Buzz Bits: Dow and Nasdaq Rebound Higher
Your daily Buzz & Banter highlights.
Slackers R' Us! - Todd Harrison - 3:29 PM
I return from a midday meld to find some bovine bravado sprinkling my screens. Interesting action considering that credit spreads are once again flashing red (as they were yesterday) and our tells remain sluggish at best. Some top line vibes:
- There is all sorts of chatter that the FOMC is gonna give us a surprise "snip." This is likely do to the recent article in The Telegraph and it's being bandied about on other financial websites. Hey, it could happen but I would caution Minyans against leaning on invisible catalysts (or hands, for that matter).
- Textbook Technical Analysis 101 states that a retest of a breakdown (or a breakout) is the optimal entry point. In that vein, keep close tabs on S&P 1405, from where we broke down yesterday. We're somewhat oversold so if you're gonna fade this trade, please be sure to define your risk on the other side of the ride.
- Breadth is still flat. The dollar is higher. The piggies are lethargic. In short, while the market can do whatever the heck it wants, our tea leaves don't currently support sustained jig. Again, subject to change but that's a snapshot.
- Pep spoke this morning about his indicators getting to levels last seen in October 2002. So, yeah, there is a case to be made for Matador City. See both sides and, when in doubt, wait it out (or trade a bit "in between").
What could cause a snapper? - Bennet Sedacca - 2:40 PM
A look at the BKX in log terms looks like, well, a crash.
Click to enlarge
Since it led the market down, it only makes sense that the market can't bounce until the BKX does. What else could cause a snapper? A false break down or spring of the double bottom in the 1360-1370 SPX cash area. Below there? Well, that wouldn't be pretty. See em below.
Click to enlarge Position in SPX, SPX options
Whack-y Wednesday - Adam Warner - 11:43 AM
So a "friend" of mine has some positions he's sick of watching (he's also a big Giants, Mets and French Anchorwoman fan). He's naked short some puts here, long some stock there. He doesn't want to cover at this point, nor does he want to "Dykstra" it and keep doubling down. It's real money after all. He would however like to define the risk. What would my advice be to him?
I would say, "how about some put backspreads". Maybe you sell some ATM and ITM puts and buy a greater number of OTM puts. Depending on the specifics, do it so you get at least net flat puts (or stock) overall, or even long a few. Also depending on the specifics, maybe you can do it for a net dollar credit.
I'll use Research in Motion (RIMM) as an example. Let's say you sell either 95 line or 96.625 line puts and buy 90 line puts on a 2:1 ratio, vs. puts already short (or stock long). You take in a small credit and define your floor at $90.
Stock drifts to $90 and sits, you're cursing that you even bothered. That's the bad part. But if it stays volatile, you're glad you did it. And if you effectively bottomed it here, really no harm, no foul.
But most importantly, it frees your mind and let's you play another day. This position is now defined instead of a lead balloon.Position in RIMM
Value Trap - Ryan Krueger - 10:23 AM
Many investors often discuss value traps with stocks, but not as much as perhaps we should on entire countries. That the valuation of emerging economies' stock markets are stretched will be a common response to my earlier buzz.
So let's take the most common valuation measurement: P/E to Growth Rate, or PEG, that investors use all the time on stocks, and apply it to entire countries instead.
If you take a market's P/E and divide it by the country's GDP, despite the sell-off, you'd still find the U.S. near the very bottom of the list with among the highest valuations and that's using a GDP of 2.8% - which may prove optimistic.
By this measure, and contrary to what feels most risky, Singapore and Russia are the cheapest along with more than a dozen other countries.
Many of the sharpest money managers in the U.S. are making solid cases that in a slowdown they will pay a premium for the few companies showing significant organic growth. I'll be surprised if even larger pools of capital aren't doing the exact same thing, but with countries instead.
Position in Russian Equities
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