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.
Friday, April 30, 2010
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).
Subscribe to:
Posts (Atom)