Tuesday, February 13, 2007

Happy Valentine's Day

Market Action:
When we mentioned “the market needs to rally a little…” we didn’t mean the Dow should go up over a 100 points, but that’s what can happen when a Dow component gets a potential buyout (AA, Alcoa), another Dow component announces a major stock repurchase (MMM) and yet another Dow component is given a (questionable) upgrade (GM).  As the market opened on Tuesday, the stage was set for a jump in the Dow.

The market enjoyed a nice early rally with the initial gains in the Dow being over 50 points.  Over in the NASDAQ, early morning action wasn’t quite as strong and these indexes closed less than what they were in the first half hour of the day.

After the market closed, one of our old friends, AMAT, announced good earnings but provided fairly weak guidance as far as we could tell.  The stock was up about 4% in after hours trading and helped the techs to get a little excited about Wednesday’s trading day.

The stock market may try to stretch gains in the morning, what with such “good” news from AMAT, but the lid is still on the NASDAQ indexes.  The Dow seems to have gotten a little too giddy for its own good on the day before Bernanke goes before Congress the next two days.  Of course, Bernanke won’t want to say anything to disturb the markets but he might have to say something in order for the market to pay any attention at all to him.  

Bernanke being in front of the world this week will only serve to distract the market.  He can’t really move the market unless it wants to be moved.  Any movement in the next couple of days will be attributed to his words, most likely.  

To us, the market has not put in the rally we thought might happen but there may be a few remnants left for Wednesday morning.  We will see.  

As for the VIX, it managed to fall a great deal on Tuesday (over 10%) making the calls we talked about in our last post much more affordable but…We think that since the index dropped that much, there may be more leverage in a different strike or expiration month.  We will take another look on Wednesday for opportunities.  This spike down in the VIX has given us a good opportunity, now we need to find a good way to take advantage of it.  

Dow Industrials:  12,654.85  +102.30
VIX: 10.34 (huge drop)
VIXEC.X: 1.25 x 1.50
HUI:  342.59
QQQQ:  43.86
RYVNX:   16.86 (added more funds here)
RYAIX:  21.38
RYCWX:  34.64
TLT:  87.24
BEGBX:  13.54

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