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Jeff Bailey : 9/19/2008 2:49:51 AM

European Markets: ... yet to open Link

Jeff Bailey : 9/19/2008 2:49:18 AM

Asian Markets: Link

Jeff Bailey : 9/19/2008 2:47:59 AM

YM +222 at 11,207

Jeff Bailey : 9/19/2008 2:44:26 AM

Knight Capital Group (NITE) $15.56 ... Brief fundamental snapshot Link

Should look at a couple of their past earnings reports.

Jeff Bailey : 9/19/2008 2:23:34 AM

And that's just OPTIONS ... shall we cover the stock futures? And how that RISK needs to be managed as it would pertain to the underlying common stock?

Nope, but you get the picture with just the options.

Jeff Bailey : 9/19/2008 2:18:58 AM

Email Question (Educational): ... Jeff:
2 things:

1. you mentioned in the MM @ 3:13pm; citi "modest exposure." what does this mean?

2. You also posted a comment from CBOE that they had record option trading for 2008 beating 2007. I believe the post said it was the highest in the history. Will this help NITE's earnings. NITE is an options market maker.

Jeff's Reply:

1.) See 09/17/08 03:12:27 and "Good gravy ... no wonder NOBODY can really get their arms around all of this." Then you've got Citigroup (C) saying "modest expsure" to LEHman debt. DYN, PETD, F can give figures. Why can't a banker like Citigroup. Maybe I'm like you and I'd also like to know what "modest exposure is." Modest= $10million ; Modest= $100million; Modest= $10billion?

How would each subcriber like it if I profiled stocks, or options and said lets buy a "modest" position in XXX-XX.
Then, if the trade works out, Modest= 50 contracts.
Then, if the option was "poof"/$0.00 at expiration, Modest= 1 contract.
Citigroup isn't trading where its trading because it has "Modest" exposure to a lot of stuff that market participants deem as being highly profitable.

2) This is a VERY important question and I'm trying to get the full story on this. VOLUME is GREAT for any market maker, but MORE IMPORTANT for the market maker of ANYTHING is to keep their INVENTORY on a "break even" basis, where they can creat PROFIT from trade revenue. Having been a MARKET MAKER of stocks and having traded for a hedge fund I can TELL YOU that the MOST IMPORTANT thing is to be ABLE TO HEDGE your market making activity.

IF it is true (and it certainly looks like it is) that an OPTION MARKET MAKER can NO LONGER be able to be "NAKED short," yet market participants are able to BUY PUTS (for a market maker, if he/she sells the put while making a market in the option, then he/she is OBLIGATED to buy the stock at the specified strike of that put, while receiving a PREMIUM that is priced into the option). What this will create is MASSIVE RISK EXPOSURE to the option market maker if he/she is making a market in a stock that a governing body says he/she can not "NAKED short," which the bulk of market participants are short.

Do this ... with LEH stock now at $0.13/share and having been $3.75/share on Friday of last week (not to mention where it was before that). Look at an option chain and the OPEN INTEREST off all the puts and calls.

Now put yourself in the Option Market Makers shoes. (do you think you're elected official is doing this, or the SEC for that matter)

With today's new "rules," now try and hedge your RISK, and stay solvent.

Here's a quick LEH option chain. I just grabbed some of the HEAVIEST open interest and placed the PUTS at the top, the calls at the bottom. With LEH @ $0.13, just pretend you're the MM of those PUT options (with stock at $0.13, thats YOUR risk and you're obligation to buy all those shares at the specified strike). Now, YOU did receive some premium, you received a very small market maker commission. Note: you got a portion of the Ameritrade/Scottrade/Schwab/Fidelity commission

But add up what you're REALLY going to get ... Link

So, with just a few of the PUT options (sorted by open interest), the option Market Makers that did SELL the LEH Jan $10 Puts are now OBLIGATED to buy 9,887,200 shares of LEH stock for $10.00/share. That's $98,872,000 of RISK those market makers hopefully were able to be short the common stock of LEH. If they were not, then they're taking a "modest" hit. Or is that a "big" hit?

Certainly, if no longer able to NAKED short a stock, an options market maker might be able to sell enough call premiums in order to "hedge" some PUTS he/she sold to another market participant in his/her market making activity, and this does happen, but being short the common to hedge your put market making is easier, and you're not fighting implications of VOLATILITY/PREMIUM.

In Thursday's market monitor, I also made a comment regarding VIX.X measures going forward.

Do you see why?

Now imagine once again you're the Market Maker of a PUT option, and you might not be able to "naked short" ever again. What would YOU do with your OFFER/ask price? You might want an additional $0.30/contract? Maybe $1.00? Maybe $4.00 for a high beta stock you make a market for in the option?

For the RISK you take, you need some type of REWARD, and if you can't hedge risk, you're going to want/need reward in the form of PREMIUM.

We'll see how this all plays out, but all you VIX.X analysts out there, start making some adjustments as to what you think a "high" or "low" VIX.X measure tells you about anything. Other than of course, the PREMIUMS and number of put buyers/call sellers vs. put sellers/call buyers.

Jeff Bailey : 9/19/2008 1:26:59 AM

Here's something the SEC should investigate ... What about setting up a "clearing house" or regulatory body that does this. It gives PRIORITY of short selling to market makers (we won't have liquidity to buy/sell if we don't have market makers).

Then, if a stock gets so short, as to the point that it would become necessary to NAKED short sell, the "clearing house" would then have to call in some shorts from ... gosh I hate the term, but "pure speculators" that are simply short a stock the market participant thinks should fall in price.

See, where the NAKED short can be found is when all the OUTSTANDING shares have been shorted, then additional shorting (options market maker that is short against his/her sold put to another market participant) becomes necessary by the market maker that is hedging his/her risk (you/I buy a put from a market maker, he/she then has an OBLIGATION to buy that security from us, if we decide to exercise that option).

Some subscribers will remember from time to time when we've tried to SHORT a security, and a broker (Ameritrade, Scottrade, Schwab, Fidelity) gives you the message ... "Your order was denied as there are no shares currently available to borrow."

When the USO was breaking to new highs last summer/fall, one subscriber kept informing us he wasn't able to short because there were no shares to short (from $70 to $110 I think). Here, the inability to short from $70 to $110 may have actually saved some subscribers from some losses.

Jeff Bailey : 9/19/2008 1:00:41 AM

Again ... Compliance officer makes certain we know the difference between the NAKED short and the SHORT

Jeff Bailey : 9/19/2008 12:58:59 AM

Here is the response/interpretation of my compliance contact (Option Market Maker) ... Jeff: It looks like the market maker exception from the rule that requires delivery of stock by settlement date has been repealed but grandfathered in for 35 days for current market maker positions. Doesn't mean you can't sell short, just that you must borrow the shares within the three day settlement window rather than leaving them naked. That's when a "fail to deliver" takes effect (I'm getting this from items I read today since this was never a concern when I was a market maker - although we did contend with the uptick rule back then). The relevant language appears to be: IT IS FURTHER ORDERED that, pursuant to our Section 12(k)(2) powers, ? 242.203(b)(3)(iii) of Regulation SHO is amended by revising paragraphs (b)(3)(iii) and (b)(3)(v) to read as follows:

(iii) Provided, however, that a participant of a registered clearing agency that has a fail to deliver position at a registered clearing agency in a threshold security on the effective date of this amendment and which, prior to the effective date of this amendment, had been previously excepted from the close-out requirement in paragraph (b)(3) of this section (i.e., because the participant of a registered clearing agency had a fail to deliver position in the threshold security that is attributed to short sales effected by a registered options market maker to establish or maintain a hedge on options positions that were created before the security became a threshold security), shall immediately close out that fail to deliver position, including any adjustments to the fail to deliver position, within 35 consecutive settlement days of the effective date of this amendment by purchasing securities of like kind and quantity;

Jeff Bailey : 9/19/2008 12:29:53 AM

Excellent comments from Robert in this evening's wrap, especially the "short on up tick only and short against the box" ...

UK will be "socialistic" and you know what capitalists will do with socialists.

I feel like I'm "missing something." It just seems to me that if they won't allow a bear to short, then its like going bear hunting in open prairie. Nowhere to run and nowhere to hide.

Jeff Bailey : 9/18/2008 11:18:12 PM

iShares United Kingdom (EWU) $17.50 +4.35% Link ... HSBC is a top holding Link with 23.02% financials that is "no short sale" until the end of the year.

I'm a supply/demand guy. And if the only sellers for roughly 23.02% are "long liquidators," then this would be a market to be looking BULLISH.

Jeff Bailey : 9/18/2008 11:11:05 PM

S&P 500 Index (SPX.X) 1,206.51 +4.33%... Link

Jeff Bailey : 9/18/2008 11:09:53 PM

Possible financial crisis fix sends stocks soaring ... AP Story Link

Keene Little : 9/18/2008 10:48:31 PM

Friday's pivot table: Link

I like to use Elliott Wave analysis because it does a good job at identifying common and repeating patterns that reflect investor mood. But when government intervention and manipulation occurs in the way that it's happening now I have to wonder how accurate this technical indicator is. In fact I have to wonder if any technical indicator is useful in an environment like this.

