Andrew Giovinazzi's blog

Most of the news is out from Big Ben and hte skinny is the Fed could taper bond purchases.  The market is taking it fairly well as the the SPX is down about 1% today after being up almost 1% in the morning.  I take it that where the Fed has to intervene less would be a good thing but the market has had so many up days that this would be enough reason for a pause.  Things still look to be just ok which is much better than before in the bad old Euro crisis days.  Remember SPX 1350?  Just look at last year around this time.

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With the VIX up .05 to 12.86 as I write this the market is taking a long overdue breather.   For the last two weeks through good news and bad, stocks have rallied pretty hard.  For instance AAPL has moved a lot but really has gone nowhere.  I think the big winner has been GOOG running from around $800 to just over $900 in a two week span.  Let take a look at the volatility in there.

On May 3^rd the upside skew in GOOG was pointed down in the May 24 Weekly options.  I had the ATM volatility around 20% and the 50 point OTM volatility around 17%.  We call this a steeper upside curve as opposed to flat since the OTM options are trading for cheaper price pointing the curve down.

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I want to characterize today with movement.  AAPL trades from 441 to 422, GOOG trades from 894 to 916 and PCLN from 789 to 808.  Stocks are moving again and I alluded to that yesterday that the realized volatility for names is starting to pick up.  VIX managed up .04 but really the story is that stocks are moving and the reason is money is coming back into the market. I think this means that things that really were not possible with positions most of last year are possible now.  You can buy some options and have a shot at making money.  Let’s look at a stock in the basement, ZNGA.

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Memory is a funky thing in the market.  Right now many new investors and traders have the 2008 crash in the forefront of their minds.  I don’t blame them.  What we have had since then is mostly a declining volatility environment that has reared its ugly head on the big macro issues that faced us, namely the Euro and the US deficit.  Remember it was the 1-2 punch that set things backward in the summer of 2011 since it looked like a total failure by leaders to get a handle on the problems of the day.  Right now the trajectory appears to be better.  How do we know?  Every advance in fiscal prudence, even higher taxes, has been met with market rallies.  Bernanke was QE’ing back in the Fall of 2012 and the market did not really take off until the Fisca

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Well the Yen is in the can, the Treasuries are dumping and everything that glitters is a dud today.  Stocks though are mostly mixed while the volatility market is about flat to slightly up in the VIX futures.  As a continuation of last night’s blog I think our summer will be the Zone of Unintended Consequences.  I don’t know in modern history if a currency has been able to debase it’s way to glory (see Zimbabwe, Brazil in the bad old days and of course Weimar Germany). Maybe this time it is different but the by looks of the other Asian markets today  they do not like the result.  Let’s get back to commodities and specifically coffee.

The good thing about the stock market is that it is just like the weather in Maine.  Wait a day and it will change.  We wrote earlier this week that bond volatility was in the toilet and low and behold the market has changed course a bit. Why, the underlying assumptions can always change.  There were rumors floating that the Fed might curtail purchases of bonds and that sent the TLT down from 121.25 to 120.10 by the close.

Somewhere between the ADP report on Wednesday and today’s NFP report the nation found a bunch of jobs.  The broader markets also found themselves in record territory with NASDAQ making at least multiyear highs.  What I find heartening (for bulls like me) is that the Treasuries are finally weakening with a near 3 point drop today.  If the rally has to continue folks need to stop running to no-yield bonds.  With better jobs news the need for the Fed to buy more is a much tougher case to make.  The thing is we have .75% gaps in the SPX still and while the realized volatility has tailed a bit we are getting one to two days a week of bigger moves.

With the underwhelming ADP report the private sector is just limping along but improving slightly.  At some point here now that stocks are near all-time highs the residual of the financial crisis ending can only propel things for so long.  I mean that as earnings have climbed back up over the last 4 years stocks have had just fits and starts depending on larger macro issue (US debt rating, Euro, US Fiscal Cliff, Europe, Europe, etc) .  2012 was nice but 2011 was a wash as investors worried about the Euro.  Now  lower interest rates are powering stocks globally.  For some reason that is not enough to jumpstart hiring by companies.  My only guess at this point is the continuing government dysfunction is worryin

Kind of a bubbly day today as the market stretched out a little bit and put the rally cap on.  Several factors, mostly big picture stuff like the consumer and Italy, help buoy spirits today.  Of the market in general we have been getting to these highs on higher realized volatility than in the past.  10 Day HV from LiveVol© is clocking in at 18.62 for the SPY and after today’s upswing that number will only wilt slightly.  I spend a lot of time watching realized volatility because that tells me the “how” of movement.  Look at JCP lately.

Looking at the rally Thursday on what I would say is so-so news I am reminded of the fact that over the last year most of the melting has been to the upside.   The market has tended to take off like a shot with Fed easing and the BOJ declaring war on interest rates.  The US market with a decent dividend yield is starting to look attractive all of a sudden.  While I am still mild bullish it pays to take a look at how the market is viewing volatility in the near term.