple products, but the recent shift toward consumer devices, instead of personal computers is changing Apple's business model. The new Apple consumer devices are enablers to change consumer habits.
The Apple product line's new introduction of the iPad, fits nicely between the MacBook and the iPhone. Apple's own "Shipping soon" graphic shows the manila envelope which the MacBook Air made infamous. The iPad effectively puts the MacBook Air on notice, that the iPad intends to move into that manila envelope, and kick the MacBook Air to the curb.
The price point, feature set, and data plan options are an Amazon Kindle Killer. The iPad is a much better device, lots of additional features, and is quite possibly the best commuter or college student's media consumption device.
The iPad's introduction of a multitouch screen in a larger screen, tells me the MacBook, MacBook Pro, & Cinema Display lines will not get a multitouch screen anytime in the near future. This would potentially eat away at iPad sales.
Apple touts 140,000 AppStore applications. MacOS X Laptop/Desktop developers have been placed on notice. This banner effectively says "Apple will direct all future sales through the AppStore, since we get a cut of every sale." The past premium for publishing software on the shelf will be back in Apple's control. The deteriorating price of "Apps" to the 0.99 price point on the iPhone/iPod Touch and the middle tier iPad pricing around 9.99 is an ominous sign for Mac OS X developers. Which platform does a Mac developer release on first, with what feature set, or price point? These are serious problems facing any Mac developer's ability to make a living.
The iPad SDK is available, but you cannot develop using the device itself, for that Apple requires an additional purchase of a Mac Laptop or Desktop, ensuring a closer binding to the laptop/desktop unit. Similarly, MacOS X developers, the savvy ones at least, will force a similar binding between the laptop/desktop tier and the consumer device tier.
The iPad, like the iPhone is not multi-user. This limits using this device in a shared home environment. The counterpoint being the device is "good 'nuf" and "cheap 'nuf" to buy more than one for a family environment. However, again, you need a laptop or desktop to sync your media/backup.
The lack of a camera means the iPad will not eat into the iPod Nano or iPhone 3GS sales. To be fair, a high quality IPS LCD needs a higher megapixel camera to do it justice, so many folks will opt to sync their digital cameras to the iPad via the Camera/SD Slot Adapter.
Yes, video streaming is becoming more a reality. Bandwidth is increasing, and the generation of "good 'nuf" is driving a lower quality, give it to me now mentality. The lack of Blu-Ray in Apple's Desktops and Laptops, now that Blu-Rays have broken a critical $20.00 barrier, is evidence of Apple's preference toward the Apple Store's online media services. Again, Apple gets a cut from every online Apple Store sale, and a significantly larger cut for videos/rentals, rather than offering Blu-Ray.
The Apple product line's new introduction of the iPad, fits nicely between the MacBook and the iPhone. Apple's own "Shipping soon" graphic shows the manila envelope which the MacBook Air made infamous. The iPad effectively puts the MacBook Air on notice, that the iPad intends to move into that manila envelope, and kick the MacBook Air to the curb.
The price point, feature set, and data plan options are an Amazon Kindle Killer. The iPad is a much better device, lots of additional features, and is quite possibly the best commuter or college student's media consumption device.
The iPad's introduction of a multitouch screen in a larger screen, tells me the MacBook, MacBook Pro, & Cinema Display lines will not get a multitouch screen anytime in the near future. This would potentially eat away at iPad sales.
Apple touts 140,000 AppStore applications. MacOS X Laptop/Desktop developers have been placed on notice. This banner effectively says "Apple will direct all future sales through the AppStore, since we get a cut of every sale." The past premium for publishing software on the shelf will be back in Apple's control. The deteriorating price of "Apps" to the 0.99 price point on the iPhone/iPod Touch and the middle tier iPad pricing around 9.99 is an ominous sign for Mac OS X developers. Which platform does a Mac developer release on first, with what feature set, or price point? These are serious problems facing any Mac developer's ability to make a living.
The iPad SDK is available, but you cannot develop using the device itself, for that Apple requires an additional purchase of a Mac Laptop or Desktop, ensuring a closer binding to the laptop/desktop unit. Similarly, MacOS X developers, the savvy ones at least, will force a similar binding between the laptop/desktop tier and the consumer device tier.
The iPad, like the iPhone is not multi-user. This limits using this device in a shared home environment. The counterpoint being the device is "good 'nuf" and "cheap 'nuf" to buy more than one for a family environment. However, again, you need a laptop or desktop to sync your media/backup.
The lack of a camera means the iPad will not eat into the iPod Nano or iPhone 3GS sales. To be fair, a high quality IPS LCD needs a higher megapixel camera to do it justice, so many folks will opt to sync their digital cameras to the iPad via the Camera/SD Slot Adapter.
Yes, video streaming is becoming more a reality. Bandwidth is increasing, and the generation of "good 'nuf" is driving a lower quality, give it to me now mentality. The lack of Blu-Ray in Apple's Desktops and Laptops, now that Blu-Rays have broken a critical $20.00 barrier, is evidence of Apple's preference toward the Apple Store's online media services. Again, Apple gets a cut from every online Apple Store sale, and a significantly larger cut for videos/rentals, rather than offering Blu-Ray.
Monday, January 25, 2010
A Thought to Consider
The best part of a short term rally is the thought of selling positions into another bear cycle.
Many trendlines were broken on Friday, some cascading occurred, but the 5min bars were fairly orderly. It was quite a thin buying market at times, some mid-day buys were easily able to push the market higher, showing bull weakness by the day's end.
Sometimes these sharp down days are the best contrarian play. Find a bullish credit spread you think has been grossly overvalued, and take it. The market has been wounded, but it tends to retest the mean before purging occurs.
I see /ESH0 around 1125 as a nice swing high, if a bear takes form. If we touch & go around 1105, then 1040-1050 is a good place for a bullish stand. There are too many fibs and lines crossing in that area not to pose resistance.
Given the news perking up to the market movement, grinding around 1090-1120 would probably be most suitable to infuriating both bulls and bears. Got theta?
What goes down, must come UUP, right? Is it possible a dollar carry trade with equities has fueled part of this rally? Did Goldmine Sachs receive a margin call from Uncle Sam? The tape tells me exactly what I would like to hear. ;-)
Many trendlines were broken on Friday, some cascading occurred, but the 5min bars were fairly orderly. It was quite a thin buying market at times, some mid-day buys were easily able to push the market higher, showing bull weakness by the day's end.
Sometimes these sharp down days are the best contrarian play. Find a bullish credit spread you think has been grossly overvalued, and take it. The market has been wounded, but it tends to retest the mean before purging occurs.
I see /ESH0 around 1125 as a nice swing high, if a bear takes form. If we touch & go around 1105, then 1040-1050 is a good place for a bullish stand. There are too many fibs and lines crossing in that area not to pose resistance.
Given the news perking up to the market movement, grinding around 1090-1120 would probably be most suitable to infuriating both bulls and bears. Got theta?
What goes down, must come UUP, right? Is it possible a dollar carry trade with equities has fueled part of this rally? Did Goldmine Sachs receive a margin call from Uncle Sam? The tape tells me exactly what I would like to hear. ;-)
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