And if you take away short selling you have to wonder whether we have a free market that reacts to investors' emotions or only to what the government wants to control. I'm saddened and sickened by what's happening in the markets. Government interference usually results in many unintended consequences and for a while I've been saying the market is on the verge of a crash (hard selling anyway). Take away the short sellers, who have the ability to buy the market when no one else can, and you set the market up for a crash that won't recover. This combined with the repeal of the uptick rule and we are getting closer and closer to a very dangerous market which the government is only making more dangerous with their foolish and arrogant interference.

But we can only trade what's given to us (or simply give up and go find something else to do) so we'll continue to analyze this as best we can. Last night I had mentioned the wave pattern on the SPX chart was set up for the crash leg down but that I always mistrust that kind of pattern (crashes are so rare and it's best to mistrust it rather than bet the farm on it). I then showed the NDX 120-min chart and its parallel down-channel and said it should find support near 1615 if it's going to hold. NDX 120-min chart updated: Link

Today's low undercut the bottom of the channel slightly (1606) but it held. I'm not sure what kind of bounce we'll get (futures are up even more in after-hours trading) but if the wave count is correct price should hold near the top of the channel, currently near 1731 (NQ is already above that). It could over-throw it the same amount as today's under-throw which would mean up to about 1740). Above 1775 would be bullish and it would mean we'll probably be into a correction of the decline from mid August. Otherwise I expect today's short-covering rally to suffer the same fate as the others--more selling.

As for SPX, which is obviously affected more by the banks than the tech stocks, I've updated its wave count to take away some of the 1st and 2nd waves to the downside and that lessens the crash potential for this index. It's now more in line with the NDX pattern and that actually makes me feel better (I don't like to see a large disparity between indices). If SPX stays below 1217, the low September 5th, we could see the market work its way lower right away (and continue its volatility). But with ES already hitting 1236 tonight it's looking like we'll see higher. That would open up several bullish possibilities and would tell us to abandon the short side for now. 120-min chart: Link

The Fed can print a trillion dollars and bail out every Tom, Dick and Harry bank and insurance company but sooner or later the piper must be paid. They're forestalling the decline but cannot prevent it. Don't get bullish this stock market; it's just not healthy and all the government intervention is proving that to be the case. These actions are by desperate men (and women) who are truly running scared and are now making decisions without thinking through the consequences. But clearly it's a dangerous market for both sides.

OI Technical Staff : 9/18/2008 9:59:59 PM

The Market Monitor has been archived. You may view it and any previous days here: Link

Disclaimer: Stocks discussed in the Market Monitor are for educational purposes only and any analysis is not meant to imply a recommendation for or against that stock. The analysts in this forum as on any other website are prohibited by the SEC from giving any specific advice to ANY individual trader. All information posted is for ALL readers and is not meant to be directed to any individual. Our analysts cannot answer any email questions regarding any specific stock. Please do not ask and please do not take offense if requests are denied.

Results posted in the Market Monitor are hypothetical and OIN does not claim that any reader achieved these exact results. Due to the lag time between research, writing, posting, uploading, reading and execution there will be differences between the actual signal given and the fill achieved by the reader. Fills may be better or worse but in most cases they will be different. The writers will make every effort to give advance notice of intended signals and indicate potential price targets. Your individual results may vary depending on your activity level and aggressiveness. This forum is intended as an education service only. Trading involves risk and should not be attempted by anyone not ready to accept this risk. By acting on any signal in this forum you agree and personally accept this risk.

Jeff Bailey : 9/18/2008 9:43:56 PM

Closing Internals at this Link

Jeff Bailey : 9/18/2008 6:12:59 PM

Email Question: ... I was wondering if anyone could comment on my observations of the recent government interventions. It seems to me that the way in which the gov't is stepping in is exacerbating the problem by hanging the common stock holders out to dry. By doing this, wouldn't a hedge fund have an incentive to pair a trade long the bonds and short the common of a weak company? The gov't steps in and the fund wins on both sides.

Jeff's Reply: Yes, and no. That's exactly what some hedge funds are probably doing, or HAVE been doing for some time. Right? I've always said .... "if you can't buy the bond/debt, then you shouldn't buy the stock." However, one problem (as discussed today) is the credit markets are so thin, the DEBT is very weak.

That's what the Fed and foreign central banks are trying to do (again early this morning) is get some more cash, hopefully liqudity to the short-term credit markets.

Here this evening, Bill Fleckenstein made a very good point though. Isn't a company's stock "fair game" to short sellers if they've not managed RISK and now has the company in great trouble?

Management is more important than some think, or believe. BAD management, bad stock.

I say "no naked short" sale, but what is happening overseas and "no short" is not free market. It is socialism.

Jeff Bailey : 9/18/2008 5:56:08 PM

There! ... CNBC mentioning what could happen to VIX.X and premiums if "no naked short sale" by all implemented. (per some of today's MM discussion)

They'll try and "fix" one thing without thinking it through, and they'll break 3 or 4 other things.

Jeff Bailey : 9/18/2008 5:51:22 PM

Closing U.S. Market Watch at this Link

Jeff Bailey : 9/18/2008 5:47:21 PM

Excellent, excellent points/conversation on CNBC with Fleck

Jeff Bailey : 9/18/2008 5:36:46 PM

I looked at HSBC (HBC) $79.52 +9.12% as an "overseas" bank to play on the long side today, but more "China" in my opinion.

Jeff Bailey : 9/18/2008 5:34:15 PM

Well ... no call back yet from my compliance guy regarding "no naked short sale" for option market makers. Probably a liiiiittle busy today.

Jeff Bailey : 9/18/2008 5:17:24 PM

You option traders out there should understand this best, even you futures traders that face a monthly expire.

Now think about the couple that either bought their house, or refinanced the house, but did it with a 1-year ARM at an "introductory rate" of X.XX%, or some other type of ARM. This was the starting point of the entire mess.

Ooo the banks and the brokers developed derivatives of these things.

Then, one day, the couple learns (didn't read the fine print) that their house's price had fallen (maybe they knew that from reading the news), but the real shocker that "expiration" on the ARM was just a week away.

And the "introductory rate" of 1.00% was now 7.00% or even higher in some cases.

So, who should get "bailed out," or who should the tax payer have to support?

I'll argue to the day that it should not be the investor that bought the DERIVATIVE.

The REASON the derivative, of the derivative, of the derivative offered such a HIGH yield was because of the RISK.

Jeff Bailey : 9/18/2008 5:08:14 PM

Excellent, excellent discussion on CNBC .... I've got this basket of mortgages, and then I've got this derivative of the mortgage, and then I've got this derivative of the derivative on the basket of mortgages.

Jeff Bailey : 9/18/2008 5:03:18 PM

I should also add, that IF I had the news out of the UK (as crazy as it seems to think there should be no short selling) that they were going to halt short selling of financials there, I probably wouldn't have suggested we go back in with that 1/8 short at $100.00.

At the time, I thought it was just some "back to $100.00 strike" action and a good entry point.

Jeff Bailey : 9/18/2008 4:32:57 PM

Well, it is day's like today, using the RKH trade as an example, where a trader certainly doesn't want to day anything about "luck."

Was it "good luck" or was it "bad luck?"

No such thing as "luck" when you're trading.

You get what you get, and you ALWAYS expect, or trade with some expectations that the unexpected will happen.

OVERLEVERAGE and you can be "done" in a matter of minutes.

Jeff Bailey : 9/18/2008 4:22:04 PM

Hedge Fund Lobby President Criticizes SEC Short Sale Rule ... DJ (partial) - The head of the largest U.S. hedge fund lobby group criticized a pending emergency order to require hedge funds and other large investors to publicly disclose their short positions in stocks each day. Managed Funds Association President Richard Baker, a former Republican congressman, argued that the order, which could be issued by the Securities and Exchange Commission as soon as Thursday, could create more volatility in the markets by calling more attention to troubled firms. He also cited concerns that the rule, which will take effect immediately, was rushed through without enough input from market participants. "We have concerns about the unusual actions taken and the process by which these actions have been engaged," he said in a conference call with reporters. Under pressure from Wall Street firms, SEC Chairman Christopher Cox this week launched an effort to stem a tide of short sales that are driving down financial firms' stocks. In a short sale, an investor sells borrowed stock, hoping to repurchase it at a lower price and reap a profit.

Jeff Bailey : 9/18/2008 4:18:55 PM

Oracle (ORCL) ... Earnings press release Link

Jeff Bailey : 9/18/2008 4:17:37 PM

Oracle Corp. (ORCL) $18.75 +3.59% ... $19.19 on headline numbers.

Jeff Bailey : 9/18/2008 4:15:33 PM

SEC's Cox Responds to McCain's Comments

Jeff Bailey : 9/18/2008 4:14:03 PM

First Bancorp (FNLC) Boosts dividend to 19.5c

Jeff Bailey : 9/18/2008 4:08:55 PM

SPX 1,204.01 ... +4.11% ...

So ... 4.11% - 0.32% = 3.79% as a starting point.

Linda Piazza : 9/18/2008 4:06:29 PM

What a day! What a week! Do you realize how much has occurred in one week? The LEH developments, the breaking of the buck by a fund, the FED's action with regard to AIG, the short-selling rules changes here and in the U.K., news about WaMu and Morgan Stanley, the collaboration by the world's central banks to coordinate the response to the financial crisis and now this afternoon's developments? There are dozens of other developments such as Lloyd's agreement to buy HBOS.

