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Buzz Bits: Dow and Nasdaq End Higher

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Your daily Buzz & Banter highlights.

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The Lady Doth Protest too Much! - Todd Harrison - 3:09 PM

  • Maybe something, maybe nothing but I got a slew of emails after the bond insurer news hit asking why the market doesn't trade better. While anecdotal, my first blush thought was that folks were waiting to sell the news.

  • I will say this, if this was THE news, the financials would be leading the way higher. As it stands, Goldman (GS) can't get out of its own way and both the BKX (banks) and XBD (brokers) are dancing in Red Dye.

  • You know what else can't find a bid? Google (GOOG), at least not yet.

  • On the bullish side of the ledger, breadth is 2:1 positive on the big board.

  • On a "No kidding, really?" note, I've got a 3pm mindmeld. Which, according to my trusty clock, makes me officially late (which, so you know, is one of my pet peeves, right up there with loud chewers, long lines and arrogance). So, lemme jump---fare ye well into the bell.

    R.P.


New Upleg in Dow Diamonds - Michael Paulenoff - 2:03 PM



Here is the picture of the coil pattern as it applies to the Dow Diamonds ETF (AMEX: DIA), which shows that today's upside continuation of Friday's rally has positioned the price structure above the February resistance line, and just below key near-term resistance at 125.00.

My near and intermediate-term work indicate that a new upleg started at Friday's pivot low of 121.56, within the Jan-Feb recovery period that should propel prices to test a more important resistance plateau at 128.00 next.


Click to enlarge



Dr. Copper's Question - Ryan Krueger - 12:01 PM

Some folks believe copper would make a pretty smart professor of economics, and had you listened to its lecture from May '07 until year end (pictured below), you might have felt less than sanguine about the stock market ringing in the New Year on a high note. The doctor has a good record.


Click here to enlarge image


However, once 2008 began, all attention has been focused on the paper markets - stocks and bonds - with supply being offered at lower and lower levels if they can find a bidder at all. Yet quietly the good doctor sees something different – demand. Below is copper year-to-date, in a conspicuously sharp reversal to this student.


Click here to enlarge image


I'll let others far more qualified debate the economy and what should happen. No different than my school days I'd rather make up my own question and provide its answer in the margin instead. I calculated this strategy was likely worth more credit than taking a chance on a question I didn't know.

Click here to see the past 12 months where the S&P 500 is down 7% while the materials sector is up 8%. I think materials stocks are under-owned, and therefore win or lose I believe the odds to be at a premium for longs.

Consider there are 86 stocks that make up the sector within the S&P 1500 yet that represents less than 4% of the market-cap weighted index. As I wrote when energy made up about 6% of the index at the end of the last decade, this can move considerably higher in my opinion on arguably even tighter supply. We triple-weighted our position back then to the question we chose to answer, and we're set to do it again.


Minyan Mailbag: Implied Volatility - Adam Warner - 11:40 AM

Prof. Warner,

I was looking for some information and hoped you might be inclined to help a brother out. Upon the announcement of a stock split, apparently the implied volatility of said stock spikes (most times, not always). Are you aware of this phenomenon? If so, do you know the proximate cause(s) for the behavior? Please accept my humble thanks in advance for any help or direction you might provide. Peace.

-Minyan D


Minyan D,

Volatility spikes do happen after split announcements, but it is far from uniform. And there are no hard and fast rules. Classically, a lower priced stock will carry a higher volatility than a higher priced one, everything else being equal. But much depends on the specifics, and believe it or not the absolute price levels are important.

My anecdotal observation is that stocks trading near $100 are relatively volatile, there's just abject fear of a $110 stock going under par. But split that stock, and volatility declines. No one is that worried about a $55 stock going below $50. That's my experience.

-Adam



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