Posts Tagged ‘VIX’

Gold Soars to Record High

June 20, 2010

For the second consecutive session, gold futures skyrocketed to a record, closing at a price of $1,258.30 an ounce after touching an all-time intraday high of $1263.70. For the week, gold advanced 2.3%, marking the commodity’s fourth straight week-over-week advance. Great timing for the issuance of Canada’s new one million dollar gold coin, the world’s biggest, purest and highest denomination coin (pictured above).”Gold is looking for any and every opportunity to go higher, and we all know the reasons why — the safe-haven factor, sovereign debt risks and so on,” said Peter Hillyard, head of metals sales at ANZ Investment Bank. Analysts are predicting gold prices between $2500 and $3000 over the next 18 months. “People are tired of their zero percent T-bills, afraid of the stock market, and afraid of the double-dip recession,” said James Cordier, a portfolio manager at OptionSellers.com. Reuters reports weaker U.S. economic data and a rise in unemployment benefits last week also drove anxious investors to return to gold as a safety play.

Equites have proven their resilience, however, as the Dow Jones Industrial Average pushing back above 10,400 to close Friday with its second consecutive weekly gain. Additionally, the S&P 500 closed above 1,100 for the first time since mid-May. The tech-rich NASDAQ index fared the best of the three, adding 3% for the week. All this, despite a downgrade of Greece’s debt to junk status, the steepest monthly drop in home construction in decades, another disappointing jobs report, sluggish manufacturing data, and another week excuses from BP plc (BP). The government reported single-family home construction fell 17% in May while applications for building permits dropped 5.9%. AP reported that the number of people filing new claims for jobless benefits jumped last week after three straight declines, another sign that the pace of layoffs has not slowed. Initial claims for jobless benefits rose by 12,000 to a seasonally adjusted 472,000. Meanwhile, consumer prices fell for the second straight month. Meanwhile, BP suspended its dividend and Government-sponsored mortgage purchasers Fannie Mae and Freddie Mac plan to delist their shares from the New York Stock Exchange.

Analyst Todd Salamone wrote “With the SPX coming into the week at 1,117.51 and above its 200-day trendline, the 1,120-1,125 area could be the next challenge from a technical perspective. For example, the 160-day moving average is sitting at 1,126.10 – note on the chart below that this moving average marked the February 2010 low. Therefore, the risk to the bulls is that this trendline becomes resistance on the rally. Moreover, the 1,120 area marked resistance in November and December 2009 during a narrow trading range.”

The CBOE Volatility Index (VIX) declined during the past week, from 28.79 to 23.95 by Friday’s close. With SPX 20-day historical volatility at 26.96, this would suggest volatility is still headed lower, a bullish sign for stocks. The risk is that if volatility is trending higher from a longer-term perspective, the current “pullback” in volatility could end here. If the VIX rises back above 25, the market rally could fizzle.

Wednesday’s Federal Open Market Committee’s interest rate decision will be the first big news in the coming week until Friday’s third-quarter GDP is released. The ongoing concern about the euro zone debt crisis will continue to be at issue. The low-expectation investing environment may reduce “headline risk” and give the bulls the edge over the next few sessions.

We taken the hedge off of our model portfolio which closed Friday at $1,694,454, while portfolio#2 finished at $1,747,721.

Happy Father’s Day,

Michael

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Rollercoasters Are For Kids

May 31, 2010

There was a time that I loved the anticipation, maybe the pure adrenaline, while sitting in the first car of the rollercoaster climbing that initial hill just before the big drop… click…click…click…click… The old wooden ones always had the soundtrack of clicks all the way to the top, then in an instant, we would be falling at what seemed like the speed of sound, with our arms in the air, screaming at the top of our lungs, winding around turns, climbing shorter hills and dropping again and again and it never lasted long enough. Come to think of it, I still love rollercoasters when I’m at an amusement park. I bet many of you feel the same way and may have even experienced it this past Memorial Day weekend. Those modern coasters are quite a different experience, much wilder than when I was a kid.