Jeff Bailey : 9/18/2008 4:05:58 PM

FTSE 250 (components) finished its Thursday session up 27 points at 0.32% ... tomorrow morning, will want to check and see its reaction.

Jeff Bailey : 9/18/2008 4:02:50 PM

UK regulator bars short-selling on financials ... AP Story Link

Linda Piazza : 9/18/2008 4:00:45 PM

You know that pullback I expected when I made my 3:18 post? The SPX and OEX are perhaps setting up for that pullback early tomorrow morning instead, perhaps from their current levels or from about 1218-1226 for the SPX and 560-564 for the OEX. (Note: they both began pulling back as I began typing this.) Bulls would prefer that any such pullbacks find support on 30-minute closes at or above their 30-minute 9-ema's at about 1175 for the SPX and 541 on the OEX. The pullbacks aren't guaranteed but are possiblities.

Jeff Bailey : 9/18/2008 3:58:34 PM

RKH $110.09 +8.39% .... comes back to WKLY pivot.

Jeff Bailey : 9/18/2008 3:55:13 PM

$HUI.X 304.45 -3.14% ... reverses red. Notably in last few minutes.

Jeff Bailey : 9/18/2008 3:53:23 PM

RBS $3.79 +23.45 +3.79% ... doesn't trade with options.

Jeff Bailey : 9/18/2008 3:52:19 PM

VXO.X 35.11

Jeff Bailey : 9/18/2008 3:51:57 PM

VIX.x 33.30 -8.06% ...

Jeff Bailey : 9/18/2008 3:51:41 PM

Swing trade speculative calls filled alert! ... ALI-IZ ... AIG $2.46 +20.00% ...

Jeff Bailey : 9/18/2008 3:50:41 PM

So true Keene .. and how news really does impact trader/investor decisions.

When in doubt, better get out.

Jeff Bailey : 9/18/2008 3:49:31 PM

BIX.X 211.69 +17.40% now ...

Linda Piazza : 9/18/2008 3:47:59 PM

It's time to make end-of-day decisions. Remember that your SPX and RUT options stop trading tonight and settle tomorrow morning while your OEX and XEO options continue trading through tomorrow and settle at tomorrow's close. I posted some monthly charts this morning, showing the potential support being tested and wanted to repost them this afternoon. The SPX: Link and the OEX: Link . Both indices pierced the lower channel line and the horizontal support zone, but then bounced strongly from them.

Is it over yet, this decline? We just can't say that yet. Take a look at the other times these indices tested these support lines and bounced as strongly as they have this time, and think about how many were calling those the bottom? What we know for sure is that these indices are still in descending channels, and that's all we know for sure.

Jeff Bailey : 9/18/2008 3:45:45 PM

VIX.X 33.93 -6.32% ...

Jeff Bailey : 9/18/2008 3:45:25 PM

VXO.X 36.78 ...

Keene Little : 9/18/2008 3:45:21 PM

It's clearly a short-covering rally but it never ceases to amaze me how strong they can be.

Jeff Bailey : 9/18/2008 3:44:21 PM

Swing trade speculative calls alert! ... for four (4) of the American Intl. Group AIG Sep $2.50 calls (AIL-IZ) at the offer of $0.23. No stop and target $1.00.

AIG $2.52 +22.92% ...

Linda Piazza : 9/18/2008 3:40:51 PM

The TED spread is 3.13, near the 3.15 high of the day. Nothing so far has convinced those in the treasury and eurodollar markets that anything has happened that lowers risk a whole lot. Not yet, anyway.

Linda Piazza : 9/18/2008 3:39:21 PM

What are some of the scheduled market events on foreign bourses tonight? (And, more importantly, do they matter or will they be overshadowed by everything else happening?) The Bank of Canada's Deputy Governor John Murray will deliver a speech on inflation in Toronto at 8:15 pm ET. Other than that, it's quiet excpet for Germany's important PPI at 2:00 am ET.

Jeff Bailey : 9/18/2008 3:33:34 PM

WFC-VE $0.55 x $0.65 now ...

Linda Piazza : 9/18/2008 3:33:29 PM

I imagine that there were some of you who elected to take your lumps and get out of about-to-expire bull put spreads this afternoon just before markets blasted higher. I imagine that you're doing the woulda-coulda-shoulda thing that's so painful. However, I would advise you to allow yourself a brief period of that feeling and then congratulate yourself for being the kind of trader who can make painful decisions and take lumps when needed because ultimately your trading account will benefit more from that. You couldn't predict what the FSA in the U.K. would do. Although we know that breakdowns are subject to whipsaws, as I was posting when the indices were breaking down, you absolutely don't know if this is going to be the time when the markets whipsaw back the other direction, as they did today, or if they're going to waterfall down, a distinct possibility this afternoon. The SPX could easily have dropped another 20 points, for example.

If you hated everything about the decisions you had to make today, then maybe you're more on my side about how I deal with credit spreads than you imagined you might be. It's something to think about, because some trading styles fit some personalities and some don't.

Jeff Bailey : 9/18/2008 3:33:10 PM

You buggers at the CBOE ...

Jeff Bailey : 9/18/2008 3:31:47 PM

Swing trade sell NAKED Puts Alert! ... for two (2) of the Wells Fargo WFC Oct. $25 puts (WFC-VE) for a LIMIT price of $0.65.

WFC $38.02 +13.73% ...

VIX.X 34.42 -4.96% ...

Linda Piazza : 9/18/2008 3:28:03 PM

There has been no pullback yet and perhaps won't be as some of those infamous shorts rush to cover. This is what I mean: what happens when there aren't the number of shorts there are now, to provide this kind of rocket fuel? While I don't want some kind of financial terrorism, as they're talking about on CNBC, I want some fuel to blast the markets higher when they need to be blasted.

Linda Piazza : 9/18/2008 3:25:48 PM

One thing is for certain. Those of us who have traded through this week will be able to say we traded through a historic week, one with actions and developments that will be studied to decades to come.

Jeff Bailey : 9/18/2008 3:24:12 PM

Wells Fargo (WFC) $38.10 +14.02% ... that's a 52-weeker.

Linda Piazza : 9/18/2008 3:23:16 PM

You know, I'm not a fan of Cramer's style, but I agree with him that we should put back the things that we know that work, such as the up-tick rule, as imperfect as it might have been. Put in curbs closer than 1,200 Dow points! Don't change the whole landscape.

Jeff Bailey : 9/18/2008 3:22:37 PM

Barry! ...

Jeff Bailey : 9/18/2008 3:21:55 PM

NASDAQ a/d 1,898/1,047

Jeff Bailey : 9/18/2008 3:21:34 PM

NYSE a/d 1,951/973

Linda Piazza : 9/18/2008 3:21:16 PM

How do we determine a fair market price for stocks if there aren't buyers and sellers?

Jeff Bailey : 9/18/2008 3:21:10 PM

Linda ... take away about 1/2 of the "downtick volume" you/we see each day.

Linda Piazza : 9/18/2008 3:20:47 PM

Me, either, Jeff. As you know, all day, I've been trying to puzzle out all the implications of this. I think the early reaction will be to send everything up, but what happens without short-covering to provide a catalyst for bounces and to fuel them in the early stages? What does it mean for us options traders?

Jeff Bailey : 9/18/2008 3:19:36 PM

"Dow 30,000!"

Keene Little : 9/18/2008 3:19:35 PM

Looks like all that Fed money just got put to work.

Jeff Bailey : 9/18/2008 3:19:17 PM

I can't even begin to imagine a supply/demand situation where market participants can't short.

Linda Piazza : 9/18/2008 3:18:34 PM

It may be time for the SPX and OEX to pull back, perhaps as far as about 1170-1172 for the SPX and 540 for the OEX. Be careful here. The setup suggests this as a possibility but as Keene noted earlier, chart setups tend to mean little on opex Thursdays.

Jeff Bailey : 9/18/2008 3:18:05 PM

Good grrrrrravy .... EEM ... check out today's volume spike ... then T + 3.

Jeff Bailey : 9/18/2008 3:16:50 PM

RKH $112.62 ...

Linda Piazza : 9/18/2008 3:15:23 PM

If you have credit spreads that are open and if you're new to trading them, please be aware that settlement values for those indices that settle Friday mornings (SPX and RUT, for example) can be way, way off the Friday afternoon closing values. I can't remember what the record difference has been, but I know we've seen 15-25 point differences at times in SPX settlement values.

Jeff Bailey : 9/18/2008 3:14:16 PM

RKH alert! ... $111.00

Jeff Bailey : 9/18/2008 3:13:31 PM

VIX.X 36.64 +1.15% ... watch out bears.

Linda Piazza : 9/18/2008 3:12:59 PM

Something to keep in mind also if you're in bullish trades, particularly if you are doing it with SEP options. First, if you bought those options today, you paid a lot for them, relatively speaking, because volatility was high. Second, those are rapidly expiring options and all that inflated value is going to rapidly seep out, too. Right now, indices are zooming up and you're probably getting some movement in your options, too, depending on the delta of those options, but if there's any stalling, that balloon is going to start deflating. As is true of any opex Thursday, you have to consider setting stops based on the price of your option and not just contingent on where the underlying is going because if the advance slows into the last few minutes of the day, you could find yourself losing money even though prices are going your direction. So far, there's no slowing.

