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Buzz Bits



Volatility Rally - Adam Warner - 3:47 PM

Unlike Tuesday's volatility rally that was not what it seemed, this one is the real deal. While Monday adds to the calculated VIX, Friday takes away as traders lower bids ahead of the weekend decay. Not much of that effect is apparent as the VIX lifts 17% today. Fear is truly palpable.

Now you may say a VXO with a 13 handle and a VIX with a 14 handle do not evoke visions of panic, and you would be correct. They are on the high end relative to their moving averages and the like. So if you are looking for something encouraging, this action is bullish, with one big caveat. They can go from overbought to wildly overbought in a heart beat.

Say What? - Kevin Depew - 3:43 PM

A look at commentary, opinion and analysis from around the world:

  • Jeremy Legget spills the, uh, beans in the Independent Online UK on "What they don't want you to know about the coming oil crisis.
  • The Financial Times writes about a bubble on top of a bubble in world bond markets. That would be a double bubble.

Mini-Minyan Mailbag - Kevin Depew - 3:00 PM

Prof. Kev-

There is a GAP between 333 and 320.95 that will come into play now that it has broken the 20 EMA and the steep up trend line from October 05. May not be today's business but that area will be the obvious focus over the next couple of weeks. See the chart here.

Minyan RK, CMT


Thank you for the eyes. And I agree, 333 is not today's business. It is Monday's. Wait, did I say that out loud? I'm kidding, of course.

A PnF chart looks somewhat similar with the 400 area showing more immediate import. Hoofy's ability to keep things contained above the round number is now more important than a mere 7% or so lost today in "aggressive trading profits."

Flashback! - Bill Meehan - 2:43 PM

This day in market history…

  • Closing levels 2 years ago found
    • DJIA: 10,528.66
    • S&P 500: 1138.40
    • Naz: 2147.98
    • Crude: 36.21
    • Gold: 412.70

This day in Minyanville history…

  • In '04, Prof. Reynolds pondered Where Are We Now? after a drop in Treasury yields and a pick up in volatility.

In other news…

  • In 1885, the roller coaster was patented by La Marcus Thompson of Coney Island.

The Incredible Hulk! - Todd Harrison - 2:13 PM

No, not the green fella--there's no green out there today--I'm talking about negative gamma. Professor Succo, who has hundreds of thousands of options to trade, took precious time from the biggest expiration ever to share some salient insights this morning. Please keep those in mind as we waffle towards a potential pancake.

Those gamma rays work both ways, we know, as risk around the Street is now trading reactive. Minyan Andre just pinged to ask me if I saw Snapper lurking and I told him "possible not probable." Indeed, trading is about identifying an advantageous risk/reward and the only buys I'm making are covers (not longs).

Speaking of which, and in the interest of full disclosure, I've taken off about 60% of my trading shorts and my remaining risk is tighter than a clam on Atkin's. I'm conscious that earnings have been a bummer, we've broken alotta levels and, through it all, the VXO is yet to get Bar Mitzvah'd. Just trying to stay disciplined as we together truck through the muck.

As always, I hope this finds you well.


"Puke" is such an awful word - Jason Goepfert - 1:54 PM

On the last push down, where the Naz futures dropped about 10 points in three minutes, we saw a huge volume spike in the e-mini's. Going back over the past few contracts, it was the largest 10-minute volume spurt in at least a year (more than 40,000 contracts).

There were a couple of other 10-minute volume spikes that came close, and each of them coincided with a short-term exhaustion point, on either the upside or downside. They didn't necessarily pinpoint the exact high or low, but came pretty close. I'm watching for some kind of stabilization here.

I am agreeing with THE Giant. - Vitaliy Katsenelson - 12:42 PM

I have a couple of my own indicators that point to the same conclusion:

  • My semi unemployed friend, who is buried in debt started asking me what the best way to buy Intel (INTC) is. He felt he needed to own it right away. My answer was: we'll talk about stocks (in his case mutual funds) when you are done paying off your 21% credit card balance.

  • My watch list shows NO buys. When I find a good company worthy of owning but a price a bit too high (not a good stock) I put it on my watch list. I have 109 companies on my watch list; the margin of safety for those stocks is currently -3%.

This is a stock picker's market. Stock selection has never been more important. If you find that you cannot find good ideas, put the rest of your money in Google (GOOG). Ok just making sure that you're reading it. No not Google – cash. Cash is a better alternative to a marginal company or a stock with no margin of safety. Of course this is not advice.

Wyckoff Jean and the Fugees - Tom Peterson - 12:35 PM

According to Wyckoff theory, this is an 'upthrust high' (a.k.a. false breakout) in the DJIA, followed by a 'sign of weakness.' Like 1973 (which saw commodities and metals outperform substantially). This increases the odds the market has seen the highs for a while and that we are entering a much deeper corrective phase.Note also that getting below 10, 684 on the DJIA we have a potential "outside - down reversal month" underway.

Market psychology - Herb Greenberg - 12:19 PM

The one thing we can all agree on is that I know nothing more than the next guy on the market. I focus on companies. But as I write in my MarketWatch column today, written last night, the one thing I pride myself on is my ability to call inflection points. It's all based on feel and intuition ("Blink") but it hasn't failed me yet.

We are, as the market shows, at one of those inflection points. Even if stocks rebound, the market, according to the Greenberg Theory (not to be confused with any JeffMacke-trademarked item), is going lower and will likely go even lower with an unexpected jolt.

