Daily Newsletter, Wednesday, 09/17/2008
Stocks plunged lower Wednesday as traders and investors sold aggressively as anxieties increased about the global credit crunch.
While the CBOE Market Volatility Index VIX.X rose further above the 30.00 level, which some may associate with "fear," with the CBOE reporting 9.73 million contracts changing hands (busiest trading in its 35-year history, the real sign of panic and fear is revealed in the 13-week Treasury Yield ($IRX.X) which plunged 84 basis points to end with a YIELD of 0.02%.
That's right! You buy a 13-week note at today's close, and its effective annual yield gets you 0.02%. No RISK for a 13-week holding period, but 0.02% annualized yield REWARD.
Ah, but that's better than a single day's -4.71% decline for the broader S&P 500 ($SPX.X), but not nearly equivalent to a single day's +11.34% gain in gold as depicted by the StreetTracks Gold Trust (GLD) $85.50 +11.34%, which traded record volume today of just over 65.74 million shares.
Some attributed gold's rise and volume interest as a "flight to safety," but there was also renewed chatter that some foreign central banks might call for re-linking of the greenback, or using a different major global currency as a key benchmark due to the Fed still trying to pump liquidity to ease the credit crunch.
Silver, also found a bid with the iShares Silver Trust (SLV) $11.90 +14.42% getting a bounce after its recent pullback from approximately $20.50/oz highs in March.
U.S. Market Watch - 09/17/08 Close
While gold and silver jumped on the session, there was some type of "rational" tie as the AMEX Gold Bugs ($HUI.X) 314.33 +11.71% tracked a like-commodity higher.
Other commodities displayed in the U.S. Market Watch, even if futures related, showed some buying in Crude Oil. On a broader scale, the CRB Index (CRY) 350.77 +2.81%, where oil is the most HEAVILY weighted commodity, depicted a more modest "safe haven" move.
December Copper (hg08z) $3.0425 -1.50% was off $0.0465/lb.
December mini-Wheat (yw08z) 725 3/4 gained 5.18%, while min-corn (yc08z) 554 rose 4.08%.
Despite some gains in oil, the CBOE Oil Index (OIX.X) 717.18
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How negative was the tape today? At one point, approximately 01:51:54 PM EDT, my QCharts service provider reported 1 advancing issue on the NYSE vs. 2,862.
"Junk" bonds as depicted by the closed-end Pacholder High Yield (PHF) $5.55 -20.82% got crushed.
In yesterday's OptionInvestor.com Market Monitor I was noting "behaving badly" at $7.11 -5.20% and began going through our process of checking the PHF's recently updated Net Asset Value (NAV) of bond holdings as of 09/11/08, which was $7.95.
If any of us feel that ANYONE has a handle on implications of the recent Lehman Bros. (NYSE:LEH) $0.13 -56.66% bankruptcy, then here's what some on Wall Street are doing.
Thanks to the Internet bubble, and tighter disclosure rules, CEO's and CFO's try and disclose as much as they "think they know" in order to inform investors. It usually takes some type of problem for industry to realize where some problems take place. Ya think the mortgage industry is going to see some type of regulation eventually?
Market Monitor (Notes/Observations) - 09/17/08
It was around 03:00 PM EDT that I saw a DowJones Newswire report, where some companies had reported to DowJones their exposure to Lehman.
I wasn't, nor could I report all of them (two eyes, and two hands), but I wanted to at least have some observations of "stocks/mutual funds I knew."
Now, in just the past couple of months, I've seen reports of FINAL settlements from BANKRUPTCIES that took place YEARS ago, where bondholders FROM YEARS ago and even some stock holders are just getting their final disbursements.
Some points I must make as it relates to the ABOVE screen capture of the MM and notes is this.
One ... Just understand, as most do, that there are a LOT of companies that have some type of exposure to Lehman, and many banks. Especially their bonds/debt. Remember that BOND HOLDERS come BEFORE common stock holders in bankruptcy proceedings.
Two ... Dynegy up to open-end mutual funds like the Janus Twenty Fund (MUTUAL:JAVLX), which at this evening's NAV tabulation $58.92 -4.39% fell $2.71/share, may have exposure.
Three ... Citigroup (NYSE:C) $14.03 -10.92% may have had "modest exposure" at the 09/16/08 close, but, prior to that, I'd guess, I do not KNOW, that they probably had more than "modest." At today's close, it may be "none" as many banks/brokers have been SELLING ASSETS (bonds, stocks in inventory) in order to RAISE CAPITAL if need be.
