Some depositors in Cyprus took a haircut this morning on the bailout from the EU. When they think about it after the dust settles is that some money is better than no money. Investors in some Spanish banks lost their equity too today so all in all some investors are taking lumps in the Euro Zone. The same thing happened to Lehman bond holders and mortgage backed security holders here from 2008 to 2011 before the market started to right itself. Lehman went through bankruptcy and some mortgage backed securities went to 0. In both cases mostly big investors were hurt as was the case in Cyprus. In a sense this is a path that has already been trodden, namely some are going lose and then move on once the debts have been rat
As I sit around this Friday waiting for some news to come out of Europe to move my volatility positions I can’t help but think how many people even know where Cyprus is? A country with less than 1 million people in the middle of Mediterranean Sea can move the US Treasury market. That is the state of our global economy. It is the latest in the saga of European Debt soap opera now entering its 4th season. So when the broader market picture gets murky I like looking at other names that have something going on in them. Here is an Option Vision snapshot of EGO.
Today for the first time in a while the market closed on the low side of the day’s range. Selloffs happen all the time but it is fun to try to figure out what was the reason. Most of the information coming out today on the broader economy was pretty good. Jobs and manufacturing were both ok but the earnings were a mixed bag between LEN (good) and ORCL (bad). Ultimately with the market at highs it does not take much for it to sell off. Any reason is a good reason to sell if the market is trading at this level and you are long stock. That is just the normal buy and sell noise. What I want to do is show how sensitive the market is to the headline news.
Today our COO was on Bloomberg TV's Street Smart talking about the action in the market today. The anchors seemed intent on discussing Fed policy and how it drove the market. Mark's point was that the Fed really had no bearing on the overall market today. Yes, the Fed matters long term, however, in the near term, it appears that Cypus is what everyone is watching. Take a look at a tick chart of the SPX from today:
One of the mistakes that sends many traders to our option mentoring is the trading of VXX. Shockingly there are traders that think this ETN should perform the way the VIX performs. This is clearly NOT the case. Today the VIX closed 14.39 up 1.03%, the VXX on the other hand closed unchanged to 21.58. VIX is up a touch less than a point from the open on Monday. VXX is actually DOWN from that open on Monday. We can actually see the differences in a visual tick by tick chart of VIX and VXX.
The Europeans with the anti-weekend effect can be counted on for some serious drama. Depositors in banks in Cyprus were slapped with a tax in an attempt for rest of the EU to grab some money back for bailouts. These happen to be institutions with large cash deposits so they are a different flavor than the continental banks but the randomness of the act frightened investors more than anything. Then to make it worse (almost) they are re evalating by mid morning. That sent the S&P 500 futures into an overnight tailspin and our market going south. The action of the VXX that was most interesting was on the close.
As I write this the market is on its way to breaking the 10 day winning streak in the Dow. We never got into green territory today but the market needed to take a deep breath and survey the landscape and see what is up. The numbers that came out were not great as consumer confidence and manufacturing expansion was muted. Does that mean the great bull market of 2013 is over? I don’t think so and there is a large customer in the /ES options that does not think so either.
Not long ago the SPX was sitting around 1350 right after the President got elected. Now we sit 2 handles from an all-time high in the big index. For those who bought the top in 2000 and 2007 you are looking sweet right now. Reinvest those dividends and you still did better than a CD although the gray hair in the process probably counts for something. And where is the public in all this? Nowhere, that is where. Liquidity is paltry by the standards of the retail investor. A few are out there but besides the big financial news outlets no one really cares. I will make a bold prediction and say we make an all-time high within a week. I am not here to make a bullish case but some stocks that have been nowh
While the big news around Option Pit Mentoring is the VIX closing below 12 again, SPX is not the only major product with IV in the toilet. GLD IV is getting crazy cheap. The GVZ is trading at 6 months lows and near all time lows.