Here is a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, March 31, 2014
...and its refreshing.
Madam Chair spoke in Chicago today (the text is on the FRB website). The insta-pundit take away was that she showed extreme dovishness. Jefferies economist, Zervos, invoked Batman and deep dish pizza in an odd metaphor mix. The stock market was higher and the curve steepened back some. Of course, the neo-inflationists were appalled.
Greenspan loved dropping obscure anecdotal data into talks that would spur several months of cult following. Corrugated box prices, scrap metal, and men's underwear all had spotlight moments during Greenpan's long tenure. Bernanke faced a harsher reality. His timid, halting delivery did not exude confidence for listeners. Bernanke spent most of his time trying to explain a policy the Federal Reserve Bank was clearly making up as it went along. Lost among the critics' outrage was that the flexibility was the policy's strongest pillar.
Enter Yellen who has been labeled a "Dove" throughout her long career. In Chicago, she tried to put a human face on the statistics. I did not hear a new, easier tilt to her views. I was reminded of the old Fed policy of stating a bias. The bias, despite changing data, remains toward accommodation. A participant is free to take issue with that stance in the market, and good luck, but the tilt is openly expressed. Tapering, Forward Guidance, and Pressers are all just attempts -- weak in my opinion -- to clarify that stance.
The delicate switch that the Yellen Fed is undertaking behind that tilt is to return to a "Rates Regime." Some recent "confusion" (as market movements are now called) comes from equating regime change to policy bias change. That is incorrect. As I suggested in 2008, a central bank should embrace "quantitative regimes" at inflationary and deflationary extremes and "rates" in the middle. The regime defines the methodology of policy execution, not the bias. So far, I think that Yellen (the President Obama's second choice, by the way) has proved the right choice.
Tuesday, April 1, 2014
Crude Oil Testing Support
The annotated chart of crude oil's price below shows that it is currently testing support (upward trend line). If that trend line breaks, one should expect lower prices to follow. Conversely, if you are bullish, crude is offering a low-risk entry point just above here with an exit below the recent lows.
Click to enlarge
Wednesday, April 2, 2014
Smart Money Index
The Smart Money Flow Index (SMFI) is calculated by taking the price of the Dow Jones Industrial Average (INDEXDJX:.DJI) at 10 a.m. on any given day, subtracting it from the previous day's close, and adding it to the next day's closing price. The first 30 minutes represent "emotional buying," driven by the greed and fear of the crowd. Smart money typically waits until the end of the day.
If or when the Dow makes a new high that is not confirmed by the SMFI, there is usually trouble ahead. Check out the chart below. (Source: Bloomberg).
Click to enlarge
Thursday, April 3, 2014
Taking a Bearish Trade on GameStop
I'm establishing a bearish position in the video-game retailer GameStop (NYSE:GME) through the sale of a call spread.
These are the specifics of my trade:
- Sold to open 15 April $44 calls and bought to open 15 April $46 calls for a $0.70 credit.
This is a $0.70 net credit for the spread. This stock has been a short killer for most of the past two years, often running with nearly 35% of the stock float short as the death of physical games and retail stores has long been predicted. The shorts finally have had some relief when the company disappointed on earnings in January. GameStop was knocked again last week when Walmart (NYSE:WMT) said it would enter the used game market.
This latest rally seems to be short covering as there was still 31% of the float short as of March 15. This move into the gap at $44 seems like a good entry point for a short-term trade. I'm using a bear (credit) call spread as I think it's more a case of limited upside. I'm not necessarily looking for a big decline.
This position will benefit from time decay.
Friday, April 4, 2014
Between the Ticks
Yesterday [subscription required], I flagged $188 as short-term support for the SPDR S&P 500 ETF (NYSEARCA:SPY)
Below, see an hourly SPY chart from yesterday's Daily Market Report (April 3).
Click to enlarge
The SPY tagged $188.05 before bouncing in the run-off to settle at $188.63.
Strength today above yesterday's high that holds after the first hour suggests the possibility that the upper rail of a channel may be tagged at around 191 in the coming days. Of course, opening rally attempts have been well-faded lately, so today's action on the important weekly Friday closing basis with the SPY at all-time highs make this channel interesting in the context of this crazy market.
However, another break below $188 leaves the SPY suspect.
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