The stock market felt a lot like one of those new rollercoasters for the entire month of May. And what a ride it was. We had a “Flash Crash”, followed by a 400-point rally, more than a few highly volatile days, followed by another 300-point rally. Worries from the Euro-zone, sabre rattling by the Koreas, and the biggest oil spill in history each provided major curves in the track, making for one wild ride. We went an entire month without two straight up days. By the close of market on Friday the Dow was down another 122 points , had lost over 1000 points during the month and had turned in its worst May performance since 1940.  I’m sure many traders found the volatility exciting and profitable, while others felt that queezy feeling in their stomachs like they just got off the Big Dipper after eating half a pizza. When all was said and done, the Dow lost 7.9% for the month.

Though market technicals have lost some ground, there is some solace in that the Dow held above the emotional 10,000 level and some analysts see the potential for a bounce. The fact that the major indices held their February lows may be setting up a traditional double bottom. additionally, sentiment readings show the number of bears has risen to levels not seen since last November, just before the Dow climbed 1000 points. Though there are some encouraging signs, the fact remains that the S&P broke below its 160-Day Moving Average in May, which is a bearish signal. It would be wise hedge long positions and keep your eye on the VIX and the dollar for clues as to the what’s next for equities.

Our hedged account has outperformed, as is to be expected, closing May at $1,612,877 vs. $1,539,496 for the unhedged account.

Go to http://optionsprofitzone.com for your FREE report entitled “7 Secrets to Making Money in Bull or Bear Markets”.

Michael

Have We Seen This Movie Before?

May 23, 2010

My friends at Schaeffer Research always do a good job explaining the technical aspect of stock market performance and this week’s Monday Morning Outlook does an exceptional job, so I decided to use excerpts for this week’s blog. Please enjoy!

“The S&P 500 Index (SPX) closed at 1,072 last Thursday, translating to a drop of 12% from its closing high on April 23. Many commentators are making a big deal of this, because this is the market’s first 10% correction since the March 2009 bottom.”

“Last week brought about further deterioration in the technical backdrop of the market. The knee-jerk reaction might be, “Since the 1,100 level has been breached, should I sell everything?” Before doing so, it might be helpful to consider what may have inspired Thursday’s disastrous price action, which violently pushed the S&P 500 Index (SPX) below its 200-day moving average. Was it really worries about Europe that generated this selling activity? Perhaps, but one might cry “nonsense!” since the decline occurred within the context of a euro rally.”

“Another explanation could be directed toward options expiration. After the broad indexes fell below strikes with heavy put open interest, put sellers at these strikes may have been actively shorting futures to hedge their positions, a concept known as delta hedging. Without getting into the complex details of delta hedging, be assured that this activity can create a snowball effect, much like we saw in Thursday’s trading. In fact, it might be more than just coincidence that the intraday lows on Friday were similar to the “flash crash” lows of May 6. As long-time readers of Monday Morning Outlook know, while expiration week tends to be bullish, when we do have a decline, it is typically quite painful.”

“In another interesting development in Friday’s trading, the VIX finally hit a level that matched its highs during the 1997 “Asian Contagion” and the 1998 “Russian Ruble Crisis.” In addition, Friday’s peak matched the two VIX crests during the first bear market of the new millennium. If the “European Contagion” does not have the negative systemic risk brought on by the Lehman Brothers bankruptcy and our own credit crisis in late 2008 and early 2009, the bulls may find the VIX high on Friday as an extremely encouraging development.”

“Moreover, on Friday, the VIX’s peak was above the high of the previous day, and both its intraday low and weekly close were below Thursday’s low. To market technicians, this chart formation is known as a bearish “outside” day, which usually signals lower prices ahead. Or, in this instance, it could signal lower volatility in the days ahead, which would likely coincide with a rally in stocks.”