Four ... If we think that the DECLINE IN oil and gold the last couple of months was the ONLY ASSET banks/brokers were selling in order to RAISE CAPITAL, then think again.
Five ... NOBODY knows for certain WHEN the selling will end. It MAY have ended today at the close.
Six ... Is Lehman's "break up value" enough to FULLY pay back all debt holders? I (Jeff Bailey) can not offer an informed answer at this time.
Seven ... MANAGING YOUR RISK, KEEPING SOME CAPITAL on the SIDELINES (you need to think about your CASH LIQUDITY NEEDS TOO, EVEN FOR A RAINY DAY AND SUPER-DUPER-BARGAIN HUNT).
MAIN POINT! ... IF YOU'RE 100% LONG, or your 100% SHORT this market, YOU'RE really no different than saying "hit me" in a game of Black Jack with a hand that currently adds up to 18.
Black Jack is a card game where you try and get as close to "21" as you can, without going OVER.
At yesterday's close, the very broad OTC Bullish % (BPOTC) from Dorsey/Wright reversed back lower to "bull correction" status and that had all of the major market BULLISH % reversing back into columns of "O," or more defensive POSTURE!
Chart of the week, and a depiction of "not rational," and "fear."
Do you know what a money market yield looks like? Do you know what a 3-months Certificate of Deposit looks like?
Phone rings ... Hi "your name here," my name is Jeff Bailey and I'm selling Certificates of Deposit that yield 0.02%, are you interested in buying some today?
13-week Treasury Yield
Yep! You hang up the phone. It's kind'a like "do you have any Prince Albert in the can?"
But there was/is SUCH fear in today's MARKET (on Monday, the 13-week yield fell to about 0.75%) that it seems IRRATIONAL behavior to even see that there were enough buyers to drive the YIELD down to 0.02%.
On the far left of the chart "$$$$" I try and show you what $1,000 would be "worth" at 0.00% (You put in $1,000 near 0.00% and you're going to get a REWARD of just about nothing.) When the $IRX.X was up at around 2.00% (2.00% of $1,000 = $980), IF you had placed $980 in a short-term investment like the 13-week, it's be worth about $1000 today, and you'd have gotten about $4.90 in interest payment.
Now, that's on "just" $1000.00, but you can see the REWARD not that much.
But that is a way to actually SEE "fear" in a QUANTITITATIVE amount, and also the MARKET ENVIRONMENT we're in, when such MINISCULE reward profiles look to be so much IN FAVOR.
Now, equating YIELD to what it means in DOLLARS is difficult. I like to have a hypothetical portfolio like the "Beetle's Balanced" at my finger tips at all time, especially moments like these, to see what MARKET participants are doing, and try to rationalize WHY? See/observe the GAINS and the LOSSES.
Here's what $1,000.00 in some asset classes did today. That is, the P/L Today.
Beetle's Balanced Benchmark - $1000.00 in various assets
Quick and dirty here, but I like to look and have tried to teach investors how to look at things from a perspective of RISK, which can be measured in various ways.
Now, if you live in the U.S. and you buy things with dollars, then you've got dollar's in your purse/wallet. Now, today's -1.08% decline in the DXY buys you 1.08% LESS of FOREIGN goods than it bought you yesterday.
The iShares Lehman 1-3year (SHY) is an electronic traded fund (ETF) that would represent SHORTER-TERM Treasury Maturities. At today's close, the 2-year Note YIELD finished at a YIELD of 1.668%. Today, the PRICE of the SHY was up 0.47%.
Now, as it relates to the BOND market, we could step out to the RISKIEST of bond asset classes with the iShares iBoxx Corporate High Yield (HYG) $81.38 -6.00%. This would be the "junk" bond observations. (I use PHF in the Market Watch, as they have been paying $0.075/share/month dividend, and I can quickly calculate its SEC Yield). According to Yahoo! Finance, at tonight's close, the HYG Yield was 8.20%.
JUST FROM THE BOND portion of the Beetle's Balanced, do you see an AVERSION to RISK?
Now, the DXY down about 1% today and GLD and SLV +11% and 14%.
Here we probably do see some "short covering" SLV -12.17% still (20DyNet%) over the last 20-days. Some shorts now locking in gains, some "fear" (new bull, additional bull) buying and you get these types of moves.
