The TLT has been in a bit of a range for the last few weeks. I do not think it has broken a 3 dollar range since early March. This, is, very similar to SPX which, until recently, was spinning its wheels. Take a look at how tight the range is:
Yes I made that word up. I make them up all the time during the Pit Report. I was looking for a phrase to describe the activity, and it was hard to put things into words. Essentially market participants want return without taking risk, and then complain when they lose. The market for risk has become "sissified." The trend was started with the bailout of Mexico in the early 1990s and went to Asia, sort of hit the USA with LTCM and is now stuck in Europe where it will remain for some time. I think Europe had their Lehman moment and things got a little ugly after that. You might say TARP, but that was loan guarantees against bank assets.
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.