How do I know? Four things have happened that, when they occur, are ALWAYS signs:

1) Stocks I red flag in my column or on CNBC for questionable fundamentals end the day UP -- often with a close-of-trading pop.
2) Bearish sources clam up. (No need to put a target on their back. I used to freak out when this happened but learned that, over time, they come out of hiding.)
3) I feel like throwing in the towel on doing what I do and becoming a full-time barista with my own espresso stand on the beach. (How does Herb's Hut sound?)
4) Neophyte investors start thinking they're geniuses as stocks of companies with questionable fundamentals fly.

Nothing scientific here, but based on years of sitting in the bleachers I do believe my views, using this kind of silly stuff, are as good/bad as anybody else's.

Humbly yours. (And take that, JeffMacke.)

I am popping out of my expiration war for just a moment - John Succo - 11:21 AM

This is likely the largest options expiration ever known to man. Option volumes over the last year have risen to all time record levels adding to what are already large "leap" expirations: January expirations are long term option expirations only. It is not until later that monthly expirations are added. In addition, January 2006 options were heavily traded as leaps due to the tremendous volatility that existed in 2002 and 2003.

As a result, open interest levels in many options far out-weigh the amount of liquidity available in stocks.

Many strikes are not factors right now and have been forgotten by many funds that are short them. For example, my portfolio alone is long at least 200,000 options that are worthless right now. But if the DOW really started going down, perhaps 200 points or so, many of those options would begin to at least have a small delta. As they do, those short them can either hold their breath or begin to re-hedge. A few will re-hedge and most won't; but the re-hedging may begin to feed on itself.

I don't expect such, but I just wanted to give Minyans a feel for the magnitude of what exists today and today only.

"Like Dr. Zhivago's Ice Palace ; only light-Green" - Jeff Macke - 11:12 AM

Greetings from the West Coast mansion where the residents are virtually entombed in the output of young Superfly Macke's first cold. While this may seem like a substantial downside to "Working from Home" my situation is hardly new to the publishing world; it's my understanding that Hugh Hefner goes through something similar every year after the high schools have their graduations.

I'm eyeballing the Albertson's (ABS) bid and considering the generally over-I-Bankered state of the retail world. With all due respect to what I'm sure is a massive spread sheet justifying their bid (with real-estate spin-offs, the de rigueur "operational improvements" and the like), I would humbly suggest to Cerberus Capital that a group of insanely high-priced, well edumacated group of folks like themselves might find running a zero-margin, unionized grocery chain to be a, um, Herculean task.

To quote a not-yet-partner friend of mine who works for another buy-out group, one which is currently attempting to digest their own it-looked-good-on-paper supermarket buyout "this is the worst industry in the history of the world... if you ever hear me getting involved with another one of these things I want you, Jeffmacke, to come over here and kill me."

I'm just going to let him babysit the kids for a couple days. Just about the same difference, in a medical sense…

What's that buzz, tell me whatsa happening! - Fil Zucchi - 10:29 AM

Swanky new digs critters!!! Maybe there's more to that real estate thing than just a bubble! . . .Just kidding.

  • When my emotions tell me that gold is on an unsustainable rampage, I turn to this handy-dandy website, do a little math, and all of sudden, it looks downright cheap.
  • Beazer Homes (BZH) call summary: As good as a no-doze. (a) Q1 orders were weaker than generally expected; (b) Sounds like management is making more and more (. . .and more) of a push into condos, inherently jacking up their risk; (c) they conceded that the DC market is as weak as I have been arguing for some time; (d) as BZH continues to buy back shares, they will also issue about 500,000 per quarter for employees "lunch money". I may have more comments once I go through the 10-Q filing.
  • Natural gas at multi-month lows and energy - gassies especially - on a total tear. Yes trading's a piece o' cake.
  • A certain CNBC money show host pushed Portfolio Recovery Associates (PRAA) last night, mostly rehashing the theory that because PRAA has bought large amounts of receivables this past quarter, their EPS will accelerate. As I said before, maybe that is true, but the risks grow as well, especially if collection margins go in the wrong direction.
  • A cash management product we use quite a bit is called Municipal Auction Rate Securities (MARS). They are long term municipal bonds bearing interest rates that reset every 7 to 28 days. Many of the issues are organic AA and AAA ratings, and the vast majority is raised to AAA ratings through insurance. They are very liquid, trade at par ($100), and there usually are no transaction fees associated with it. The catch is that the minimum increment is $100,000.

Position in PRAA, BZH, MARS, nat. gas equities

Mini-Minyan Mailbag - Bennet Sedacca - 8:54 AM

Prof. Sedacca -

Could you speak a little bit about "cash management?" I hear the term occasionally but don't really know what's meant by it. Does it have anything to do with choosing money market funds? And what are the pro's and con's of putting all "cash" into the SHY iShare instead of a money market? Usually, I guess, the yield on SHY should be higher and in many cases the fees are lower, no?

Minyan Dan

MD -

Cash management is a term generally used by corporations as a way to invest their unused cash on the balance sheet. Typical investments include Treasury Bills, Agency Discount Notes, Commercial paper and repurchase agreements or 'repos.'

The big difference between buying a fund (closed end like SHY) or open end fund is that the fund invests perpetually. In other words, they don't mature. So if you buy a 6 month T bill at 4.45% and hold it to maturity, you are assured of earning 4.45%. In a fund, there is no maturity date, so if rates continued to rise in the marketplace, you do not get 'bailed out by maturity' as I like to call it. The fund could fall in price as much as the coupon you earned. As the Fed has ramped up rates lately, that has actually occurred. Lastly, the rates on the funds are not fixed-they are dependant on market rates.

One other note, money market funds have very high fee structures, as much as .8% a year, which is a large chunk of the nominal return. Retail investors, however, sometimes don't have enough money to avoid that. The good thing about money funds however, is that they have a constant dollar price of 1.0.

Position in Treasuries

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