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Buzz Bits: Dow, Nasdaq Move Higher

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Bring it Home Buzz - Todd Harrison - 3:34 PM

I return from my uber-quick midtown meld to find Snapper John MD doing his thang. We eyed that frisky turtle before I left, wondering if he had the mojo to go. He did, and now the question becomes one of durability and sustainability. Some thoughts...
  • While the banks have some room before the 200-day comes into play (BKX 113), the brokers are much closer to their point of contention (XBD 229). Keep your eyes peeled to this level as it might offer a valuable clue for the critters.

  • Market breadth is begrudgingly higher, with the old school 3:2 and the Nazz effectively flat. They're not "the" tell in futures led markets (in front of expiration) but they still warrant a gander.

  • I've gotta map three minutes to fill out my NCAA brackets. No sour grapes here as bad seasons define good fans. As a Raiders, Knicks, Yankees, Syracuse, Rangers affecianado, I must be a really good fan.

  • I came thisclose to buying some QQQQ calls before I left--I actually had the order cued up---but deferred to the premise of discipline. Instead, I bought a bit of SunMicro (SUNW) as I don't mind owning that longer-term. When in doubt, play names not markets.

  • The definition of an investment should never be a trade gone awry. That's an important commandment to remember while dancing in the throws of volatility.

  • I'm gonna jump and juggle to tie up my 'to do's' before shifting my attention to tonight's MVHQ staff meeting and the Bocci tourney that is to follow. Fare ye well into the bell, Minyans, and have a very mindful night.


R.P.

position in sunw



Whipped... - John Succo - 3:06 PM

The average decline in the SP500 is 34% over a duration of 37 weeks for a correction caused by a recession. Yesterday's retail sales go along way in confirming this is the case. Other recent data to these eyes say the same thing.

But markets hardly ever go straight down. Why?

Markets decline quickly as people sell and think later. Option prices rise as buyers try to protect themselves with puts. Higher option prices have less leverage: those short do not have to re-hedge as often.

Stocks reach a point where shorts sellers take some profits, even if there is no value. As they cover they stabilize the market. This makes natural longs who are holding puts a little nervous about that given the high price and the fact they will underperform their competition if the puts go to zero. So they start to sell the puts.

This all starts off a "short cover rally" even if the market eventually goes much lower. They can be violent but short lived. These rallies are actually what keeps volatility up over long periods of time: rallies and sell-offs versus slowly grinding up stocks during a real advance.


Under the Hood - Kevin Depew - 11:49 AM

  • New point and figure sell signals are dominating new buy signals today 18 to 1.
  • Overall sell signals are equally as dominant, leading 36 to 3.
  • The bullish percent indicators remain on defense at very high-risk levels.
  • This leads me to a Mini-Minyan Mailbag from SZ yesterday:

    Hi Kevin, I'm trying to better understand bullish % indicators as they seem to be quite useful (I wish I had paid them more respect last fall!) in determining where the market might head. My question requires a little bit of guesstimation (I'm guessing) and I'm not entirely sure it's possible to know the answer. Do you have any thought as to how many points we would have to tack on the SP before the %s turned back to X's? (i.e. Would a move over 1420 do it, 1430, or more like 1460?) Maybe this isn't even a question worth asking?

    Any thoughts?
    Minyan SZ

    SZ, Every question is worth asking!

    The problem with trying to estimate a level for the S&P 500 bullish percent to reverse up or down based on the index figures is that the SPX is capitalization-weighted (which means the largest stocks move the index the most), while the bullish percent is equal-weighted (every stock gets one and only one vote). I look at the bullish percent indicators as context providers, not directional predictors. In other words, when they are in Xs, controlled by demand, the context is positive and the market will bail me out of any trading or investment mistakes. When they are in Os, and controlled by supply, I expect surprises to occur to the downside.



Blood-Letting in the Brotherhood of Lending - William Fleckenstein - 9:08 AM

Yesterday's "stability" lasted only until about midday, and then some real selling began, led by the homebuilders. The selling was seriously reinforced by those complicit in helping consumers get in over their heads in the real-estate market, as the housing-ATM-financing food chain was pounded. For instance, Washington Mutual (WM) was down about 5%; Countrywide (CFC) was down about 5%; mortgage insurers like MGIC Investment (MTG) and Triad Guaranty (TGIC) were quite weak; ditto plain-vanilla banks like Bank of America (BAC), which was down about 5%. Also, GMAC announced its results and they were not so pretty, requiring an equity infusion of parent GM to the tune of $1 billion.

In addition, what may turn out to be the final repository of bad mortgage paper, i.e., Wall Street, was pounded. Goldman Sachs (GS), after having been rewarded for beating the number, closed lower. But the real damage was done at firms like Lehman, which was down 5%, and Bear Stearns (BSC), which was down about 7%. (Rumors swirled that Bear Stearns was being subpoenaed over its subprime research.) To show you how serious yesterday was, folks even connected the dots about Moody's, which has certainly played a part in the housing mania, as it was one of the participants whose blessing turned BBB dreck into AAA credit. (That stock was down about 7%.)

And, the wreckage in everything to do with housing and finance actually began to tug on the tech sector, though it held up pretty well, especially the semiconductor-equipment stocks. I continue to focus on tech because I think that when those stocks join the acceleration to the downside, that will mean that the big wave of liquidation might be under way.

Position in MTG and TGIC

No positions in stocks mentioned.

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