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Buzz Bits: Dow and Nasdaq End Lower

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The N.Y.S.E. Post! - Todd Harrison - 3:24 PM

Yeah, something like that. There's some whipping, some postage...heck, let's just call it what it is! The bulls are nervous about bond insurer downgrades, the bears are bumming the tape isn't lower and sideliners are feeling angst for not banking trades. Seriously, why does it feel like nobody is content?

I would agree with Hoofy that given what I see-- the banks, breadth, semis and homies--the S's should be lower. "Should," of course, is a relative term because the market is large and in charge. Whether that latent traction is a stealth sign or a function of expiration remains to be seen.

For my part, I've flattened my risk to levels I can live with as I practice my right to exhibit patience. Some were winners, some not so much but the mechanics of the swing were consistent on both. I'm reminded of the axiom, "Good traders know how to make money but great traders know how to take a loss." I've never claimed to be either but it makes a strong point.

Dare I say I'm feeling a bit drekky--just in time for the three day spree!--so lemme hop and swallow some Emergen-C. Smart choices into the bell, please, as the risk profile you bed will the the one you awake to. February expiration awaits...and then there will be ten left before 2009 comes calling. Man, where does the time go?

May peace be with you.

R.P.



Reversion Trade - Rob Roy - 1:31 PM

My firm took a small profit on the short side of the PowerShares DB Commodity Fund (DBC) yesterday as it had become overbought. The trade was done with a tight put spread and for a very short move.

It is important to be careful on these reversion trades, as being short something that apparently is in such a long term bull market can get painful quickly. Capping your risk is just as important as getting the idea right. Keep an eye on DBC, it might be ready to test the waters again soon on that small reversion trade.

Also of note:

  • VIX/VXN volatility indices are picking up a bit. Relative to the last several years they are elevated, but given the next wave of potential news, could still be a bit cheap here.
  • If by some miracle we avoid a counter-party risk nightmare where the snarled fishing lines of CDS documentation are not dealt with, how long until it is dealt with? We can't keep fishing forever with $45 trillion in fishing line all tangled up on the deck of the SS Wall Street.


Just Believe! - William Fleckenstein - 12:41 - PM

The bullish mood yesterday was seen in folks' appetite for Applied Materials (AMAT) as well as the rest of the semiconductor-equipment arena, even as its results were nothing special and it lowered the guidance. Business is a little better for AMAT than for the standard chip-equipment companies, in that it's making flat panels and solar products.

First Solar (FSLR) may have added to the sector's partying, as it was successful at beat-the-number and the stock was up about 15%. However, those are rather small pieces of AMAT's business, and I don't think that flat-panel end demand will be all that great.

Even as folks were seizing upon the "good" news from AMAT, they were ignoring the weak yearly guidance from online jeweler Blue Nile (NILE) The company said in a conference call last night, said: "We are not immune" from the macro economic environment." The fact that AMAT's news was celebrated and the ramifications of Blue Nile were shrugged off just goes to show that despite what folks say about so much bearishness, the crowd is in a rather upbeat mood and just wants to believe.


Back To the VIX Future - Adam Warner - 11:15 AM

Interesting chart here courtesy of Bill at VIX and More.


Click to enlarge


This is the August VIX future minus the actual VIX. Remember the VIX can move to noise, whereas the future will tend to assume mean reversion and not follow every like VIX tick. And the Future itself is thus an estimate of future moves in volatility.

No big surprise here, but extreme negative readings here are pretty concurrent with intermediate market lows (or in the case of the January one, THE low of all lows, never to be seen or sniffed again).

But let me take a backwards look at this for a sec. What if we have a scenario wherein the VIX explodes AND VIX futures explode too. In other words, lets say we get a selloff accompanied by reading in this chart that is not extremely negative. That would strike me as very bullish in that Fear has become so prevalent that the "market" anticipates volatility out as far as the eye can say. It's a negative divergence in a sense, and something I am going to look for.



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