Buzz on the Street: Quarter End Posturing Comes to a Close
A look back at the happenings on Wall Street this week as seen through the Buzz & Banter.
Note: Some links may require Buzz subscriptions.
Monday, September 26, 2011
8:43am - Europe Gets Quite a Show Overnight.
by Rod David
Michael's summary of weekend events is comprehensive. The headlines' pace was as fast as a tennis match, and equally head-turning. I could only add that the match has not yet ended. Following is my "First Trade" post this morning.
Through the prior close…
Except for a pre-open dip down to 1102.00, Friday's "inside day" developed entirely within Thursday's range. It did nothing to solidify a bottom, and only delayed the decline's resumption. But any further delay would allow a relief rally from Friday's 1128.25/1130.75 close up to either 1143.00 or 1153.00.
Overnight action's new info…
Europe has had a front seat to some amazing movement - the least of which was in S&Ps. Its opening blip-down to 1122.00 reversed up immediately to 1144.50, then slid gradually to within 1 point of Friday's 1114.00 low. That's nothing. Crude fell nearly $4 to fresh lows at 77.11, Gold's initial bounce to 1666.30 was reversed to 1535.00, and Silver plummeted from 31.02 to 26.15.
Child's play. S&Ps rallied to fresh overnight highs at 1150.75, Crude recovered above 80.00, and Gold probed Friday's lows up to 1640.00. Silver "bounced" $4 to barely touch Friday's 30.00 close.
Meanwhile, the Euro probed last week's 1.3380 low, then recovered into positive territory, which fits the bullish setup described Friday. This action may be the most relevant to our purposes, since S&Ps tracked its relative path most closely overnight. So, perhaps it is relevant that S&Ps are probing fresh overnight highs while the Euro is hesitating. That's not a timing factor (not, yet) but would undermine the next simultaneous fresh high - especially if S&Ps were testing 1553.00.
A pullback is now testing 1144.50. Recovering 1147.00 from here would signal (and above 1148.50 would confirm) that the rally to 1153.00 had resumed, with potential to 1156.75. This pullback has room down to 1143.00 before suggesting that the overnight extremes would be attacked intraday.
8:59am - Ring of Fire?
by Todd Harrison
It's been an eventful 24-hours and as I made my way to MVHQ this morning, I couldn't help notice the Blue Oyster Cult ditty, on the radio. "Time is the essence; time is the season..." Indeed it is, for as we've said in the Ville, the fatal flaw of politics is...it's too political (takes time) while financial markets are whipsaw quick in real-time.
I am, of course, talking about the bantered-about "Ring of Fire" that is making it's way through European circles. While the theme should feel familiar to ye faithful--it's a massive drug that will stave off contagion rather than comprehensive medicine that will debilitate disease--it would conceivably dispel the notion of European Disunion, at least for the foreseeable future. Remember, for purposes of mapping strategy, the path we take is more important than the destination we arrive at.
The risk, again, is that it becomes a political grenade--between internal elections and cross-boarder posturing, there is the potential that this is beaten to death before it ever sees the light of day...or more likely, that it will take something truly sinister--something extremely scary--before policymakers "back into" this particular policy option.
Judging from the price action last week--not only in the equity indices but in the perceived commodity safehavens--we're caught in the crossfire between the potential for this Bazooka and the reality that without a sweeping "solution," confidence is eroding faster than Antonio Cromartie's playmaking skills (sorry, but as a life-long Raider fan, it's been a long decade; wins like that last a long time).
Lot's to digest and we will, together; lemme pull together my opener, and I'll be back on the other side of this morning's bell.
It's good to be home.
12:52pm - More of the Same
by Peter Atwater
I wish I could be more encouraging about the proposals being floating out of Europe over the weekend, but to me they are more of the same.
Leveraging what is already a sovereign CDO even further seems at best awkward; and I can't imagine that the rating agencies will be none to happy about it. And then there is the German Parliament which has yet to approve the second bailout of Greece from the July summit.
Once again I am struck by the clear distinction between a response and a reaction. And policy making on the fly with ideas floated from seventeen different directions like trial balloons is no way to solve a crisis.
And maybe its just me, but the notion that folks in Europe are referring to the latest proposal as "The Geithner Plan" can't be good thing.
Just imagine how our own Congress would feel, if they were asked to vote on the Merkel proposal today.
2:49pm - Death Spasms
by Fil Zucchi
If the latest "breaking news" that "the EU will attempt to imitate the US TARP program by putting the EFSF as capital into an SPV who will then borrow money from the ECB via the EIB" sounds like a "who's on first" Three Stooges routine, you are correct, because that's in essence what it is.
First of all, this is not a TARP like program: the TARP used Treasury/Fed money to buy non-government assets. Under this latest EU abomination, governments' money will be leveraged up with ECB money (i.e. governments' money) to buy bonds from the same governments which are on the hook for the EFSF and ECB money to begin with. This is plainly insane, not to mention transparently useless.
The only way such a program might be marginally effective is if the overwhelming bulk of the EFSF and ECB funds are fronted by Germany and France in ratios well beyond what they are already slated to contribute. If such is the case, then this maneuver would basically consist of France and Germany absorbing the debts (all risks included) of the PIIGS, by doing an end-around their parliaments, which seem rather staunchly opposed to the outright financing of Greece's 50 year old pensioners.
Once this Ponzi scheme comes into being, keep a close eye on the bonds/CDS of France and Germany since they should logically show a whole new level of risk. And start the countdown for when the rating agencies will start pondering a downgrade of both countries.