What about the S&P 500 Index (SPX.X) ... give me some technicals. Where's "support?"
Give an artist and he'll paint a portrait. It may not look like a fish, but it is a fish.
S&P 500 Index (SPX.X) - Daily Intervals
Last Wednesday's BOTTOM LINE, I thought if the SPX CLOSED below 1,221 it would be a signal of further bearishness. On Friday, the SPX did close below 1,221.
It also closed below MONTHLY S2 (1,215.50). Today's it closes below the current quarter's (July-Sep) QUARTERLY S2.
I can not paint you, or myself a picture of institutional computer support at tonight's close. I would NOT rely on tomorrow's DAILY pivot levels either.
See Tuesday's close under 1,215.50, and MONTHLY S2? "Support broken" becomes resistance as computers need to sell there, for what they bought at Tuesday morning's gap lower.
RESISTANCE 1,215.50. I can paint that picture.
S&P 500 Index (SPX.X) - Conventional retracement
The 13-week Treasury Yield ($IRX.X) has plunged to levels not seen since the Bear Stearns failure of 03/17/08. That when the SPX traded juuuust below 1,271.11 intra-day, to then retrace 50% of that range.
The PINK retracement is "drag it lower still" to today's low. The DOWNWARD green trends are what I would consider to be BEARISH support trends, and ONLY TARGETS for BEARISH TRADERS to lock in some gains.
Why? Is this "the bottom?"
I (Jeff Bailey) cannot answer that. I don't think ANYONE can with any degree of certainty.
The only OBSERVATION of any type of DEMAND outstripping supply on the EQUITY side of things today was the ability of Exxon/Mobil (NYSE:XOM) $75.28 -1.50% to actually give a reversing higher point and figure "buy signal" at $78.00. This came BELOW its bearish resistance trend, but a sign that for some reason, this equity was able to see a trade at a level it used to find enough sellers to keep its price lower.
Major Market Bullish % - to 09/16/08 Close
I haven't yet gotten this evening's updated major market bullish % from Dorsey/Wright, but here's what I've got.
Again, yesterday's 29.96% measure was below the 30.00% measure, and has this the last major market bullish % to reverse back lower.
Some of StockCharts.com's equivalents would be $BPNYA, $BPCOMPQ, $BPSPX, $BPOEX, $BPNDX and $BPINDU if you'd like to look at how these institutionally followed measures of supply(O) and demand (X) are reading.
Levels BELOW 30.00% are deemed "oversold" on a quantitative basis. I would currently NOT be more than 50% of total account LONG. I would currently NOT be more than 30% of total account SHORT.
For "the news," I feel RISK and ACCOUNT management for BULLS and BEARS (see GLD and SLV) is MOST IMPORTANT TO COVER.
SanDisk (NASDAQ:SNDK) $20.92 +39.09% was a percentage gainer today that had the "Disk Drives" higher after Samsung made an offer to buy the company for $5.85 billion, or $26.00/share. SanDisk rejected the offer (at time of this writing), calling Samsung "opportunistic."
EIA inventory levels ... not much "surprise." Draws pretty much across the board
due to recent hurricane activity. Crude oil down 6.3 million barrels to 291.7
million. Total Gasoline down 3.3 million barrels to 184.6 million. Refinery
percent utilization edged down to 77.41% from prior week's 78.27%. Still getting
some updates from various companies on when power will be restored and back up
and running. Current estimate looks to be about a week.
Play Editor's Note: AIG, facing imminent bankruptcy, gets an $85 billion loan from the government and the market tanks. Investors are running so scared that short-term t-bills are nearing 0.0% (zero) yield. Foreign markets are being closed by their governments to halt the slide in equity prices. The volatility index has closed at multi-year highs. Wall Street firms are disintegrating before our eyes. These are amazing times in the market. Have you heard the Wall Street maxim to "buy when there is blood in the streets"? I can't remember a time when there was this much "blood" in the street. That maxim works better for an investor willing to hold on to their position for a long period of time but nimble, short-term traders could win big or get crushed in the stampede. We have to be careful. The best bet right now may be to just sit out on the sidelines and wait for the smoke to clear. You don't have to be idle if you're sitting out. This is a great time to be looking for a wish list of stocks you want to buy and start making notes like "I would consider buying XYZ stock if it hits this ... level, etc."
