The 4th quarter of 2011 is now viewed as the quarter of "the big growth momentum earnings wreck syndrome". The big names like AAPL, NFLX and GMCR took it on the chin. So did much of the market as I recall, but I digress. At least for the first two names for this earnings cycle that is not the case in the sunny land of 2012 (no problems fixed and the credit you want). I am going to focus on NFLX for now, because I think the reason for the move is much different than AAPL’s, and there is a more interesting trade in there.
To show you how great of an effect that the Fed, Europe, and congress is having on the market, I thought I would point out something unique that is currently happening: Here is a quick look at volatility in the SPX
Livevol (r) www.livevol.com
There has been a bit of confusion as to what exactly what the reserach Jim Cramer quoted Mark Sebastian on last night meant (watch the Video here). Here is the research that was used along with a slightly more indepth description. It should clear up any confusion. As a follow up, you can catch our live webinar on using options to trade stock earnings on Feb 15th. Register here.
Did you catch our COO Mark Sebastian's mention on Mad Money. View the Video here. As a follow up, on February 15th, we will be presenting a webinar: Using Options To Trade Stock Earnings. Register here.
One thing that can be said of the products related to volatility is that they make new lows more quietly than they make new highs. A new short term low goes by with a whisper. Also, the trend in the products does get to be a near one way train at the ends. Let review a few simple stats as the VXX last broke through $28, albeit in the other direction.
In my short stint as a floor clerk (Ronald Reagan just left the White House), I learned an early lesson in liquidity. One of the partners in the firm I worked for would use low liquidity as a partial definition of a Bear Market. Sitting on a trading floor, clerking for a trader who was watching the paint dry was a visceral experience. Watching every equity bid hit in the move up to Gulf War I (Dow around 2300), I could feel no one wanted to do anything. Usually, in a liquid market, there is action between the bid and offer. Not so for that stretch in 1990. No trader would give a floor broker a break filling paper because of the dread overhang of uncertainty with the Iraq invasion.
If you would like to catch up on Mark and Andrew's webin on "When Not to Use the VIX as an Indicator", click here for the video! You will either need to be signed up for an Option Pit service or a free account to watch this webinar. In this Webinar Option Pit's educators discuss what the VIX is, how it is used, and then the important times not to use it.
The Jan VIX Future settles 23.64 for the high tick of the day. Who knew?
The VIX settlement price is always a hot topic on the Option Pit Report. The Tuesday before VIX settlement is a little game about how the cash will price the expiring future contract. This expiration was no exception. The January VIX contract settled at the high point for the day at 23.64. Take a look at the VIX intraday chart below in the “burst” of opening volatility. The index was in a real hurry to print up and spent the rest of the day melting down.
charts by www.Livevolpro.com
Don't forget to register for tomorrow's webinar. You can do it here.
I have been saying for some time that I thought we were going to touch 1300. Now that we have, where are we going from here? I'll be honest, I am on the fence. There are a few things coming out of option prices that make me bullish:
1. VIX futures are in a somewhat heavy contango
2. Market momentum
3. The way the SPX has shrugged off bad news on Friday
Then there are a few things that I really don’t like. Maybe they are more of a long term. Maybe they are short term.
1. Today's turnaround was as bearish as Friday's turnaround was bullish
Are the US Equity markets still connected to the Euro mess?
Last year was really two different years rolled into one. There was the Go Go equity climate till late June (NFLX $250 bid anyone?), and then Congress ruined it by passing the buck on a historic deficit reduction package. I still think the market was looking for some leadership and ended up with zip. Anyone with an electronic device knows what happened then, as the VIX became the most quoted index in the land. The European Do Nothings joined their US counterparts, and the fire was lit.
Is there any zing in Zynga?
As a veteran of the first internet bubble (some scars but whole for the most part), internet bubble round two is mostly Internet Bubble Lite. Linkedin, Groupon, etc. have made for some fantastic IPO’s for the founders and employees, and they generated some hefty valuations. It does feel like investors are smarter the second time around. The same low float IPO’s for sure, but these businesses are much farther along than the internet stocks of 1996. Take a look at ZNGA for instance.
