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Todd Harrison: Prepare for the Return of Volatility
The other side of compression is approaching.
Todd Harrison    

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

I return to my turret following a few personal days -- one of our close friends celebrated her 40th birthday in Miami -- and I'm raring to go on this fine Monday morning. While seeing old friends is good for the soul, QT with new friends is great for the spirit. This was the first trip we took sans kids, and while we missed them, it was excellent to vibe with my remarkable wife.

From the looks of it, the mainstay averages continued to do the 2014 voodoo -- running to stand still -- while there were plenty of alpha bits (read: movement in individual names) that have paradoxically created a bear market in high beta with the S&P (INDEXSP:.INX) a kitten's whisker away from all-time highs. One (or both) of these trends will soon shift, so we would be wise to remain on our toes as we enter the seasonally important month of May.

The question on everyone's mind is which way these dueling dynamics will resolve. Revisiting the SMART money chart we've referenced several times over the last few weeks, and absent sudden and violent end-of-day bullish shifts (which is possible), a snapshot of this proxy continues to suggest, "PAY ATTENTION OR YOU MIGHT GET SMOKED."


Click to enlarge

Of course, given the five-year parabolic frolic, and judging from the depressed levels of volatility -- CBOEO EX implied Volatility (INDEXCBOE:VXO) 11ish -- the bears are a modern-day equivalent of the boy who cried wolf.
 

VXO since inception

I continue to trade surgically while keeping my powder dry. I still sense GW Pharma (NASDAQ:GWPH) trades triple digits all else being equal -- plenty of research supports the idea that CBD works in schizophrenia and diabetes -- but after the stock ran 70% in a few weeks, I peeled off all but a small token position so I could watch it digest.

My guttural sense that the tape has a gut check coming factored into that decision, but take that for what it's worth, which is one man's humble opinion.

One last thought on volatility, which has seemingly compressed across asset classes. I don't think this is a coincidence: In our interconnected world, global asset classes are tied together in some way, shape, or form. It stands to reason that as volatility in one complex is muted, it transcends others.

Conversely, when we see volatility pick up -- and that could happen at any time -- we'll see that spread like wildfire around the world. The time to prepare for that is before it happens, via right-sized risk and particular discipline in your approach.

The 'Flation Debation!

Over the last few years, we've maintained that we've experienced bifurcated 'flation. We have inflation in things we need -- health care, food, education, energy -- and deflation in things we want, such as cell phones, laptops, and plasma TV's, which have become commoditized as a function of the most deflationary invention of all time, the Internet.  That latter dynamic is great if you're a consumer, but it's not so hot if you're a provider of those products, as margins get squeezed.

I stumbled upon a chart last night that sums this up with a neat little bow.


Click to enlarge

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real time with a FREE 14 day trial to Buzz & Banter.
< Previous
  • 1
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Position in GWPH.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Todd Harrison: Prepare for the Return of Volatility
The other side of compression is approaching.
Todd Harrison    

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

I return to my turret following a few personal days -- one of our close friends celebrated her 40th birthday in Miami -- and I'm raring to go on this fine Monday morning. While seeing old friends is good for the soul, QT with new friends is great for the spirit. This was the first trip we took sans kids, and while we missed them, it was excellent to vibe with my remarkable wife.

From the looks of it, the mainstay averages continued to do the 2014 voodoo -- running to stand still -- while there were plenty of alpha bits (read: movement in individual names) that have paradoxically created a bear market in high beta with the S&P (INDEXSP:.INX) a kitten's whisker away from all-time highs. One (or both) of these trends will soon shift, so we would be wise to remain on our toes as we enter the seasonally important month of May.

The question on everyone's mind is which way these dueling dynamics will resolve. Revisiting the SMART money chart we've referenced several times over the last few weeks, and absent sudden and violent end-of-day bullish shifts (which is possible), a snapshot of this proxy continues to suggest, "PAY ATTENTION OR YOU MIGHT GET SMOKED."


Click to enlarge

Of course, given the five-year parabolic frolic, and judging from the depressed levels of volatility -- CBOEO EX implied Volatility (INDEXCBOE:VXO) 11ish -- the bears are a modern-day equivalent of the boy who cried wolf.
 