Jeff Bailey : 9/18/2008 3:12:29 PM

Swing trade short close out alert! ... the RKH here at $109.60 offer ...

Jeff Bailey : 9/18/2008 3:10:54 PM

CNBC ... now mentioning RBS

Linda Piazza : 9/18/2008 3:09:55 PM

If you're in bullish trades, be careful at the current 1181.88 (SPX) and 543.75 (OEX) level, as these are moving into resistance bands now and will face what may be particularly strong resistance near 1190.50 and 548.80. Right now, you want any pullbacks to find support on 15-minute closes at about 1169.84 and 538.82.

Jeff Bailey : 9/18/2008 3:09:37 PM

BIX.X alert! 204.24 +13.27% ... trades WKLY R2.

Jeff Bailey : 9/18/2008 3:05:41 PM

DIA $108.48 +1.62% ... at last night's close, Sep "Max Pain" theory tabulation was $117.00

Jeff Bailey : 9/18/2008 3:02:40 PM

VIX.X 38.17 +5.38% ... good indicator to monitor if we "come unpinned"

Linda Piazza : 9/18/2008 3:02:06 PM

That potential resistance on 15-minute closes, now at 1169.27 for the SPX and 538.56 for the OEX, continues to hold back advances, but both indices are rising again to retest it. If they can get through that, I would watch for potentially strong resistance on 15-minute closes at about 1190.70 on the SPX and 548.93 on the OEX. If they fall back again, we go back to watching for potential support on the 15-minute 9-ema's.

Keene Little : 9/18/2008 3:01:55 PM

It's looking more and more like we're just getting pinned now for opex. Price action is chopping up and down in a tighter range. It could suddenly break one way or the other in the final hour but understand we've got opex that could thwart normal technical indicators for now.

Jeff Bailey : 9/18/2008 3:01:51 PM

Zale Corp. (ZLC) $27.00 +4.40% ... was talking to my cousin just on Tuesday ... "I don't know how those mall jewelers stay in business."

ZLC looks to have actually traded $30.37 today.

Jeff Bailey : 9/18/2008 2:59:31 PM

Hey! There's SHV

Jeff Bailey : 9/18/2008 2:59:00 PM

NYSE NH (27) and NL (partial) 1,045 list Link

Jeff Bailey : 9/18/2008 2:57:02 PM

Hmmmm ... Lose the house ... everything repo'd. Can't sit on the floor?

Jeff Bailey : 9/18/2008 2:56:33 PM

Might have been Rent-A-Center

Jeff Bailey : 9/18/2008 2:56:08 PM

Hey ... I think I saw some Aaron debt in the PHF. Have to go back and look.

Jeff Bailey : 9/18/2008 2:54:51 PM

Aaron Rents (RNT) $27.45 +1.21% ... off its 09/09/08 52-weeker of $30.22.

Any arb traders out there?

Jeff Bailey : 9/18/2008 2:53:44 PM

AaronRent A (RNT.A) $25.92 +17.28% ... notable at the big board.

Jeff Bailey : 9/18/2008 2:51:36 PM

I don't know if some of the "Banky" names are actually components of the RUT.X ... just don't have them "top of mind" and they might be.

Jeff Bailey : 9/18/2008 2:50:13 PM

DJ- NASDAQ NH 36 and NL (partial) 273 names at this Link

Jeff Bailey : 9/18/2008 2:47:32 PM

RUT.X 685.55 +1.35% ... probably VERY tough to get any commercial paper through right now. But see "little banks" at the NASDAQ NH list.

Jeff Bailey : 9/18/2008 2:45:50 PM

NASDAQ list of 36 NH still rather "banky" ...

Jeff Bailey : 9/18/2008 2:43:54 PM

Linda! your "when the local press starts talking ..."

Oh boy do the politicians jump on the wagon. "I'll fix it if you elect/re-elect me!"

Jeff Bailey : 9/18/2008 2:42:47 PM

Great info Tab!

Jeff Bailey : 9/18/2008 2:42:18 PM

02:00 Internals found at this Link

Linda Piazza : 9/18/2008 2:42:27 PM

Tab, I meant to say earlier that I was glad you'd reminded readers that this was option expiration week, and today the last trading day for some index options, such as the SPX's. That's typically the main focus on an opex Thursday, but it's certainly gotten buried today except for those sweating out threatened positions. I feel for you, those of you who are literally being tortured by the markets.

Jeff Bailey : 9/18/2008 2:39:48 PM

Note: NYSE volume already "off the shart." NYSE currently reporting 9.3 billion changing hands. (didn't get at 02:00 PM EDT) ...

Linda Piazza : 9/18/2008 2:39:23 PM

So far, both the SPX and the OEX are finding support on 15-minute closes at their 15-minute 9-ema's, now at 1159.69 and 534.26, respectively. There's still significant resistance overhead, at 1170.50 and 536.70, respectively, on 15-minute closes.

Jane Fox : 9/18/2008 2:38:39 PM

Interesting MACD is not making a new lower low like the price is. If, and that is a big if, the bulls can get enough of a rally going it could give us a MACD divergence and a nice little relief bounce. Link

Tab Gilles : 9/18/2008 2:39:46 PM

SAN FRANCSICO (MarketWatch) -- Pension fund managers Calpers and Calstrs said Thursday that it has temporarily halting lending ofMorgan Stanley and Goldman Sachs Group Inc. shares.

A Calpers spokeswoman said that its securities lending program remains "very active," and that the temporary halt stems from the huge volatility in Morgan Stanley and Goldman Sachs shares. Once market volatility abates, the shares will be lent again, the spokeswoman said.

Linda Piazza : 9/18/2008 2:31:15 PM

In addition to banning the increase in net short positions in financials or the active creation of net short positions, the U.K.'s new provisions will also require "daily discloser of all net short positions in excess of 0.25 per cent of the ordinary share capital of the relevant companies held at market close" beginning Tuesday, September 23. The FSA also warned that it might widen this new provisions to include other sectors if it decided to do so. These provisions will be enforced until January 16, 2009, although the FSA did say that it would review them after 30 days and then perform a more comprehensive review in January.

It's a new landscape out there, isn't it?

Tab Gilles : 9/18/2008 2:27:57 PM

Linda in reference to your 2:08:19 PM post. I posted the other day, that I'd received an e-mail from an old friend who lives near Jersey Village/Houston TX and works for BP as an HR manager. He'd reported down power lines and trees, no damage to his home. However, his sister lived in League City and had water damage.

Jeff Bailey : 9/18/2008 2:27:27 PM

Internals on their way ...

Jeff Bailey : 9/18/2008 2:27:13 PM

Thanks Linda! ....

Linda Piazza : 9/18/2008 2:26:23 PM

Here it is from the horse's mouth, an article on the U.K.'s Financial Services Association (FSA) about the new provisions "to prohibit the active creation or increase of net short positions in publicly quoted financial companies from midnight tonight": Link

Remarkable.

Jeff Bailey : 9/18/2008 2:26:07 PM

Royal Gold (RGLD) $38.35 +4.38% ... notable name and new 52-weeker at the NASDAQ.

Jeff Bailey : 9/18/2008 2:23:58 PM

Live! US House Passes Speculation Bill; Veto Threat Looms ... DJ (Partial)- A bill that would rein in excessive speculation overwhelmingly passed the U.S. House of Representatives Thursday, but its chances of becoming law still remained slim. The final vote was 283 to 133, with Democrats leading the charge. But hours before a vote was called, the White House threatened to veto the bill, saying it will not solve the problems surrounding high oil prices.

Jeff Bailey : 9/18/2008 2:21:39 PM

Goldman Oil call alert!: ... Analyst saying Econ uncertainty risks price DOWNSIDE.

Linda Piazza : 9/18/2008 2:18:16 PM

I can't find the entire Reuters article, but I made a correction to my original post about the FSA's action. It looks as if that might be a temporary ban on short-selling the financials, not all stocks. Maybe Jeff has found further information by now as I know he was looking, too.

Keene Little : 9/18/2008 2:16:31 PM

With the inability for the techs to stay in the green it continues to look bearish for the broader market. Keep a watch on this sector for the rest of the afternoon--any rally in the blue chips needs the participation of the techs.

Jeff Bailey : 9/18/2008 2:15:54 PM

Imagine you're a hedge fund ... and you have to DISCLOSE all your positions to the general public.

One reason hedge funds exist. NOBODY'S business.

Jeff Bailey : 9/18/2008 2:14:55 PM

Have to ... to ASSESS risk to stop. TARGETS to ASSESS REWARD for the trade. See if it "makes sense" for each individual subscriber's risk/reward profile.

Jeff Bailey : 9/18/2008 2:13:51 PM

WKLY S1 $103.66 ... Profiled stop is just above the pivot at $111.00.

Gosh I hate disclosing my stops. But that's the way we do things here in the MM.

Linda Piazza : 9/18/2008 2:16:52 PM

I should probably be paying subscriber A.W. some kind of finder's fee. He sends a Reuter's report that the U.K.'s Financial Services Authority, the equivalent of our SEC, has placed a temporary ban on short selling of financials.

