Buzz Bits: Dow and Nasdaq Close Mixed
Your daily Buzz & Banter highlights.
Gate Sniffage the Other Way! - Todd Harrison - 3:50 p.m.
Ah, the life of a media guy. I've been teasing MV President Kevin Wassong for years that I wanna come back in my next life as his briefcase and, sure enough, my wish has been granted. As I settle back into my all too familiar turret, these are the first things that spring life behind my tired eyes:
- Banks, banks, banks. The reaction to news is more important than the news itself. The question we must all ask is whether the piggies will lead the poke higher or if the poke itself has room to ketchup to where the piggies currently live.
- Google (GOOG). The stock has been laggy and saggy and dare I say I would buy an upside lotto ticket if only the tickets weren't so rich. Earnings during expiration often offer "punts." The problem with this particular Sean Landetta is that the an out-of-the-money shot struck at $460 will cost you upwards of eleven bucks.
- Running to stand still? Yep, be a bull or a bear or a boar or a snore. At the end of the day, the tape continues to migrate sideways under S&P 1405. No matter how you slice it--and understanding that technicals are but one of four primary metrics--this is a bearish churn until proven otherwise.
- Overnight risk remains both ways, Minyans, so think long and hard about your edges. If you're not willing to buy lower (or short higher)--in the absence of a discernible catalyst--it very well may be edgeless risk.
- The Red Sox should sign this pitcher up!
- Spring has sprung so enjoy both sides of the ride. Before you know it, it'll be April 2008 justlikethat!
Constructive Pattern for SPY - Michael Paulenoff - 3:06 p.m.
Here is the big picture of the S&P 500 Depository Receipts (SPY), accompanied by the juxtaposition of the 9 and 20 day "Adaptive Moving Averages," which are similar in sensitivity to the exponential MAs. In general, what we see in a very neutral near-term picture, with the MAs flattening out and trying to turn up.
From a price perspective, since the 3/17 low let's notice that the SPY has carved out a series of higher-highs and higher-lows, or a minor uptrend. Yesterday's powerful thrust appears to be the next attempt to put upside pressure on the "flat tops" established during the Feb-Apr timeframe, which if hurdled should unleash a powerful upside follow-through that tests the major resistance line around 143.00. At this juncture, only a decline that breaks 133 will begin to compromise the current constructive pattern.
Click to enlarge
It's the Consumer - Kevin Depew - 2:13 p.m.
While Wall Street congratulates itself on various credit spreads narrowing and the apparent return of some degree of risk appetites to markets, we'll continue to focus on the consumer; this is not a business-led recession, but a consumer-led recession. The differences are important and have investment implications.
With the bullish percent risk indicators largely positive, demand for equities has increased enough to present a bear market rebound. Longer-term, however, we believe the reality of too-high earnings expectations and a misunderstanding of balance sheet quality will combine to recast the next leg down in this bear market.
Danaher (DHR) was the latest company this morning to highlight continued soft demand in several consumer-driven businesses.
Judging from DHR's comments on the call, many on the street remain overly optimistic about, among other things, the impact of the tax stimulus package
"As we look to the balance of 2008, we believe the US tax stimulus package will positively impact the second half of the year as accelerated depreciation incentives are expected to drive big ticket equipment purchases," DHR President and CEO Lawrence Culp Jr. said.
The theme of unanticipated sluggishness in US consumer demand will appear more frequently throughout the year, and with more severity, as the echo effects of the initial debt crisis that hit Wall Street banks ripples through consumer-related sectors of the economy.
Sectors that produce things consumers must buy will likely outperform sectors dependent on demand for discretionary items in the second half of the year. Once this rebound ends, it remains to be seen whether that outperformance will translate into absolute returns.
Google Option Volatility - Adam Warner - 1:37 p.m.
Until about six months ago, Google (GOOG) options trading had a common theme. Perpetual overpricing as the high levels of the stock itself masked the fact that GOOG itself was a non-volatile as Cisco (CSCO). I kid not; the two volatility charts were remarkably similar at one time.
Click to enlarge
But since the Fall (season) and the fall (of the stock), GOOG has morphed into a scary name. The blue line represents the historical volatility of GOOG itself, and that measure has shot up from 15 to 50 over the course of the past year. Now with earnings a day ahead of expiration, you can pretty much ignore most of the above and just look at the Aprils and see what Mr. Market expects for tonight. Judging by the straddles and strangles, looks like about a $35 move or so, plus or minus a few bucks. That's about 8%, which is in line with the general GOOG pricing.
Going forward though, where is volatility headed in here? May's are in the high 40's now. I think they drop a 10 spot at least, and were I so inclined to "fade" an earnings reaction and sell some volatility, I would go to May. Barring a cosmic move, GOOG is now either a broken high growth name, or a sputtering one, way away from the old highs. Neither is a good recipe for options ownership.
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