“Above being said, proceed with some caution, as the SPX did close below the key 1,100 level. Another concern is that the most recent American Association of Individual Investors’ survey, released on Thursday, showed increasing optimism among those surveyed. This is somewhat disturbing, since those polled have proven to be an outstanding contrarian indicator during the past several months. Throw in the fact that this increasing optimism is within the context of a pullback and it becomes even more disturbing.”

“Potential support for the SPX is Friday’s low around 1,055. If this level breaks, another important level would be 1,045, site of the lows in February. Resistance is in the 1,100-1,120 area. You already know the importance of 1,100, as described above. The 1,115 level, which marked the SPX’s level at the end of 2009, could also be significant. Finally, 1,120 is yet another potential resistance area, as it’s the site of the 160-day moving average and chart resistance in November and December 2009.”

I always find Schaeffer’s report enlightening and I hope this week’s analysis helped you. I’ll see you again next week.

Michael

 

 

 

Rolling Stones Predict Market Crash

May 9, 2010

It was 1968 when Mick Jagger first sang the words, boldly predicting the Jumpin’ Flash Crash of 2010. Thursday’s 1000 point Dow Jones plunge, referred to by some as the “flash crash”, had many traders feeling as though they had been “crowned with a spike right through their head”, a reference to the lyrical prediction by Jagger and Richards. Oh, wait, they wrote Jumpin Jack Flash, not Jumpin’ Flash Crash, but I bet traders were feeling as if they had drowned, washed up and left for dead. (another reference to the lyrics of Jumpin’ Jack Flash) But it’s alright now, though it wasn’t a gas. (I guess you had to be there)

Black Thursday’s action did come in a flash. After the market seemed to be having an average down day of 250 points or so, suddenly it was down 1000 and minutes later was back up and eventually closed down 348. It had dropped 283 points in the previous two days and by Fridays close, the Dow Jones had erased its entire gain for 2010, a 7.3% correction from the peak of 11,205 on April 26th. Over $1 trillion in U.S. stock market value has been lost in the downturn. Though there has been rampant speculation and numerous rumors of a computer glitch or other missteps causing the wild ride, federal investigations have not proven that a single culprit was to blame. A Congressional hearing is scheduled for Tuesday to continue the hunt for errant activity. Citigroup analyst, Tsutomu Fujita, justified the move stating that it would be “only natural to go through a correction of around 10% or 20% over two or three months.” Many others have felt a correction of this nature was overdue and was inevitable, at some point.

To be sure, the sovereign debt crisis in Greece, not to mention Spain and Portugal, has weighed heavily on the confidence in the Euro and has become an excuse for traders all over the world to reduce risk exposure. This has led to a sell off in every major equity index across the globe. In turn, the flight to quality has lifted the U.S. Dollar and U.S Treasuries to highs not seen in many months. Gold, too, saw its share of popularity, reaching a five-week peak of $1210 per ounce, ignoring the ascent of the dollar. The CBOE volatility Index (VIX) was another benefactor to last week’s events, climbing to an annual high of 42.  As a result of the strong dollar, crude oil tumbled to $75 per barrel, marking its largest weekly decline since December 2008.

Key support for the Dow lies at 10,000, with support for the S&P 500 and NASDAQ  at 950 and 1900, respectively. The good news is that a Eurozone bailout package was finally approved after the close on Friday, which should give strength to the Euro and bring a degree of confidence to equity markets. Expect a strong opening on Monday morning in response. The S&P will begin the week above its February low of 1050 and remains above its 200 day moving average, which has provided support in the past. But last week’ s event should be taken as a warning and investors should proceed with caution until the VIX begins to decline into more friendly territory, which lies beneath 25. A complete correction of 10% or better has not been completed and may be the end result of the current trend. If you decide to take advantage of potential buying opportunities, you may want to consider buying put options as insurance against a continued decline.

