Buzz Bits: Dow, Nasdaq Have Big Day
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Earnings Report - MV News
- Adobe Systems (ADBE) reported Q2 EPS of $0.31 vs $0.30 cons on revs of $635.5 mln vs $644.9 mln cons.
- KB Home (KBH) reported Q2 EPS of $2.46 vs $2.43 cons on revs of $2.59 bln vs $2.70 bln cons. The company guided '06 EPS to $10.00 vs $10.49 cons.
- Oracle (ORCL) reported preliminary Q4 EPS of $0.24 vs prior guidance of $0.21-0.23 on GAAP revs of $4.85 bln. Non-GAAP EPS was $0.29 vs $0.27 cons on revs of $4.94 bln vs $4.55 bln cons.
Like a moth to a flame
Burned by the fire
My love is blind
Can't you see my desire? - Todd Harrison - 3:49 PM
Nasty boys may not mean a thing, Janet, but this nasty rally means a lot. A quick deuce (that's a big deuce) on the DJIA and a cool 25 handles on the S&P have brought Hoofy's heroes right back to...anyone? Anyone? That's right, the S&P 200-day moving average. This was my "mental target," as discussed, but I've fed enough ducks to warrant my current (balanced) posture.
I've used this last leg higher to add a spate of puts in the brokers as the 6% lift in the XBD (directly to its 200-day) intrigues me. Of course, psychology and momentum (coupled with still oversold stochastics) could render the technical metric meaningless but I'm trading (not making a stand) and balancing (against some other longs). Now I can relax and enjoy some popovers with Minyan Sam Ginzburg and my friend Fish!
I'm gonna let today's tape "sink in" and I would imagine others will do the same. Keep in mind that expiration likely exacerbated this volatility and IF (big if) we fail, "it" will seem obvious with the benefit of hindsight. Just musin' aloud and hoping to add value at some level. Lord knows I've been wrong before and I'm quite certain it'll happen again.
I'm outie, Cher, so have a fine night!
Position in financials
AAII Bear Index reaches highest levels for stocks in years.....What do you do? - Bennet Sedacca - 1:52 PM
I said the other day in my piece that I was adding exposure (as a trading vehicle more than an investment) as proprietary sentiment polls for stocks had turned extremely bearish. I did this mostly by buying a rather large position in iShares MSCI Japan Index (EWJ) in the 12.30-12.40 area as we were looking for foreign exposure.
Well, now take a look at this chart. It depicts the amount of bears in the AAII (American Association of Individual Investors) poll from this week which depicts a poll of individuals expectations of stock performance over the next 6 months.. It basically confirms the bearishness, or wall of worry present. It doesn't change my longer term view but we were looking for that mid June to mid July rally followed by an eventual decline in the fall. But we have to play it as goes.
As for Bernanke, yes, it seems he is in a box. Inflation is rising, but housing is dying a slow death. Maybe the surprise is in some future data that allows the market to rally, the bearishness to abate and we once again reduce exposure.
But, I hate to say it, at these sorts of extremes in pessimism, the market rarely plummets. Incidentally, the same bearishness exists for gold.
Position in EWJ
Mini-Minyan Mailbag - Kevin Depew - 1:32 PM
After reading your earlier buzz on the SPX, I wanted to pass this along that I sent out to my team earlier this morning. I love it when the quant stuff and the technicals throw off similar vibes.
"Risk/reward has improved after this morning's data for capacity utilization and industrial production. I think, with the amount of technical damage that's been done (especially in the NDX), I'm pretty content in sticking with, say, the average of the two -1 error terms below (~1,200 (SPX)) as an attractive entry point.
Fundamentally, I'd say that the market is thinking recession, but the investment component of GDP has still been really healthy, so I don't think that's in the cards yet. The catch is that we're cyclically pretty long in the tooth (very low unemployment, high capacity utilization, flat yield curve, etc) and this is where it pays to be cognizant of risk/reward."
Thank you for the fundie/quant balance to the technical work. As you know, here in the 'Ville Toddo has always preached using the four metrics together (fundamental, structural, psychological and technical) so we don't wind up trading in a vacuum. Thanks for the update.
