Buzz Bits: Dow, Nasdaq Drop
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Buckminster Fuller is spinning in his grave. - Rod David - 3:17 PM
Sometimes, "to stand still" isn't "to fall behind." There are now two outcomes to today's session that won't be overtly bearish. The first - and preferable choice of the discerning Bull - would be "Key Reversal." This setup is defined as a positive close, reversing both a gap down in a downtrend and new lows intraday. Combined with Friday's "Pivot Reversal," a multi-session rally would be likely. The second outcome wouldn't be as bullish, but it would be "ineffectually bearish" to close above Friday's low despite having gapped down and printing new trend lows.
Either setup would indicate that the current supply of sellers had been exhausted. That doesn't mean another round of sellers aren't ready to appear at the slightest provocation, but the first setup would reflect increased buying pressure. The session hasn't yet ended, and another attempted decline during this last hour would deserve respect (and a tight stop).
Basic Materials Estimates Still Rising - Brian Gilmartin - 1:38 PM
Granted, stock prices discount the future in a hurry, but as I couldn't help wonder what the Thomson Financial / First call "basic materials" estimates would look like as I prepared to update the data this morning, given the sharp correction in gold, silver and all the precious metals in the last two weeks.
Sector estimates actually rose last week, and here is the detail:
|q2 '06||q3 '06||q4 '06|
For example, for the 3rd quarter of 2006, on March 31, basic materials' earnings were projected to increase 23% y/y, but by April 28th, that y/y increase had risen to 34% and as of Friday of last week, the y/y growth was 37%.
At least fundamentally anyway, the analyst's haven't started pulling back on their numbers, which means we have had nothing more than a P/E compression in the group in the last two weeks.
At some point, one or the other will have to give: either forward analyst estimates will peak and start to be revised lower, thereby affirming the stock price action in the precious metals groups, OR, the stocks will bottom and find their footing.
One of my original posts on the 'Ville was a comment on Alcoa's (AA) earnings in early April. That stock is looking a lot more interesting in the last two weeks.
Position in gold, silver stocks
Mini-Minyan Mailbag - John Succo - 1:03 PM
Clearly we have a serious aversion to risk in the emerging markets arena. Is it possible that someone is caught short gamma here?
The whole system is short gamma here. That is the point I have been trying to make.
With credit swaps approaching $14 trillion and dwarfing the cash market, it is a perfect illustration of the leverage most participants are using to "extract income" from credit spreads, just like funds are selling options to "extract income" from volatility. Of course any thinking person would realize that there is capital risk in this, just like in the free money from Japan a la the carry trade.
While the story teller speaks, a door within the fire creaks;
Suddenly flies open, and a girl is standing there. - Todd Harrison - 12:15 PM
Hey now, there's nothing wrong with a little Terrapin Station on our time. I mean, it's appropos given that blink-and-ya-missed-it Snapper that tacked on almost $10 to the S&P justlikethat.
While it felt a bit pressy, my trading eyes are scanning the tertiary tells for signs of traction during this counter-trend rally. Why counter-trend? The benefit of the doubt belongs to Boo as we wade our way through this murky mess. Still, and consistent with my recent vibes, I've got a book full of gamma skewed to metals (and some energy) on the long side and financials on the short side.
How am I positioned? Put it this way--I'm not allowed to sell my financial puts and I hope to lose money on them. One of the first things I've learned in this business is that you wanna lose on your hedge. And as it stands, the piggy puts are just that (in the context of a trading try).
There's a lot going on, my friends, keep your head up and your eyes open. This tape is the definition of insanity.
Position in energy, metals, financials
More bounce to the ounce - Kevin Depew - 11:27 AM
Watching the SPX here, note that 1250 is a very important level on a number of different scales. A move to 1250 creates PnF breakdowns on 10x3 and 20x3 scales. On a 5x3 scale the SPX is already broken, of course, and 1250 is actually a spread triple bottom support level.
With the 50-day MA short-term indicators now reaching oversold levels, I am looking at a move to 1250 as an entry for a trade. The long-term context is negative, but I expect a bounce for the SPX to the 1280-1285 area to relieve oversold conditions before we go lower longer-term. A move to 1245 would suggest something more damaging may be taking place right here and now.
Position in SPX equivalents
Manic Monday - Adam Warner - 9:30 AM
At the risk of continued redundancy, "overpriced" options are not necessarily a sale. They are "overpriced" for an obvious reason, the market is very shaky. Barron's this weekend had the usual suspects recommend taking advantage of this setup by slapping on some buy writes. Or rather just slapping some short calls on against stocks you already own.
Bad advice. One of two things will happen here. Either this awful action continues, in which case those premiums you took in writing calls will barely salve the bleeding. Or this ends with a violent snapback. In which case you give up all your upside in return for a shade of "income."
The only way writing calls makes sense here is if we stop declining and revert to a slow-lifting rally, kind of the way the market acted a few weeks ago before the dip. Anything could happen, but this just feels about the least likely scenario.
Bonds continue to rally, stocks look sick and hedgers are still pressing their bets - Bennet Sedacca - 9:00 AM
CFTC data released Friday revealed COT data that smart money hedgers added to their long bond exposure and pressed their short position in the S&P. As you know, we side-stepped the decline in bonds for most of the year before joining the hedgers with a 1/2 position in 10's on Thursday--see Buzz here.
How far can bonds go? Well, while seasonality does turn positive right around now, see the chart here that shows MAJOR resistance in the 10 year note around 107-16 to 107-24. that is also coincidentally where the 200 day moving average will reside around that time.
Further, 10's are getting rather overbought on an hourly basis with the 50 day moving average just above, so I would expect some consolidation to work off the overbought nature before resuming their advance.
We continue to see considerable weakening in the economy in the next few quarters led by housing, so we remain underweight equities and have avoided beta (felt stupid for a while but not so much after the last 10 day's rout in emerging markets etc.) We are hanging out in large cap generally with a bent towards value and are adding to health care (pharma is still frustrating to us and we soon must decide if we are 'hoping' or not. Note to self--Hoping is a poor road map to success in the markets.
Position in Treasuries, large cap stocks and healthcare
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