VXO since inception

I continue to trade surgically while keeping my powder dry. I still sense GW Pharma (NASDAQ:GWPH) trades triple digits all else being equal -- plenty of research supports the idea that CBD works in schizophrenia and diabetes -- but after the stock ran 70% in a few weeks, I peeled off all but a small token position so I could watch it digest.

My guttural sense that the tape has a gut check coming factored into that decision, but take that for what it's worth, which is one man's humble opinion.

One last thought on volatility, which has seemingly compressed across asset classes. I don't think this is a coincidence: In our interconnected world, global asset classes are tied together in some way, shape, or form. It stands to reason that as volatility in one complex is muted, it transcends others.

Conversely, when we see volatility pick up -- and that could happen at any time -- we'll see that spread like wildfire around the world. The time to prepare for that is before it happens, via right-sized risk and particular discipline in your approach.

The 'Flation Debation!

Over the last few years, we've maintained that we've experienced bifurcated 'flation. We have inflation in things we need -- health care, food, education, energy -- and deflation in things we want, such as cell phones, laptops, and plasma TV's, which have become commoditized as a function of the most deflationary invention of all time, the Internet.  That latter dynamic is great if you're a consumer, but it's not so hot if you're a provider of those products, as margins get squeezed.

I stumbled upon a chart last night that sums this up with a neat little bow.


Click to enlarge

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real time with a FREE 14 day trial to Buzz & Banter.
< Previous
  • 1
Next >
Position in GWPH.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Daily Recap
Todd Harrison: Prepare for the Return of Volatility
The other side of compression is approaching.
Todd Harrison    

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

I return to my turret following a few personal days -- one of our close friends celebrated her 40th birthday in Miami -- and I'm raring to go on this fine Monday morning. While seeing old friends is good for the soul, QT with new friends is great for the spirit. This was the first trip we took sans kids, and while we missed them, it was excellent to vibe with my remarkable wife.

From the looks of it, the mainstay averages continued to do the 2014 voodoo -- running to stand still -- while there were plenty of alpha bits (read: movement in individual names) that have paradoxically created a bear market in high beta with the S&P (INDEXSP:.INX) a kitten's whisker away from all-time highs. One (or both) of these trends will soon shift, so we would be wise to remain on our toes as we enter the seasonally important month of May.

The question on everyone's mind is which way these dueling dynamics will resolve. Revisiting the SMART money chart we've referenced several times over the last few weeks, and absent sudden and violent end-of-day bullish shifts (which is possible), a snapshot of this proxy continues to suggest, "PAY ATTENTION OR YOU MIGHT GET SMOKED."


Click to enlarge

Of course, given the five-year parabolic frolic, and judging from the depressed levels of volatility -- CBOEO EX implied Volatility (INDEXCBOE:VXO) 11ish -- the bears are a modern-day equivalent of the boy who cried wolf.
 

VXO since inception

I continue to trade surgically while keeping my powder dry. I still sense GW Pharma (NASDAQ:GWPH) trades triple digits all else being equal -- plenty of research supports the idea that CBD works in schizophrenia and diabetes -- but after the stock ran 70% in a few weeks, I peeled off all but a small token position so I could watch it digest.

My guttural sense that the tape has a gut check coming factored into that decision, but take that for what it's worth, which is one man's humble opinion.

One last thought on volatility, which has seemingly compressed across asset classes. I don't think this is a coincidence: In our interconnected world, global asset classes are tied together in some way, shape, or form. It stands to reason that as volatility in one complex is muted, it transcends others.

Conversely, when we see volatility pick up -- and that could happen at any time -- we'll see that spread like wildfire around the world. The time to prepare for that is before it happens, via right-sized risk and particular discipline in your approach.

The 'Flation Debation!

Over the last few years, we've maintained that we've experienced bifurcated 'flation. We have inflation in things we need -- health care, food, education, energy -- and deflation in things we want, such as cell phones, laptops, and plasma TV's, which have become commoditized as a function of the most deflationary invention of all time, the Internet.  That latter dynamic is great if you're a consumer, but it's not so hot if you're a provider of those products, as margins get squeezed.

I stumbled upon a chart last night that sums this up with a neat little bow.


Click to enlarge

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real time with a FREE 14 day trial to Buzz & Banter.
< Previous
  • 1
Next >
Position in GWPH.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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