Position in ES/U6
Some quick numbers... - Jason Roney - 12:34 PM
The gap today is bullish for tomorrow's close, according to the numbers. When the QQQQ low of the Thursday before expiration is above the high of Wednesday, the QQQQ finished expiry Friday higher 5 of 6 times.
The same query for the SP futures produced a positive Friday close 11 of 11 times. Generally speaking, the bias for Monday after expiry is negative. This is also true for the gap pattern mentioned above.
For the QQQQ, the Monday close was lower 4 of 6 and for the Spoo, Monday's close was lower 8 of 11. Strictly for what it's worth...
Hear Ye!! Hear Ye!! - Fil Zucchi - 11:39 AM
The tape was just flashing that the NYMEX will reduce margins for gold and silver. I guess JP... I mean the shorts have covered enough. There are double bottom patterns on the 10 and 60 min. gold charts which would trigger above 681.50'sh, with little resistance to the mid '90s. As the time frames suggests, these would not be long term positions.
Speaking of the longer term, my sense is that we may spend some weeks between $550 and $620 in gold, with opportunities to swing trade both sides until the volatility subsides. Nothing more than the roadmap in my head of course.
Position in gold
Why is this rally feeding on itself? - John Succo - 11:04 AM
Todd and I talked about it yesterday. A lot of worried investors piled into hedges without thinking about price. They bought puts at high prices and drove the prices of options up as other investors sold stock in an attempt to reduce risk. Some bottom fishing by other investors put a bid back into the market. All of a sudden those investors who paid up for hedges realized how much they could lose on them if the market rallied back or didn't go down further.
So now they are panicking the other way, aggressively selling puts. When hedgers own puts at very cheap levels they are willing to take the risk of losing that smaller amount of money for the protection. They view it as insurance. When they pay too much and stand to lose a few percent they begin to view it as money wasted.
So higher relative option prices often cause rallies as hedgers unwind. That is what we are seeing now. This is why we sold out a lot of our vol that we owned at cheaper levels and began to run a more neutral delta position. Now we are taking the other side again. Option prices are still higher and could take a while to go back down, if ever to the levels they were. But we are selling deltas into this rally thinking that much of the fuel for the last few days is running out.
Look! They go up, too! - Rod David - 10:30 AM
A "Fat Lady" (or "Gotcha") was noted here yesterday as the last hour got underway. The setup produces a "non-permanent surge" at the following session's open. The surge part of the deal has been fulfilled; the non-permanent part has yet to be seen, and might not be hinted at before this afternoon.
A surge that starts by gapping above prior highs - whether non-permanent or non-non-permanent - doesn't often reverse down within minutes of the open. The bounce's target was just met at 10:15am, and a case can be made for adding another 10 points from there. But stronger signals are needed before aggressively positioning for a bigger bounce, with quad-witch coming around the corner.
A Bear Can Emote on a Lopsided Boat - William Fleckenstein - 10:05 AM
In essence, we have now come full-circle: Heading into and around the last FOMC meeting, I essentially took the "other side" of the "Fed is done" enthusiasm -- shorting stocks, buying puts, and selling my foreign currencies and metals. I wanted to fade that idea, as it was so popular. I did believe (incorrectly) that the Fed was done. However, I thought the "bet" being placed on this was so lopsided in the market that the risk in the other side was small.
Similarly, it seems to me that sentiment has swung 180 degrees. Now the view is: Who knows when the Fed will be done? And, as I have said repeatedly, I want to take the other side of that idea. I think the risk of "making that trade" has been squeezed out of these markets.
A Shortseller Caveat Emptor
Consequently, I want to be aggressively long the metals and foreign currencies, and not aggressively short stocks -- although I don't want to be long stocks, either -- for reasons Justin Mamis stated so eloquently yesterday:
"But keep in mind that the underlying trend has now changed to a bear market. And just because you think you're nimble enough to get in and get out well, you have to do it four times out of four. Because, if your batting average is only three out of four, the one loss will eat up at least one of the gains, and often more -- so that except for keeping your ego busy, it won't have been worth the risk."
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