Buzz Bits: Beeks, AMZN Disappoint, Markets Slip
Seattle or Pittsburgh?
Say What? - Kevin Depew - 3:41 PM
A look at commentary, opinion and analysis from around the world:
- It's a buyer's market in Rockland. "In 22 years I have never seen less people buying," said Direnzo. "The whole housing industry seems off by 35 percent."
- Mortgage debt grew nearly $3,000 billion from the end of 2000 to the end of 2004, an amount equal to nearly 7 percent of GDP, notes Harvard Economics professor and National Bureau of Economic Research President Martin Feldstein.
Flashback! - Bill Meehan - 3:31 PM
This day in market history...
- Closing levels 3 years ago
o DJIA: 8032.90
o S&P 500: 860.32
o Naz: 1323.79
o Crude: 32.84
o Gold: 370.40
This day in Minyanville history...
- In '03, with geopolitical concerns mounting, Toddo looked at Strategies for an Uncertain Time
In other news...
- In 1959, this was The Day the Music Died, as 22-yr old Buddy Holly, 28-yr old JP Richardson (The Big Bopper) and 17-yr old Richie Valens died in a plane crash.
Finnegan's Wake - Kevin Depew - 3:20 PM
As we make our way through the last hour of the trading day, Hoofy's heroes have grown tired, leaving Boo with a glimmer of hope. Also looks to be some "risk premium posturing" ahead of Super Sunday.
Crude closed up on the day but finished lower on the week while Natural Gas actually finished the week up 1.2%. Gold and silver also both finished higher on the week.
On a side note, Minyan MM asked about downside potential for FedEx (FDX) given today's new sell signal today. Support is 96, then 93. A downside count based on a .5x3 chart is 92. Never advice.
Power Outages? - David Miller - 12:00 PM
As we batten down the hatches in preparation for a big weekend windstorm (power outages during the Super Bowl?!?), a quick traipse through the biotech sector shows:
- The smaller end of the biotech spectrum seems to be doing well as beaten-down companies play catch-up. Most of these stocks aren't even in the NBI, so this strength is not reflected there. I've got green on my screen in some of these names, but NBI breadth is a foul 37 up, 3 flat, and 120 down
- The IBB closed the gap to the downside yesterday and touched the uptrend line. That promising buying power technical trend I mentioned a couple of weeks ago continues to form. There are some slight differences between this formation and what we've seen previously (on a TSV overlay, for those playing along with the Worden Bros software at home), so care is warranted.
- Dev-stage biotech is not amenable to sound bites.
- Speaking of RHEO... congrats to my buddy Adam for nailing today's disaster-du-jour Occulogix (RHEO) (-65%) at JP Morgan. More than a few clients pinged me about that name in early January as it was being pumped heavily. He filled me in and hopefully we saved people some (lots of!) money.
- Speaking of RHEO x2... A while back I wrote a piece cautioning people about the use of TA on small biotech stocks. If your software has a feature of scrolling backwards on a chart, scroll backwards one day on RHEO. There are warning signs (decreasing volume on the last few up days), but they are subtle. No stop loss in the world would have saved you from that one.
Mini-Minyan Mailbag - John Succo - 11:48 AM
During the summer when Toll Brothers (TOL) was highflying I put on a trade where I bought the Jan 07 35 puts and sold the 30's. If TOL ends the year under 30 I would turn every dollar I invested into 4. I want to exit the trade now with TOL at 31. However, I will have only made 2 dollars. My insticts say that I should be getting paid more to exit the trade now. Is the 30 volatility overpriced relative to the 35. Would I get paid a lot more if TOL went under 30.
This is the nature of options as I explained in a tutorial about decay. Options do not decay linearly, so your problem is that out-of-the-money options hold most of their time premium when the stock is around the strike, as is your case. The puts you are short have no intrinsic value, so over time the $4 price will erode to zero. At the same time your long 35 puts hold mostly intrinsic value with much less nominal time premium.
This is the nature of put spreads: most of the value will not be realized until near expiration, even if the stock goes below 30. Just look at the net delta between the two strikes to give you an idea of how it will behave as the stock drops: the delta of the 35 puts is .52 and the delta of the 30 puts is still .36, so for every dollar the stock drops the put spread will only increase in value by only $.16. That net delta will increase rapidly as you get closer to expiration.
So when you buy put spreads the benefit is that they cheapen up a directional bet. The problem is that they don't realize their value until near expiration. When you do put spreads look at the net delta to get an idea.
Now now now . . . - Fil Zucchi - 11:28 AM
The SPX has dropped to 1261 which represents strong support. The 1268-1272 area is now resistance, with even more significance if one considers that 1270 is the mid-point of the 2006 range so far. That's a tight range to trade. Hoofy's problem is that after the quick lift over the last hour the A/D line still shows -1200, and the only group in the greenish on my screens is energy - not typically Hoofy's fave. Boo's headache remains the firm corporate bond market.
Moving to the specifics, last night's take on Electronic Arts (ERTS) and Amazon (AMZN) is working out nicely. That being said I am cutting ERTS loose because I am not sure where the upside is going to come from in the next few months. I have covered some AMZN but I think there remains risk to the low 30's.
It may get slower and slower the rest of the day. Don't force them if they are not there.
Position in SPX, ERTS, AMZN
Looks like Volatility Hoofy has taken the "Toddo Gone" indicator and run with it. - Adam Warner - 11:01 AM
Want some "option-y" excuses to get bullish here? Well, the CBOE put call spiked a bit yesterday as the poundage took hold, and sits at a bullish 1.14 in very early trading today. Also, the VXO has risen 10% above its 10 Day SMA, a near-term buy signal as well.
But on the Boo side, Snapper always has a tough time getting Friday traction.
Morning comments from Katie Townshend, CMT, chief market technician for MKM Partners: - MV Technicals - 9:13 AM
"The energy sector exhibited downside leadership yesterday on a pullback in crude oil and natural gas prices. March crude oil futures fell 2.8%, penetrating the 20-day moving average for the first time in more than a month. There is further downside based on the daily stochastics, which are retreating from overbought extremes, so this could lead to a deeper pullback in energy stocks over the very near-term. A number of high-profile oil and oil services players have flashed short-term trend exhaustion signals based on the TD Sequential model that indicate a pullback is imminent. We would look to add long exposure on weakness in the energy sector, and do not advocate short positions because the sector has positive momentum and relative strength."
Post Unemployment number comment.... - Bennet Sedacca - 8:49 AM
As we have said here ad nauseum over the past month or so, the 10 year note has a date with the double top at 4.63% or so. Well the 'old' 10 year note just traded at 4.60% and the 9 day RSI is getting in overbought territory (in yield terms). How will this be relieved?
Overbought markets can either be relieved in terms of time (consolidation) or by a price correction. Given the headline 4.7% unemployment headline rate, we think Bernanke, if true to his word, will raise rates unless some economic weakness shows up beforehand. So we vote for a consolidation around the 4.55-4.60% area, followed by a move to new highs near 5%.
Those new highs would, as previously stated, bring the mortgage 'convexity' sellers out of the closet as well as the 8000 hedge funds focused on that double-top. If this occurs, we will watch sentiment numbers to get a feel for a possible trip to the long side. One last note, mutual fund cash in bond funds has fallen from 10% to 5% of assets in the last 3 months. This has removed demand from the market.
Positions in various Treasury securities.
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