Buzz Bits: Dow and Nasdaq End Mixed
Your daily Buzz & Banter highlights.
Happy New Year? - Fil Zucchi - 1:46 PM
I was trying to find a bronze - or even tin - lining to this morning's new home sales numbers, but can't find any even further down the metal scale. In fact, in 1990 new home sales bottomed out at a 400k pace, and that would be quite an accomplishment given that this time around we can conclusively state that things are MUCH worse. Dovetailing on this, Hovnanian (HOV) bonds are making new lows today and its credit default swaps have now overtaken Beazer's (BZH) by a wide margin. Standard Pacific (SPF) still has a runaway lead.
As I noted in this morning column on commercial real estate, there is a chasm between where homebuilders are valuing their inventory on their books, and what the bond market suggests those assets are worth. If the bonds are anywhere close to correct this may well be the last flip of the calendar for these companies, before they get re-incarnated through Chapter 11 filings.
Position in XHB
Volatility Plays - Adam Warner - 11:26 AM
To me, the best way to play for an increase in volatility is to buy index options, like straddles or strangles on the SPY or QQQQ. But really anything that involves buying options would work. Let's say you want to go long something and are deciding between using stock or calls.
If you think volatility is going to go higher, buy calls instead of stock. And if the stock lifts and you want to hedge, short stock instead of selling the calls out, and now you have a position, one that benefits with an increase in volatility.
Exiting a straddle or strangle is always a challenge. There are no real hard and fast rules: It's judgment. You have to differentiate between a trend move (that you want to sit and watch) from a range move (that you want to fade into aggressively), and it's often tough to do that.
And actually, all this is an argument for playing options off the short side. You are earning the decay, so the wind is at your back so to speak. You sometimes have to chase strength in a stock and sell weakness and hope to lose less doing that that you make on your options decay.
Of course you risk big moves in the stock that can whipsaw you like crazy, Or worse, if it gaps severely against you.
Q's Morning Thoughts - Quint Tatro - 10:41 AM
Good morning, Minyans,
Well it's Friday and we're back at it. Yesterday's late day steam rolling wasn't something I liked to see and caused me to throw in a little more inventory and tighten up into the close. Today we had a shot open but the recent home sales data seems to have put a damper on the year end bullish spirit.
I continue to strike a balance here and while I hold a good bit of long inventory, I am eying some attractive short set ups that look promising at least in the near term.
Amylin Pharmaceuticals (AMLN) once a long of mine has since been met with heavy distribution and today is flirting with a short term support break. I took a piece here with a stop over today's high. I have no desire to hold through a massive squeeze but in the near term this one looks to be going lower.
On the long side I continue to like what I see from Manitowoc (MTW) after yesterday's reversal the stock seems to be finding a bid right at its critical break out level. Once the recent gyration is digested, this one will break strongly in one direction or the other. I am long so of course I would like to see it break up, and will be watching for an add over new highs. If it doesn't and continues to drift lower, I will step aside below $48.00. Either way, it is presenting good risk reward which is right for me.
It is a sad day, but I took the opportunity to throw in my remaining shares of China Sunergy (CSUN), and all but a very small tracking position of Evergreen Solar (ESLR). These stocks have been good to be this year, but I like the idea of closing them out with solid gains rather than being caught in a shake out. I am a long term bull on these boys but in the near term I could easily see a sector downgrade on valuation coming down the pike.
Position in AMLN, MTW, ESLR
A bear market in credit, now what... - Bennet Sedacca - 10:15 AM
Clearly we have experienced a bear market in credit this year. From my chair, I don't think it is over. Not even close. I look for loads of write downs, loads of layoffs and an earnings recession at the very least. After all, if credit costs are growing, the economy is stalling and we are coming off record margins, how do earnings grow? Short answer: They don't.
As for stocks, whether they acknowledge the fundamentals weakening is anyone's guess. I have said that 'I Don't Know' and to be brutally honest , I don't.
My goal for 2008? To safely help our fellow Minyans, clients and friends et across the bridge of the abyss that is now the credit market.
Beyond that abyss? Opportunity. It's as simple as that.
As for where we are in the credit cycle, I will offer up a sentiment cycle chart that I used with housing beginning in 2005. Tell me, where do you think we are on this chart in credit?
Click to enlarge
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