Tuesday, September 27, 2011
8:30am - Opening Trading Plan
by Scott Redler - T3Live.com
Headlines of bold action in Europe and a bit of a compromise in Washington are helping futures and the markets this morning. This up open is nice follow through for those who went out long, based on yesterday's strength. There are some nice follow through to all those 80-20 Red Dog Reversals that we saw in many sectors across the board. Yesterday we outlined micro strategies to be long for "cash flow" and sometimes you can walk in pleasantly surprised if you follow the right set of rules. I understand the "macro" issues, I understand all the "bearish" arguments. But as short term traders you need to pay attention to the action and the patterns.
$SPX is up 12-15 handles and closed right around key resistance yesterday. Today it's opening right where the 10 and 20 day moving averages are converging around 1178-1183. This will be a spot that I will sell some longs from yesterday. This is a spot worth trying a bit of a short. But don't get stubborn. Most stubborn traders rolled their shorts up from yesterday and are in a predicament this morning. It should create a bit of volatility.
Next spot is 1188-1192 and then 1206
Apple (AAPL) started out weak with tons of back and forth headlines but closed strong. It's held it's 21day still showing nice relative strength. If you are long an extra tier from yesterday, I would sell some in the $407-409 area. But this remains a macro tier one long.
Amazon (AMZN) is a super strong stock that held its 21 day and the levels we defined in the charts and has some easy room back to $232-235. Same strategy to sell some extra shares into this spot. But AMZN is still a macro long candidate
Baidu.com (BIDU) is broken but put a small double bottom in the $115 area and might be worth a long for the active trader.
SINA Corp (SINA) similar to BIDU, got crushed and stops were triggered, but has some room to bounce. Very tricky.
Netflix (NFLX) Very frustrating stock. I've tried to buy a few times in the $130 area but doesn't have follow through. I guess if you're trying this level for active longs don't overtrade and if it can get above 137 -138 and hold for 60minutes. Maybe it sees $150ish. Use 125 as the stop.
VMWare (VMW) Cloud stocks have been weak and this is acting better than some of them. If you played this for a bounce yesterday, it will have a ton of resistance in the $89-91 area. I would sell it there.
The best stocks to trade yesterday into today were the beaten down worst groups of the last few months.
OIH - Great Red Dog Reversal from yesterday. The buy price was 108.30ish. Lots of stocks in this group had the same pattern. Halliburton (HAL), Schlumberger (SLB), National Oilwell Varco (NOV) etc. They are all opening in the gap from 9/21 . It's up to you now, where to take profits and how to trail . I will sell most of my OIH on the open.
MOO has the same type of pattern. Beaten down group that gave a short term buy signal yesterday. Most stock in the group look the same Mosiac (MOS), Potash (POT), CF Industries (CF), etc. I would sell some on the open, and trial some.
XLF started it's rally on Friday and now on day three. If you bought Friday, I would sell some on this open as $12.25-$12.50 would some resistance
Freeport-McMoran (FCX) I've been targeting this for a an oversold bounce since Friday. Yesterday it got frisky. I'm going to sell some on the open, it has room to about $38 tops.
If you didn't cover your shorts yesterday in Gold and Silver you need to read the book about pigs getting slaughtered. My mantra is always to take the meat and potatoes of the move and save the slippery juice for the next guy. (Sometimes I do sell or cover way too early)
Yesterday we talked midday about covering shorts in both metals. They had a huge move lower with some capitulation type action. Even if they are to go lower, it was a prudent spot to take it off.
GLD - some flipped long in gold/gld with the reversal pattern not expecting such a big move this morning. But "The Good Book" said to take some long, and if you listen to the good book, the high percentage strategies will surprise you to the upside. $162-$164 is a spot to take some off- $165.72 will be massive resistance
SLV - actually had the strongest reversal yesterday and is up almost 10% this morning. If you covered and went long yesterday I would sell most on the open.
I know this action can be tough, but you can't bring in your opinions on a daily basis. This is the last week of the QTR. This is the last week of the year for most "buy only" mutual funds. So there was a decent chance that the fix would be in. I got caught short in Qtr. 2 and fought as a short and had my worst week of the year. Right play, bad timing. Learn from mistakes.
At the time of publication, Mr. Redler held a position in OIH, GLD, FCX, CAT & AAPL.
9:21am - Options Trading When There is No Trend
by Steve Smith
I know as an options trader I'm supposed to embrace volatility but some of these moves over the past two months are ridiculous. Part of the problem is that these are day-to-day moves with little follow through or trend. The S&P 500 has now traversed the 1120-1220 (8.5%) range six times in just 5 weeks. In the a three day period silver has dropped 30% and bounced back 15% as of this morning. Yield on the 10-year sank to 1.65% only to reverse back towards 2% , a 23% reversal in a 5 day period.
This has created dilemma for me. On the one hand it's very uncomfortable holding anything for too long, yet on the other trying to take pot shots and capture one of these reversals is a very dangerous and difficult game to win over time. For me I have to reduce my size, stick with what I know which means using limit risk strategies, leg into an offsetting position, such as creating a calendar spread when I get an advantage to reduce costs and get some time decay on my side. Then I exit a position if the target or stop loss is tagged even if it's two days into a position I thought I might hold for 2 months.
In that vein while I had good timing in getting long a little gold (GLD) yesterday in the OptionSmith portfolio, the strategy was built for it to trend back towards the $1,700 (around $170 in GLD) not have it snap back in two days. I will likely take my modest profit and close this position today. My fear is if I leave it open I'll start trying to make adjustments and just chop myself up.
Likewise, the other things I'll be looking to do today will sell some higher strike October calls in the SPDR Material (XLB) and Industrial (XLI) against the November calls we bought on Friday to create calendar spreads.
In the SPY I'll shed another scale out another amount of the call spreads in weekly options.
Follow all Steve's trades in the OptionSmith newsletter
At the time of publication, Mr. Smith held a position in SPY & GLD options.
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