Buzz Bits: Dow, Nasdaq Fall
Your daily Buzz & Banter highlights...
Step Right Up and Getcha Front Row Seats! - Todd Harrison - 3:11 PM
The most exciting hour of the session is upon us as we ready for the final fray of the trading day. So, what'll it be boys and girls? A little redemption with some forced selling on the side? How about a Snapper that catches everyone leaning the wrong way? Or maybe we'll just sit here and quietly slither into the close? Nah... that won't happen---this Minx is gonna twist and turn and make us squirm.
As discussed earlier, I made a token sale on a sliver of my S&P put position as a function of discipline. Tapes that are heavy all day tend to end that way--particularly when breadth is 2:1 negative or worse (currently 4:1 negative)--but heck, we have so many gamers gaming the game into the end of the day in front of expiration, heck, I'm dizzy just writing about it!
S&P 1428ish (and BKX 101.50) remain the levels of lore (and I'll betcha alotta buy stops reside on the other side of that ride). On the short side, there isn't anything particularly tight to lean against, which is one of the reasons I traded a bit "in between" while I could (rather than when I have to).
Trade to win--don't hope and spin--and never let the definition of an investment be a trade gone awry.
Fare ye well into the bell, Minyans, and leave your ego out of the decision making process please. Emotions, as we've seen all too often, tend to cloud lucid financial choices.
Feeling Down - Sean Udall - 1:10 PM
Conservative calculations should have EMC up 5%+ today and you could make a case they could be up double that by the surge in VMWare's (VMW) market cap to $17 bln, yet EMC is down. Many times the market will jig instead of jag. Again amazing, though I believe many sellers are being short-sided. This has all the makings of Cypress Semiconductor (CY) / SunPower (SPWR) all over again – holders of CY have been well rewarded since the SPWR spin-off.
Bottom line -- VMW's market cap is now $17 bln, of which EMC owns 87% or roughly $15 bln. Take out VMW's revs and EMC still has over $11 bln with solid and improving margins – so the non-VMW side of EMC's business is only worth around 2 times sales? This is a great example of the market's inefficiency in action. At this point I would like to see EMC drop closer to $18 so I can add to the position.
Further, I'm seeing names that reported gorgeous quarters, like Centex (CTXS), Cisco (CSCO), Blackstone (BX) and Corning (GLW) all slipping on a day like today. Meanwhile, the Naz is again exhibiting minimal out-performance on a down day. The bifurcated market continues to shake out those with marginal conviction.
Positions in EMC, BX and GLW.
Pin Jamming - Adam Warner - 10:56 AM
Under four days until expiration, and the pinning thereof.
But this expiration is sure unlike any other in a while. Volatility has soared. And the logical inference is that, right now, market makers are short gamma heading into Friday. Why dat? Because if volatility lifted, it is because the public order flow was buying it. And if the public is buying, market makers are selling. Contrary to popular impressions, market makers don't set and manipulate option prices; they are reactive to order flow, and by definition take the other side of it.
What are the implications if market makers are short gamma? Well, they are then "rooting" for pins and at risk of getting whipsawed in the gyrations. And they are far and away the most likely to aggressively hedge their positions. So if a stock is moving away from strike and against them, they are likely to add fuel to the fire.
In other words, if they are short puts in stock XYZ, and XYZ starts dropping, they are likely to pile on and short it to defend their dangerous positions.
Now a lot could change between now and Friday. Volatility dropped big on Monday, and if it gets pummeled again, the market makers (in general) may find themselves on the other side of the trade before they know it and long gamma, in which case pins get much more likely.
The bottom line is watch the VIX closely the next couple days. It will give us a nice read on pin likelihoods. Importantly though, it will not tell you strikes to watch for this early, so don't get too smart by a half and try to game pins in a small VIX down tick.
Beware the Ides of August? - Jeffrey Cooper - 9:32 AM
If the market is in a wide trading range, from, say, S&P 1427 to 1500, lasting a week or so and backing and filling, I suspect there will be another day of relatively narrow range chop ---like yesterday, which scored an N/R 7 Volatility Signal (the narrowest range in seven trading days on the S&P), then heads up for a weak close today followed by a possible gap up open on Wednesday.
Wednesday, the Ides of August, is significant as it is the day redemption notices will hit funds.
Of course a lot of the fund liquidation has been in anticipation, so the market might hit an air pocket, and actually be a (sell-on-the-rumor) buy-on-the-fact set up.
A gap up open on Wednesday would probably be clawed at by the bears. It they are unsuccessful, it could generate one of the gonzo one-day wonders (or last over a few days for a B leg up to test towards the high of the trading range).
It doesn't have to play out this way, of course: just a scenario I'm eyeballin'. But, we got oversold enough that it is plausible given the pattern, expiration and heightened comfort level of shorts given rally failures.
And perhaps, most importantly, fits in with the perverse nature of the market beast.
The other side of the coin is that the Friday prior to Black Monday in 1987 was an expiration Friday.
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