Jeff Bailey : 9/18/2008 2:12:49 PM

Check out that "volume spike" in RKH currently ... $105.25 +3.73% ....

Jeff Bailey : 9/18/2008 2:11:14 PM

Looking, still lookiing.

Linda Piazza : 9/18/2008 2:11:13 PM

I think it's important that the SPX and OEX find support at the 15- and 30-minute 9-ema's, now being tested. Both the SPX and OEX are slightly below both versions, but only slightly and with some time left in the 15- and 30-minute periods, of course. The SPX is at 1156.17 as I type; the OEX, 532.75.

Jeff Bailey : 9/18/2008 2:11:00 PM

No confirmation of what I think I heard from guest on CNBC.

Jeff Bailey : 9/18/2008 2:09:56 PM

From $2.93 to a current high of $3.85 ... from 01:05 PM EDT to 01:30 PM EDT.

Linda Piazza : 9/18/2008 2:08:19 PM

I'm just reading information that the area in which my brother-in-law lives just outside Port Arthur is still under water. Some houses still have four or five feet of water. I'm reading lists of businesses that are still flooded. Even in Far Northwest Houston where my daughter lives, many still don't have power and won't until next week sometime. That's as true of businesses as it is of residences. Hospitals of course are receiving first attention from power companies but other companies are just coming back as they get their turn back on the power grid. Ike is out of the news, with the concern switching to this other storm, the financial one, but I'm wondering if there's not more economic damage than some realize.

My daughter reports some relief for those who might have trouble paying mortgages, though, with late fees forbidden in some cases.

Jeff Bailey : 9/18/2008 2:08:15 PM

There ... RBS $3.47 +13.02% ...

Keene Little : 9/18/2008 2:07:50 PM

The market is trying hard to hold up but so far I don't see enough evidence that the bounce will hold. But back above SPX 1183 would be a bullish heads up and above 1213 would be bullish. 120-min chart update: Link

Jeff Bailey : 9/18/2008 2:07:06 PM

I did not here ... "no NAKED" ... simply "NO SHORT SELLING" period.

Checking ...

Jeff Bailey : 9/18/2008 2:05:23 PM

CNBC ... reporting bid in banks comes from overseas. NO SHORTING IN FINANCIALS.

Jeff Bailey : 9/18/2008 2:03:32 PM

DJ- MMS: 93% Oil, 77.6% Gas output still off line in US Gulf

Jeff Bailey : 9/18/2008 2:02:51 PM

DJ- MMS Hurricane updated: 1,209,078 B/D oil ; 5,740 MMCF/D nat gas off line in US Gulf.

Jeff Bailey : 9/18/2008 2:01:43 PM

RKH $107.35 +5.87% ... here it would look as if some type of "reverse of though" was triggered just after 01:00.

By the time I fired up the news feeds, the headlines were gone (scrolled off the feed).

Jeff Bailey : 9/18/2008 2:00:30 PM

BIX.X 201.44 +11.71%

BKX.X 68.84 +6.87%

XBD.X 111.98 -1.02% ...

IUX.X 216.18 +3.88% ...

Linda Piazza : 9/18/2008 1:57:05 PM

The SPX is testing potentially strong resistance on 15-minute closes now at 1170.92. So far, it's holding and we don't know the eventual outcome. If it pulls back, those who want these weak markets to stabilize want to see 30-minute closes above 1160 and 15-minute ones above 1157.68. The SPX is at 1167.83 as I type.

Tab Gilles : 9/18/2008 1:53:57 PM

Citi is targeting $1,000 for Gold by yearend.

GLD $89.80 Link PnF P/O $125 Link

Jeff Bailey : 9/18/2008 1:53:09 PM

Live! ... Federated Investors: All Co's money market funds operating normally

Jeff Bailey : 9/18/2008 1:50:06 PM

Do see some "bid" from that time stamp in WM.

Jeff Bailey : 9/18/2008 1:49:36 PM

WM $2.47 +22.88% ...

Jeff Bailey : 9/18/2008 1:48:56 PM

@ 01:43 PM ... S&P: Washington Mutual Rtgs Still at BB-/Negative/B

Jeff Bailey : 9/18/2008 1:48:12 PM

Firing up my news feeds ...

Linda Piazza : 9/18/2008 1:47:13 PM

The OEX is testing potential resistance on 15-minute closes at 539.50, the same resistance and target that was earlier at 541. It's also at a descending trendline off Tuesday's last swing high. Those who want the markets to steady want to see any pullback find support on 30-minute closes at 534.13 or on 15-minute closes at 532.32.

Jeff Bailey : 9/18/2008 1:45:31 PM

RKH $106.58 +4.94% ...

Jeff Bailey : 9/18/2008 1:45:01 PM

Holy crrr ... BIX.X +10.44% ... something must have hit the news wires.

Tab Gilles : 9/18/2008 1:41:46 PM

$NATGAS / UNG Link

Linda Piazza : 9/18/2008 1:39:00 PM

Regarding the discussion about whether market makers, too, will be held to the new rules regarding short selling, subscriber A.W. forwarded the following paragraphs from the SEC's press release regarding the new rules:

Exception for Options Market Makers from Short Selling Close-Out Provisions in Reg SHO Repealed The Commission approved a final rule to eliminate the options market maker exception from the close-out requirement of Rule 203(b)(3) in Regulation SHO. This rule change also becomes effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.

As a result, options market makers will be treated in the same way as all other market participants, and required to abide by the hard T+3 closeout requirements that effectively ban naked short selling.

To read the entire article, go to Link . That second paragraph under that section seems clear that market makers will no long have that exception and will in the future be treated the same as the rest of us. I had believed that was what was happening and guess I will return to worrying about how that's going to impact options traders.

Tab Gilles : 9/18/2008 1:38:25 PM

GLD / $UST3M / $USD Link

Tab Gilles : 9/18/2008 1:34:53 PM

$VXN / $NDX Link Link

Linda Piazza : 9/18/2008 1:32:23 PM

Although I didn't work yesterday, I of course monitored the markets. The whole world is doing so. I'm not personally being hurt by this since I went to cash in all but the trading accounts last October, and went flat in trading accounts, too, until this week, when I used the downturn to take advantage of some of that high premium Jeff mentioned and put on a 25-contract SPX bull put spread for OCT. However, I know people who are hurting and whose lifestyles have already been impacted by what's happened, and can only imagine how this is impacting people who are either newly retired or approaching retirement. It makes me sad for them. I hope that subscribers have weathered this well. This morning, I found this on a blog by a woman who is newly retired: "Remember the dream where you show up to high-school in your pajamas? Or the one where you find out you didn't actually graduate college and you have to go back and take one more final? Or the one where you retire and then the stock market plummets 13% right after you retire? Oh yeah, that one wasn't a dream. That was real." [A writer myself, I believe in documenting sources, but I don't want to include S.'s blog address as it could be picked up by spammers.] That story is being repeated all over the world.

Tab Gilles : 9/18/2008 1:31:14 PM

Russell 2000 Small Cap ($RUT) is actually holding upfairly well. Link Currently trading near its PnF P/O of 675.

$RVX volatility index: Link

Jeff Bailey : 9/18/2008 1:30:28 PM

I should make quick note: At 01:17:35 post, RKH's offer of $99.78.

Jeff Bailey : 9/18/2008 1:23:47 PM

Or ... those that have always been option sellers, getting some VERY nice premiums these days compared to the last several years.

Linda Piazza : 9/18/2008 1:23:42 PM

This is what I mean about breakout setups seeing quick whipsaws. However, we don't know yet if these bounces will hold, so keep on your toes. If your bearish stops are hit, you have no choice but to adhere to them. If markets then reverse lower again and you miss out on gains you might have had, then you can at least pat yourself on the back, knowing that you can adhere to your trading plan and preserve cash for another trade. Whatever you do, don't let a profit turn into a loss.

Jeff Bailey : 9/18/2008 1:21:07 PM

Could turn us all into option SELLERs ... gosh they're expensive these days.

Linda Piazza : 9/18/2008 1:20:49 PM

Jeff, thanks for placing that call. Actually, I had written someone yesterday, too, but I haven't heard back. So, you're thinking this is like a double-negative that's actually a positive? LOL. Anyone else's head whirling?

Jeff Bailey : 9/18/2008 1:18:26 PM

Swing trade short filled alert! in the RKH at $100.00.

RKH $100.47 x $100.52

Jeff Bailey : 9/18/2008 1:17:35 PM

Swing trade short 1/8 position ... in the Regional Bank HOLDRs (RKH) at a LIMIT price of $100.00.

Jeff Bailey : 9/18/2008 1:16:05 PM

Like "voting NO" on something, but you're actually voting "yes."

Jeff Bailey : 9/18/2008 1:15:29 PM

Linda ... I placed a call with one of my hedge fund compliance officers regarding the "no naked short" as is pertains to option market makers.

I see what you and subscriber and Bloomberg are looking at, but I think its an "exemption" of a "non-exemption," which then makes it an exemption.

