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| | | News Day | | | Today we discuss not another foreign land or bloc of countries, but US data and other news.
CPI (inflation) data was the first batch of news to hit the tape, but not much needs to be said about it because it came in line exactly as economists expected. The fact that economists got it right for a change is bigger news than the CPI.
Weekly jobless claims, however, were anything but “as expected.” It was shockingly bad and probably a result of hurricane Sandy and the long-lasting power outages on the East Coast. Consensus was for a reading of 367k new unemployment claims but the actual number was 439k.
Empire State (NY) Manufacturing Survey showed contraction again at -5.22, but was fairly close to expectations of -5.00.
The Philly Fed Survey measures manufacturing in the Philly area, which was not seriously affected by the hurricane; however, its results were very bad (again). Instead of coming in at the consensus’ +4.5, it was a horrendous reading of -10.7.
In other news, a new Middle Eastern war is breaking out and as it escalates, it could/will drag equities lower. Will Iran get involved? Will the US then join the fracas?
The US Post Office made news again today as well, and as usual it is not good. The Post Office is flat-out broke and no matter how many $billions we pour into it, it continues to lose money. The US taxpayer is support it to the tune of $250 million per day and just posted a $15.9 BILLION loss.
Couldn’t this money be better used somewhere else in the economy? If there is any real need for a post office, wouldn’t a private business take the baton if Congress just folded the Post Office? Perhaps, but don’t expect it; there are 607,400 union employees that say otherwise so expect the Post Office to soon post a $20 billion loss.
And lastly, when Fannie Mae and Freddie Mac went bust in the housing crash of 2008, the government put the FHA in its place. Congress couldn’t allow the free market to actually take over housing. Well guess what? The FHA is supposed to release a report this week that says IT TOO IS BROKE.
Yeah but seriously, this is a “recovery.” | | Trade well and follow the trend, not the so-called “experts.” | | Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia. | | | | | | | | | |  | | | | is a leading investment education firm that empowers traders to achieve and surpass their financial goals. More than 50,000 students have used Larry Levin's proven techniques for powerful results. | | | | | |  | | | | Congratulations to Russell Stohr
| | | | NOTICE: Testimonials are believed to be true based on the representations of the persons providing the testimonials, but facts stated in testimonials have not been independently audited or verified. Nor has there been any attempt to determine whether any testimonials are representative of the experiences of all persons using the methods described herein or to compare the experiences of the persons giving the testimonials after the testimonials were given. The average reader should not necessarily expect the same or similar results. Past performance is not necessarily indicative of future results. No person was compensated for providing a testimonial. | | | |  | | |  | | | | Volatility Commentary | | | Historical Volatility vs Implied Volatility In our volatility classroom, we constantly look at Historical Volatility (HV) relative to Implied Volatility (IV) to guage whether an option is undervalued or overvalued. There are different gauges to compare the two volatilities. First, since volatility is generally mean-reverting, we like to look at historical chart of both IV and HV figures to see whether current levels are high or low. Second, we like to compare the value of HV to the value of IV directly against each other. Finally, we like to look at IV levels for options with different expiration months. How do we apply these guages? For example, HOG stock price has been moving at a 36 HV level recently. While this is near the highs of its historical range, options on HOG are trading at 30 IV, which is not too high compared to its historical range of 27 - 45 and is below the current 36 HV figure. Finally, IVs of differing expiration months on HOG options are all close to each other at around 30. Based on these measurements, the appropriate options strategy would be to be net long premium, positive gamma, and positive vega.
| | |  | | | | Currency Spotlight | | | | Greece should receive aid next week as per Italian Finance Minister Vittorio Grilli. This should not come as a surprise to anyone. Throughout the past three years, the European debt crisis has had many obstacles and most of the time; European officials say and do what is needed to keep the euro-show going. Greece was also given an additional two years to reach a fictitious budget that will probably will never be reached. The EUR/USD currency pair is slightly firmer, but the bearish trend is still intact. Fortunately, for euro bulls, both Germany and France posted better than expected GDP statistics. The truth behind the numbers is rather bleak. Out of the 17 euro nation members, five are in a recession and both Germany and France, the two largest economies barely grew this past quarter. The writing is on the wall. The game of chicken is getting old. The saying of “Kicking the can down the road” has been repeated excessively to the point that every talking has to roll their eyes each time they hear it. Eventually, enough will be enough, and some country with unemployment above 30.0% and no sign of economic growth will leave euro, but that day is not here, but it is coming. Will it be Greece, Italy, Spain, Portugal, or Cyprus? Or might we see the ‘troika’ be proactive and help expedite a coordinated exit for multiple members? The euro will have its day of reckoning, but for the time being it will not collapse until the U.S. kicks its can of the ‘fiscal cliff’ down the road and addresses its debt ceiling in February.
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|  | | | | Watch List | | | The market action today is what traders call "pop and drop" volatility. Meaning the market will make a move and then come crashing back down in a fury and vice versa. The last hour was a great example of the moves that were showcased all day. It came right down close to the low of the day and BAM!! Made a reversal that ran up over 5 points in the S&P 500. That is a fairly dramatic and abrupt move. Now if you have been following my commentary the last few weeks, I had pointed out to everyone that these are the fore casted market conditions we would be facing. If you still do not believe me I highly suggest you take a look at the S&P 500 on a hourly chart. The reversals are very apparent and maybe its time to revise your thinking and outlook on the market, because these are the conditions that we will be facing for the next few weeks and even months.
Let us look at Fossil(FOSL) as an example of wild swings on a daily basis. The last five days the stock has bounced between 82.70 and 78.75. It will go down hard and then reverse off the lows all the way back to the tops only to reverse again right back down. And guess what happens when it gets to the bottom of the range...it REVERSES again. All of this action didn't happen the last 5 days, this was just the action from today's trading session!
Expect more of the same with a touch of a sellers trend. I anticipate that we will test the 1325.00-1320.00 level and if it breaks, then look to take advantage of the sells. I certainly would not want to be long against a runaway freight train. I do not wear a cape and I cannot stop bullets, but I can read the technicals and they look very weak at the moment. Protect your profits when you can and lets trade smarter, not harder.... Open Position: CHKP Stocks to Watch: PCLN AMZN AAPL GOOG FB BAC C IBM NFLX | | |  | | | | Futures Data | | | ES 1383.50 / 1372.00 POC… 1379.75 YM 12828 / 12740 NQ 2581.00 / 2563.50
Notes from the Pit
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