Wednesday, July 09, 2008

Wednesday's Update

Top Line: The trading on Wednesday did not look like a continuation of Tuesday's rally...oh no, much to the contrary. While it does Look bad, we are still holding out for higher prices in the next week or so.

There were a few issues we weren't able to get to last night so let's see if we can recap what needs to be done this evening. Let's start with CSCO from last night. John Chambers, CSCO's CEO, normally one of the most optimistic guys, decided to offer a little dimmer view of the world of electronics. This news could have been disregarded by the market but somehow we don't think it was. CSCO was down almost 6% on the day dragging the NASDAQ market down with it.

Alcoa (AA) started the earnings' season out on Tuesday evening after the close of trading and AA was able to "beat" the lowered estimates by just a bit. From our perspective, AA is a commodity producer and as such will not hold up in a sagging economy. The market opened the stock up about 7% or so but then sold it off to close down over 2%, with much of that related to the entire market getting sold.

Getting back to Wednesday's action, there was little upside on the day. The market tried to put on a brave face but as the day progressed selling continued. The biggest losers of the day were probably in the banking sector, again, as the KBW index was down nearly 6% on the day...yes, it was up big on Tuesday but down on Wednesday.

Still, there doesn't seem to be any real fear. A key gauge for fear is the volatility indexes which were up today but are well below where they should be given the way prices have dropped over the past month.

The volatility indexes go up based on how expensive put options are. The higher the price of the puts, the higher the volatility. What we see is a modest pick up in the indexes but if fear entered the market, then people would want to own puts at any price to protect their holdings or just to speculate on the "guaranteed" decline. That hasn't happened...so far. We expect to see much higher numbers in these indexes and then we will actually consider going long based on the bargains that may be available at that time.

We are going to put this post up now and wait until tomorrow's close to decide if Wednesday's selloff is worth paying more attention to or not. We don't think the market is in the right position to "crash" right now, so we don't see a huge selloff as the next move but the last two days have certainly been volatile. Maybe tomorrow we can talk about the Elliott wave positions that the market seems to be in at the moment...for now, they are a blueprint for much more downside ahead.

Late addition: As we are signing off for the evening, we noticed that the Asian markets have turned higher after opening lower on the back of Wall Street's down day. With that, the US futures market has gained some ground as well so Thursday could be another interesting day...

FSI: 87.78 (significant drop but holding above the last week's lows)

2 comments:

Anonymous said...

Glenn,

Enjoying the posts and I hear we may have a new senator from Minnesota?

Wanted to ask about the put comment you made in today's post. You stated "...people would want to own puts at any price to protect their holdings or just to speculate on the "guaranteed" decline. That hasn't happened...so far..."

I know we often discuss the history of the markets and I have limited insight on that topic. If we rewound history to the times before the major stock market events (ala a crash, wave 3 type moves), Was anyone buying puts then? Isn't a "crash" event defined as one that leaves everyone standing with their mouth/wallets wide open to losses with no gains in sight?

Would appreciate your thoughts on this.

Thanks.

Erick

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