Linda Piazza : 9/18/2008 1:08:05 PM

The OEX and SPX are in breakdown mode on everything from the 15-minute charts up to the daily ones. This Keltner setup shows extreme action on all these charts. This of course means that the momentum is strong in the direction of the breakout, of course, but we didn't need Keltner channels to tell us that. I've been warning for two days not to jump in front of this freight train, and although even I was tempted to do so with a single call option this morning, I heeded my own advice and resisted. Glad I did. However, that brings up something else that the breakdown mode tells us, too, something I've mentioned before. When Keltner utilized these channels or bands, he did so to identify breakout moves. Breakout moves can be highly lucrative, if one has a big enough account and patience enough to endure a big number of drawdowns one after the other. That's because breakout moves are often subject to whipsaws. The momentum has sometimes become too extreme and there can be quick reversals, more reversals than in typical setups. So, understand that the momentum has been strong and may continue to be, despite bullish divergences, but that bears need to be particularly careful from here on out.

Jeff Bailey : 9/18/2008 1:04:23 PM

Market participants sure viewed my/CNBC 12:28:53 negative.

Linda Piazza : 9/18/2008 1:00:07 PM

Careful here. The OEX and SPX need to pull up fairly quickly. The OEX is violating potential support on daily closes as well as the long-term descending channels in which it's moved down from last October's highs, with the SPX now closely approaching its version. I had mentioned the lower channel line as a potential downside target earlier in the week, but I'm not happy to see it tested or especially to see it violated. I'm not the only one who can draw trendlines, of course, and it's possible that selling could accelerate if the OEX doesn't bounce by the close, and the SPX doesn't hold above its version into the close. Here's the OEX's version: Link . Here's the SPX's, with some ambiguity about where the lower line should be placed: Link . Bears should of course exercise good account- and trade-management skills here, too, as long-term support is being tested.

Tab Gilles : 9/18/2008 12:57:28 PM

Don't forget tomorrow is option expiration!

Jeff Bailey : 9/18/2008 12:58:04 PM

SEC Act of 1934 Release No. 34-58572/September 17, 2008 (.pdf file) Link

In addition, we have concluded it is necessary to make immediately effective amendments to Rule 203(b)(3) of Regulation SHO that eliminate the options market maker exception from Regulation SHO's close-out requirement.

Tab Gilles : 9/18/2008 12:55:22 PM

$VIX $40.43 Link

I mentioned a few days ago that the VIX could possibly get into the 40 range.

Link Link

Linda Piazza : 9/18/2008 12:48:42 PM

And there's OEX 528 hit. (See my 12:22:43 post.) The potential support is now near 527.95 on 15-minute closes, near 530.40-531.30 on 30-minute ones. OEX at 528.91 as I type, with a low of 527.26.

Just a note: don't be tempted into long positions by the bullish price/RSI divergences we keep seeing set up at various times. (Not on this lower low on the 15-minute chart, though.) I'm seeing some potential Keltner-style ones, too, but there have been days when we see these all day long as indices just keep moving lower. One of these times, those divergences are going to mean something, but they certainly haven't so far.

Jeff Bailey : 9/18/2008 12:42:09 PM

That's 12 of the 24 shorted yesterday at $101.16.

Jeff Bailey : 9/18/2008 12:41:13 PM

Swing trade short cover partial alert! ... let's cover 1/8 equivalent in the Regional Bank HOLDRs (RKH) at the OFFER of $91.92.

Linda Piazza : 9/18/2008 12:40:44 PM

Jeff, it seems that the SEC's change has created some confusion about who is excluded from the short-selling rule and not, with lots of information circulating. A reader provided a link to a Bloomberg that indicates that the Market Makers' exemption was eliminated for the list of companies placed on the threshold lists. Here's the Bloomberg article: Link

Jeff Bailey : 9/18/2008 12:39:01 PM

Linda ... you want to see a complete unwinding of liquidity in the equity markets, and a VIX.X of ... oh 50.00 as being "reasonable and average," then regulators would include option market makers into the rule.

You just never know though do you?

VIX.X 39.40 +8.77% ...

Linda Piazza : 9/18/2008 12:36:10 PM

Something else to be considered in this market environment is where the circuit breakers are, known as "trading curbs" to many. They used to kick in quite frequently. However, currently it would require a 1200-point drop in the Dow to institute a circuit breaker. Here are a series of clocks that show you how long trading would be halted, depending on when that 1200-point drop was hit: Link I don't know about you, but I think my heart would have given out long before the Dow hit a 1200-point drop.

Speaking of cold comfort, you might like to know that if the Dow were to drop 3600 points in a single day, trading will be halted for the day.

Linda Piazza : 9/18/2008 12:29:43 PM

Thanks, Jeff, for that information. (Jeff's 12:26 post.) I must have heard wrong information, because I thought they weren't going to be excluded from the rule. Good to know.

Jeff Bailey : 9/18/2008 12:28:53 PM

CNBC reporting Putnam funds is closing their institutional money market fund

Linda Piazza : 9/18/2008 12:28:24 PM

When the economy is the top story on local news stations, you know it's bad out there. However, when it's infiltrated even to local news stations, is it too bad in a contrarian way? When ever home repair related channel featured people flipping houses, you know that the housing market is about to tank, sort of like the rumored Jesse Livermore anecdote, when he went into sell mode when a shoe-shine boy gave him a stock tip. So, I'm just saying, bears, that you not be so busy licking your chops that you get complacent here. I am still in cash in all accounts but my trading accounts, and will stay that way for now, but that doesn't mean that you don't need to be on the watch for a bounce. We're set up for either a bounce, either now or after a further slide down descending support, or a sudden and very pronounced drop. I have no clue which will come.

Jeff Bailey : 9/18/2008 12:26:47 PM

Linda ... options market makers are excluded from the rule. Even when the rule was put in place for a few weeks, they were allowed to "naked short sale" to offset their market making activity.

However, you reiterating of why we as traders and investors need to think "the other side of the trade," is EXCELLENT. Excellent indeed.

Jeff Bailey : 9/18/2008 12:24:17 PM

12:00 Internals found at this Link

Linda Piazza : 9/18/2008 12:22:43 PM

I would not be surprised to see the OEX rise up toward 541.50. Unfortunately, I also would not be surprised to see it dip to 528. Either is a possibility. The Keltner setup is somewhat ambiguous.

By the way, Jane, thanks, but you give me too much credit!

Jane Fox : 9/18/2008 12:16:27 PM

Linda's 12:01 post gives you a glimpse into how well versed she is in the options market.

Linda Piazza : 9/18/2008 12:04:08 PM

Well, it may be cold comfort, but it looks as if both the OEX and SPX are maintaining 30-minute closes above the potential support on 30-minute closes now down to about 530.50 and 1152.40, respectively. It's cold comfort because that support is still sliding lower and because both indices are still testing it. At least, though, so far, the conditions haven't worsened from the last trading day and a half. Yet. And that is indeed cold comfort.

Jeff Bailey : 9/18/2008 12:03:07 PM

iShares FTSE/Xinhua China 25 (NYSE:FXI) $32.53 +5.34% ... #10 most active. Unusual to see among the most active. Very unusual.

Jeff Bailey : 9/18/2008 12:01:42 PM

iShares Emerging Markets (NYSE:EEM) $32.15 +1.90% ... #3 most active. Very unusual to see among most active. Very unusual.

Linda Piazza : 9/18/2008 12:01:18 PM

Jeff, I agree with your disagreement on the idea that all short sellers need to be revealed and on your view that the up-tick rule ought to be reinstituted. Furthermore, I wonder how the SEC's rule about the naked short sellers will impact our options trades. For newbies, imagine that you're a market maker. Those market makers are far better or at least more vigilant than most of us about offsetting that delta and other risks. Say I want to sell 25 calls and the MM is on the other end of that deal. The MM has just taken on some long deltas and if that's a day when a lot of people are selling calls, then the MM has taken on a lot of long deltas. If the MM has too much delta risk in the portfolio, the MM might then sell short stock. If we're going to stop the MM from doing that, or doing that only if there's stock in the portfolio to be sold, is the MM going to be willing to take those calls we're selling?

I don't know the answer, but I just wonder if all the implications of that SEC decision have been considered or have yet played out.

Jeff Bailey : 9/18/2008 11:50:46 AM

General Motors 5.25% Conv. Prf 6/03/32 (GBM) $10.70 +0.46% ...

Jeff Bailey : 9/18/2008 11:48:23 AM

See, I disgree HIGHLY with the thought that "everyone needs to know who the short sellers are" and who the "manipulators are."

Put back in place the "up-tick" rule.

ENFORCE the "no naked short sale" rules (excluding option market makers as they MUST offset their risk).

Maybe start looking at the impact of the "UltraShort" products that have come to the market in recent months.

Linda Piazza : 9/18/2008 11:47:45 AM

Other than Tuesday morning's open and first punch lower, the SPX has been finding support on 30-minute closes on the sliding-lower Keltner lines now at 1152.47 and 1154.40, so watch for the possibility that it could again. The OEX's pattern has not been so clean, though, as it's been violating those benchmarks from time to time. They're currently near 531.90-532.20. The SPX's, at least, needs to hold on 30-minute closes or else we're seeing something different and worse than we've seen since Tuesday at midday.