New Long Plays
Ultra S&P 500 Proshares - SSO - cls: 50.00 chg: -4.64 stop: *
Why We Like It:
Picked on September xx at $xx.xx <-- see TRIGGER
New Short Plays
Long Play Updates
ConocoPhillips - COP - cls: 69.32 chg: -2.96 stop: 67.39
The markets are pretty confusing these days. Crude oil soared $6.00 to over $97 a barrel today. On a normal day that would have been the headline story. Not today. It's all about AIG and the imploding financial sector. Fear is rising in the markets and the volatility index spiked to 36. Readings over 30 tend to mark a significant bottom in stocks. Investors big and small were selling anything and everything. Therein lies our concern. Large investors, like hedgefunds, are selling anything they can to raise cash. This factor has put a big bulls eye target on oil, commodities and related stocks for weeks. We thought the selling was over after the energy stocks bounced yesterday. The trading in COP looks bearish with both rally attempts sold near $72.75. Our only consolation today is the light volume in COP. Murphy's law, "if anything can go wrong, it will." could influence our trade here and COP might dip to a new relative low and then bounce sharply higher. You have to play with stops but be nimble. If COP bounces back above $70.00 again we'd consider new bullish positions. At the momentum I'm expecting a dip toward $68.00-67.50. Our target is the $78.50-80.00 zone. More aggressive traders could aim for the 200-dma or the $85.00 region.
Picked on September 16 at $72.28
Short Play Updates
EMC Corp. - EMC - close: 12.84 change: -0.53 stop: 13.75 *new*
The widespread market weakness pushed the NASDAQ composite to a 4.9% loss. Shares of EMC followed with its own 3.9% decline. We are adjusting our stop loss to $13.75. The VIX is hitting bullish reversal territory so we are not suggesting new bearish positions at this time. More conservative traders may want to take some money off the table right here. Our target is the July lows at $12.15. The Point & Figure chart is bearish with a $6.00 target.
Picked on September 09 at $13.67
Expedia - EXPE - close: 15.10 change: -0.95 stop: 16.75 *new*
EXPE is quickly nearing our first target. The stock gave up 5.9% and closed at new multi-year lows. We're adjusting our stop loss to $16.75. More conservative traders may want to jump out right now to lock in profits. We're not suggesting new bearish positions. We're concerned that the VIX is forecasting a bullish reversal for the market soon. We have two targets. Our first target is $15.00. Our second target is $13.50. The Point & Figure chart is bearish and forecasts a $9.00 target. We strongly suggest readers take some money off the table near $15.00.
Picked on September 10 at $16.75 *triggered
Infosys Tech. - INFY - cls: 34.35 chg: -2.05 stop: 37.65 *new*
Foreign markets are likely to drop again as they react to sharp decline on Wall Street today. This should lead the Indian market lower and INFY could gap down tomorrow. We are adjusting our stop loss to $37.65. We're not suggesting new bearish positions at this time. INFY has already hit our first target at $35.05. Our second target is $33.00.
Picked on September 09 at $38.45 /1st target hit 35.05 (34.19low)
Closed Long Plays
Ultra Dow30 ProShares - DDM - cls: 52.79 chg: -4.50 stop: 53.85
Last night I stuck my neck out and suggested we had hit a bottom for the DJIA. The belief that something would get done to prevent an AIG bankruptcy and the fact that stocks were testing their summer lows in addition to a reading over 30 on the Volatility Index all suggested we had hit a bottom. Well, AIG ended up with an $85 billion loan from the government and the stock tanked anyway. The rest of the market followed. Credit markets were seizing up and money was rushing to the relatively safety of bonds. The DJIA fell another 449 points and the VIX surged to a reading over 36. The DDM collapsed and hit our stop loss at $53.85. The market will eventually bounce and the bounce will be a big one. Keep an eye on the DDM. It could be a good vehicle to capture some of that bounce.
Picked on September 16 at $57.29 /stopped out 53.85
JB Hunt Transport - JBHT - close: 35.52 chg: -2.35 stop: 35.49
The relative strength in JBHT withered under a 4% sell-off in the markets and a $6.00 surge in the price of oil. JBHT slipped to $34.90 and dipped under its 100-dma. Our stop loss was hit at $35.49.
Picked on September 14 at $37.94 /stopped out 35.49
Closed Short Plays
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