Jane Fox : 9/18/2008 11:44:26 AM

The VIX is in sync with the S&P futures and is supporting the bears. Link

Jane Fox : 9/18/2008 11:31:48 AM

Here are the internals and although they have been bearish (AD volume and ratio falling and VIX climbing) these three seem to have reversed course.

Take note of the TRIN again today and remember the $55Billion the FED dumped into the economy today. Link

Linda Piazza : 9/18/2008 11:31:04 AM

The A/D line has unfortunately for bulls fallen below the breakout benchmark. It's at the 15-minute 9-ema, an average that soemtimes provides support, but if it doesn't bounce quickly, it risks a decline to about -480. The A/D line is currently at +32, with the 15-minute 9-ema now pushed down to about +60. If it does bounce now, look for potential resistance at about +530.

Jane Fox : 9/18/2008 11:24:16 AM

Natural-gas inventories rose by 67 billion cubic feet for the week ended Sept. 12, the U.S. Energy Department said. Stocks now stand at 2.972 trillion cubic feet, down 142 billion cubic feet from the year-ago level but 61 billion cubic feet above the five-year average, the government data said.

Keene Little : 9/18/2008 11:21:41 AM

Keep in mind that today has the potential to sell off very strong. That's potential not a guarantee. But it's very risky at the moment to be thinking about the long side.

Keene Little : 9/18/2008 11:18:12 AM

The techs were the first back into the red so continue to follow their lead.

Jeff Bailey : 9/18/2008 11:14:11 AM

The recent "dumping" of the commercial paper ... causes PRICE to fall and YIELD to rise. So, when any type of "new issue" by a company to offer a new piece of short-term paper, they're looking at a MUCH higher rate than one would think.

So, Fed has to pump as much liquidity as they can, open discount window to banks, so they can get a more "reasonable rate," to fund short-term needs.

Say you're a manufacturer, and you need a $10 million generator. You might usually issue some short-term debt to fund the purchase. Say at 3.5% for one quarter (13-weeks).

But sudden dumping of commercial paper has this part of MARKET seeing yield jump to 8.0%, so your short-term borrowing cost jumps to that market yield.

Nope, you're not going to do that.

So, you do one of two things.

One ... you go to the BANK for a short-term loan (do THEY have the liquidity?)

Two ... you put off the purchase of the $10 million generator until rates ease.

Linda Piazza : 9/18/2008 11:11:56 AM

I have the same caveats about mentioning potential S/R for the SPX based on intraday charts as the caveats I mentioned about the OEX in my 11:05 post. However, here's what the intraday charts show. The 30-minute chart shows potential support on 30-minute closes at about 1153.40 and 1157.30. The 15-minute chart shows support lower, near 1152-1154.

Linda Piazza : 9/18/2008 11:09:40 AM

The A/D line did drop to the next support, as I thought it might be vulnerable to doing. So far, that potential support on 15-minute closes, now risen to 509, is holding, but bulls don't want to see the A/D line tumble down below it and especially not below the 15-minute 9-ema, now at about +100. The A/D line is +544 as I type.

Jeff Bailey : 9/18/2008 11:06:07 AM

Excellent, excellent comments/analysis from CNBC reporter regarding the commercial paper dynamic.

Linda Piazza : 9/18/2008 11:05:32 AM

The OEX never even made it up to the 548.30 region, much less deeper into potential resistance, before it turned down again. Where is potential support? The 30-minute chart suggests that it's near 532.87 on 30-minute closes, although the 15-minute chart suggests it's lower, nearer 530.60. We're seeing some chppy behavior that's setting up what almost looks like an elongated diamond, though, so I wouldn't count too strongly on any support or resistance seen on an intraday chart being quite right. Remember that on the monthly charts I posted earlier, both the SPX and OEX are poised along a long-term descending trendline for a long-term descending price channel. It's possible that these indices could just slide along them, but no one other than die-hard bears really wants the indices to just fall pell-mell out of them.

Linda Piazza : 9/18/2008 11:01:36 AM

I was just checking my long-closed-out SEP bull put spreads to see if any would have been in trouble. Only the OIH ones would have been, with the SPX 1080/1070, XEO 495/485 and RUT 580/570's all okay. I certainly would have begun worrying about some of those by yesterday, however, if not before. Since I start closing out when the delta of the sold strike goes through 0.22-0.25, I might even have begun looking at closing out or hedging some, although I'm not certain since I didn't check the deltas on those yesterday. The OIH one I certainly would have been closing long ago for a loss.

Some question the practice of locking in profits early by giving up some of the premium to close out the spreads. However, that practice saved me a world of worry this week and a loss on one position at least. If you've been experiencing heart palpitations this week, use it as a positive, an invitation to examine whether you really feel comfortable managing your positions the way you've been managing them. Perhaps you do. There are valid points for each way of managing them, and there's no right or wrong, but instead are pros and cons for each. I've got too many other scary things going on with grandchildren to want to experience any more market scares than I have to experience, so I prefer to lock in profits as soon as I can. The scarier markets are, the sooner I want to lock in those profits. Remember, too, that it doesn't have to be all one way or all another. Perhaps you'll choose to lock in profits on part of the position, for example. Just think about it.

I learned long ago to stop kicking myself when some problem arose, such as a steep downdraft during option expiration week that trapped me. Instead, I started thinking of those times as invitations to rethink my strategy. It was my one of my biggest losses that led me into the way I manage these now, so I'm actually glad that it happened because I like this way so much better.

Tab Gilles : 9/18/2008 10:50:17 AM

News from China:

Parity rate climbs Link

China reduces rates, reserve ratio Link

Keene Little : 9/18/2008 10:42:33 AM

Quick peak and I see a lot of volatility in the first hour. Will the early gains hold?

Jeff Bailey : 9/18/2008 10:39:14 AM

Weekly Nat. Gas Storage Table at this Link ... build of 67 Bcf

Jeff Bailey : 9/18/2008 10:37:55 AM

UNG $36.28 +0.02% ...

Jeff Bailey : 9/18/2008 10:36:07 AM

That's part of it ... the recent dumping of commercial paper has flown greatly into Treasuries, probably with great force the last three days and parked itself in the very short-dated 13-week.

OK ... the commercial paper (short-term corporate debt) does not need SEC registration.

PHF and perhaps other corporate bond funds that hold this short-term corporate, probably saw that paper take a big hit last three or four days.

It "should" firm, then recover within about 13-weeks.

In essence, we should see the 13-week yield slowly rise week-over-week as those funds trickle out.

The commercial paper should rise at similar pace as they near their short-term maturities.

Tab Gilles : 9/18/2008 10:34:57 AM

Three-month T-bill: The last time the 3-month U.S. T-bill yield was at or below zero was in January 1940. Link

3-mo TED spread balloons to almost 500 basis points

LONDON, Sept 18 (Reuters) - The difference between borrowing three-month dollars on the interbank market and the U.S. Treasury's three-month borrowing costs widened dramatically on Thursday to nearly five full percentage points. That was despite coordinated action from the world's major central banks to provide up to $180 billion of dollar liquidity to frozen international money markets. The action helped to briefly bring down overnight term interbank dollar lending rates toward the Federal Reserve's 2 percent target rate but the cost of borrwing three-month funds continued to rise to almost 5 percent .

With three-month T-bill yields collapsing to almost zero this week amid investors' flight to safety amid the deepening financial crisis, the closely-watched 'TED' spread widened to around 490 basis points on Thursday , Reuters charts showed.

That's more than double the highest points at any time during the 13-month financial crisis and the highest in several years.

Linda Piazza : 9/18/2008 10:34:06 AM

The TED spread is currently 3.09, down from a high of 3.14 today. For newbies, this measures default risk or perceived default risk, and nothing that the world's central banks has done has so far changed this far-too-wide number. It is currently at levels above those seen around the time of the 1987 crash. There's still much danger out there. As I said yesterday, this is not the time to be brave and step in front of the train with bullish trades, other than scalps. If the markets are going to recover and move up through the long-term descending price channels depicted in my 9:32 post, you'll have plenty of time to figure out that markets are stabilizing for the time being without having to try to catch all those falling knives.

Bears should treat this as they would the extremely high VIX that we're seeing, too: be aware that although some of the worst market debacles come out of times like these but also remain always aware that strong bounces do, too. Have you ever had a cat that comes to you to be petted and is purring and arching its back, but then suddenly hits some unknown and unknowable touch-limit, turning on you and slashing your hand? That's what markets can do to bears when things are this extreme. There can be some unknown and unknowable limit to how much the markets will react to bad news and then they turn on a dime. Bears should remain vigilant and protect their profits. How you do that will depend on when you entered bearish trades, last October with 2009 LEAPS or yesterday morning with about-to-expire SEP puts?

Jeff Bailey : 9/18/2008 10:27:55 AM

13-week ($IRX.X) up 6 bp at 0.08% ... not much impact/reaction from $180b is it?

Jeff Bailey : 9/18/2008 10:26:08 AM

Fed, ECB pump billions into money markets ... AP Story Link

Linda Piazza : 9/18/2008 10:24:49 AM

Although there was one quick A/D line dip down toward but not quite to potential support, now at about +450, the A/D line has essentially moved sideways, as bulls would wish. It's still vulnerable to a steep decline to that potential support, however, so bulls should keep updating their profit-protecting plans.

Jeff Bailey : 9/18/2008 10:23:22 AM

10:00 Internals found at this Link

Jane Fox : 9/18/2008 10:07:54 AM

WASHINGTON (MarketWatch) -- The U.S. economy looks to weaken further in coming months. The index of leading economic indicators fell 0.5% in August after a 0.7% drop in July, the Conference Board reported Thursday. "The good news on lower gas prices is more than offset by renewed, even intensified, financial market turmoil. The economy right now is so slow that it doesn't have much cushion for shocks like the recent bailouts and bankruptcies," said Ken Goldstein, labor economist at the private research group.

Jane Fox : 9/18/2008 10:07:38 AM

WASHINGTON (MarketWatch) - Manufacturing in the Philadelphia region picked up unexpectedly in early September, the Federal Reserve Bank of Philadelphia reported Thursday. The Philly Fed diffusion index rose to 3.8 in September from negative 12.7 in August. Readings above zero indicate expansion. Economists were expecting the index to improve only to negative 10.0. Earlier this week, the New York Fed said that factory activity declined in its region. The Empire State index dropped to negative 7.4 in September from 2.8 in August.

Jane Fox : 9/18/2008 10:00:01 AM

LONDON (MarketWatch) -- U.K. bank Lloyds TSB said Thursday it's going to buy HBOS for 12.2 billion pounds ($22.2 billion) in a deal backed by British authorities as a way to bring stability back to financial markets.

The deal came after HBOS shares suffered severe pressure in the aftermath of the Lehman Brothers bankruptcy on Monday and the Federal Reserve rescue for American International Group .

HBOS relies heavily on wholesale markets to finance its lending and investors feared the turmoil in financial markets could leave HBOS unable to get the funding it needed. Hedge funds have also been criticized for allegedly heavily shorting the stock, adding to the pressure on the bank.

Jane Fox : 9/18/2008 9:55:03 AM

LONDON (MarketWatch) -- Russia's financial markets remained in flux Thursday as a halt in stock trading on the country's major exchanges continued, according to published reports.

Russian Finance Minister Alexei Kudrin ordered the continuation of Wednesday's trading halt, the Associated Press reported, citing Russian news agencies.

But other financial instruments were being traded, including currency and interest-rate futures, Reuters reported.

Jane Fox : 9/18/2008 9:54:00 AM

The AD line I watch on Tradestation reached a high of +1346 so far this morning but is now printing at +614. This relative bullishness could be due to the $55 Billion the Fed added in overnight loans to help liquefy the money markets.

Jane Fox : 9/18/2008 9:50:15 AM

Certainly does look like the selling in Crude has stopped for now and the floor was $90.00 and not $100.00 like I thought it would be. Keeping the price of Crude down would do a lot for our economy now but this market has a mind of its own and I, for one, will not be trying to figure out where it will go until we get a little semblance of stability back in our world . Link

Linda Piazza : 9/18/2008 9:49:19 AM

If the SPX should continue rising today, it also has a confluence of potential resistance at 10-minute chart Keltner benchmarks, yesterday afternoon's swing high and a former rising trendline. The potential Keltner resistance on 10-minute closes is currently at 1195 and 1202.60 with that swing high yesterday afternoon at 1191.32.

Linda Piazza : 9/18/2008 9:46:36 AM

Keltner outlook on the A/D line: The A/D line made its first prints in breakout territory today. I don't see any support until about +380, so it's possible that it could pull back rather sharply. Perhaps after the 10:00 numbers that could occur? Bulls would prefer that the A/D line move sideways instead and let support catch up. The A/D line is now +1193.

Jane Fox : 9/18/2008 9:45:49 AM

BOSTON (MarketWatch) -- Morgan Stanley was scrambling to find a merger partner Thursday morning as rapidly waning confidence in the traditional brokerage model threatened its survival and its share price weakened before the open.

Media reports indicated that North Carolina's Wachovia Corp. was the top candidate to acquire Morgan, but reports that the firms are in formal talks reversed early pre-open gains in Morgan shares, which fell 11% in early trade.

Wachovia Corp itself has suffered the effects of the current financial crisis, and the market has questions about the merits of a tie-up, but these are unusual times.

CNBC reported that Morgan and Wachovia are ready to enter formal merger talks. Other reports said the firm's efforts to raise money in China were flagging, as was interest from other possible saviors.

Jane Fox : 9/18/2008 9:41:12 AM

NEW YORK (MarketWatch) -- Kraft Foods Inc. will replace troubled insurance giant American International Group Inc. on the Dow Jones Industrial Average , effective Monday, Dow Jones & Co. announced Thursday. Dow refrained from adding another stock in the financial sector because of "the extremely unsettled conditions," the company said in a release. The 112-year-old blue-chip stock index was previously changed on Feb. 19, 2008, when two of its 30 components were replaced.

Jane Fox : 9/18/2008 9:39:49 AM

I had a MM subscriber ask if I would comment on Gold. I don't watch this market intraday but certainly do watch it on a daily chart. I identified a MACD divergence a couple of days ago and that divergence has played out just like it should have but is pretty well over now. Where will it go from here? Well first of all I expect it to retrace and at that point if it makes a higher low then we have a bullish reverse head and shoulders that you can trade as well but until then I would be on the sidelines.

Whenever I comment on Gold though I have to add the caveat Gold and the US$ trade opposite to one another and you cannot just look a chart of Gold you have to watch the US$ chart as well. Then of course with current state of affairs the US$ is has become even all the more important. Link

Linda Piazza : 9/18/2008 9:38:24 AM

Big bounce this morning already, but please remember the 10:00 numbers that Jane mentioned. They can change the market tenor. On the OEX, the 10-minute seemed to have the most relevance in yesterday's fast-moving market, so we'll watch that for a while this morning. If the OEX continues rising, there's a confluence of resistance just above yesterday afternoon's late-day swing high at 548.28, with that resistance also joined by potentially strong resistance on 10-minute closes at 550.76 and 553.51. There's also rising trendline resistance now at about 550. So, if the OEX should continue rising, that 548.30-553.50 zone could be tough resistance.

Linda Piazza : 9/18/2008 9:32:58 AM

I wanted to post a couple of long-term charts, today, monthly ones. The SPX: Link . The OEX: Link . Both are obviously as long-term descending trendline potential support and either approaching (SPX) or deep into (OEX) a horizontal potential support zone. While it's possible that they could break through that support or just keep sliding lower along it, bears must now look for the possibility that they could bounce, too. If so, does that mean the bottom is in? These indices are still obviously in long-term descending channel, so I don't think we can conclude that yet.

Jane Fox : 9/18/2008 9:30:57 AM

On a normal day the news that WaMu has put itself up for sale would have been headline news but this morning it was, "Oh by the way." Amazing

Jane Fox : 9/18/2008 9:29:56 AM

SAN FRANCISCO (MarketWatch) -- Washington Mutual, the nation's largest thrift, has put itself up for sale, the New York Times reported on Wednesday, citing unidentified people briefed on the matter.

Goldman Sachs, which has been hired to advise WaMu , started an auction several days ago, the newspaper reported.

Potential bidders that Goldman has talked to include Wells Fargo , J.P. Morgan Chase and HSBC , the paper said.

The Wall Street Journal reported that Citigroup and Wells Fargo have expressed an interest in buying WaMu.

A spokesman for WaMu did not immediately return an email seeking comment on Wednesday afternoon. WaMu shares fell 13% to $2.01. The stock rallied 11% to $2.23 during after-hours action

Linda Piazza : 9/18/2008 9:29:30 AM

Keene mentioned that he would be away due to a recent death in his family. Unfortunately, I also have a family situation that may require my attention: my 7-year-old granddaughter is having an MRI as I type. I also will try to be here as much as possible.

Linda Piazza : 9/18/2008 9:28:20 AM

Jane, funny you mentioned NPR. I was just on my way home from gym, listening to NPR, and was going to post that they have some every-person type explanations!

Jane Fox : 9/18/2008 9:16:46 AM

Here are your overnight charts and since we had no new financial crisis overnight they are all pretty mundane. We like mundane heh? Link

Jane Fox : 9/18/2008 9:03:42 AM

Today we have the Philly Fed Manufacturing Index out at 10:00ET and then the Natural Gas Storage at 10:35. Neither are huge market movers.

Jane Fox : 9/18/2008 9:02:00 AM

If you want to understand how this whole credit crisis got started there is a program on NPR that explains it in a way that even I can understand. If you would like to listen to this program (I highly recommend it) go to www.thisamericanlife.org and type in "Giant Pool of money." You can listen to it on your computer for free or you can download the podcast for a fee.

I'm telling you this is a very good program to listen to.

Keene Little : 9/18/2008 7:59:01 AM

Equity futures had a steady rise during the overnight session but have been relatively flat since about 4:00 AM. I say relatively flat since the trading range for the past 4 hours is about 10 ES points--seems minor compared to the recent volatility. ES is currently up 13 points and at any other time I'd be thinking we've got quite a bullish day aheady of us. Now it's just a bounce. We'll have to see if it can hold during the cash market (or even until the cash market opens).

I will be traveling today and therefore will only be able to check in sporadically. Not good timing for my having to be on the road but a recent death in the family requires my attention. Good luck today and watch that volatility!

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