As to be expected, our managed portfolios lost ground last week with the hedged portfolio closing at $1,567,076 and the unhedged account coming in at $1,534,604.

It’s alright now, in fact, it’s a gas,

Michael

Markets Hit New 2010 High

March 28, 2010

Major U.S. market indexes climbed to new 2010 highs last week reaching levels not seen since before the financial collapse that started in the fall of 2008. Last week marked the fourth straight weekly gain for equities as we approach the end of the first quarter.

Boosted by the House of Representative’s passage of a highly controversial health care reform bill, the Dow Jones Industrial Average began the week with a 43 point advance. By the close on Friday the Dow had gained over 108 points, ending the session at 10,836.

Helping to sustain the positive tone were Thursday’s weekly jobless claims which fell for the fourth week in a row, and Fed Chairman Ben Bernanke reiteration of the need for an extended period of record-low interest rates. The Dow soared to 10,955 intraday, but gave back much of the gain in late trading, eeking out a meager increase of 5 points. Friday’s action was similar as traders, once again, pushed the Dow over 10,900 after a deal was announced to rescue Greece from its debt crisis, but could only muster a  5 point improvement by the close of business.

Short-term momentum favors a bullish stance but overhead resistence levels may prove to be difficult to break through. The week ahead could be boosted by institutional “window dressing” as money managers buy the best-performing stocks and sell the under-performers as they prepare for end of the quarter reporting. Coupled with the fact that April historically delivers the best monthly returns of the year and that bearish sentiment has recently overtaken the bulls (generally a bullish indicator), there is reason for near-term optimism.

Conversely, the historically high premium of the CBOE Volatility Index (VIX) relative to the S&P 500 (SPX) indicates there could be rough seas ahead. The late session pullback on Thursday and Friday are symptomatic of a market struggling to break through resistence. If a reversal were to develop, it would be not be expected until after Wednesday’s end of quarter close with potential support  at 10,750 for the Dow and 1,150 for the S&P 500. 

Our managed accounts continue to shine with the hedged portfolio climbing to $1,609,657 and the unhedged account advancing to $1,895,232.

Keep in mind, both of these accounts started with $1,000,000 less than one year ago. Visit us at http://optionsprofitzone.com to learn the secrets of professional traders that have helped us achieve these extraordinary returns.

Stay informed by following First Wealth, your financial education publication.
Michael

The Year of the Bull

March 14, 2010

Last week marked the one year anniversary of the cyclical bull market on Wall Street. It was March 9, 2009 that major stock market indices hit rock bottom, resulting in the destruction of capital not seen since the Great Depression of 1929.  The S&P 500 had dropped from its October of 2007 high of 1557 to a low of 676, a loss of 56 percent. The Dow Jones industrial Average fell from its high of 14,093 in October of 2007 to 6547, declining 53.5%. The NASDAQ peaked at 2810 in October of 2007, falling to 1268 by March 2009, a 54.8% decline.

With all of the well-followed indices having dropped in excess of 50%, the Bear Market appeared to be in full swing. Some say it began in 2000 and, based on historical data, a new bull market was not to be seen again until 2018. However, within these secular bearish periods, there are always cyclical Bull Markets that traders can take advantage of. Cyclical, in this case, means shorter trends within the longer secular periods.  Investors  can enjoy above average returns during these cyclical up-trends , which can last 1, 2 or more years in length, before the Bear raises its head again.

The question is… has the last year been the return of the secular Bull Market or just a cyclical bullish period within the secular Bear Market that began in 2000. There have been three secular Bear Markets and three secular Bull Markets since 1900. The shorter of the Bear Markets was 16 years, while the longest was 21 years. If history is our guide, it appears that we are in the midst of a secular Bear Market that may continue for several years, though the current cyclical Bull trend may still have some legs.

And what a cyclical bull it has been. The major U.S. indices have all gained over 70% in the last year, far more than even the most bullish analysts predicted.

Recent history, however, provides evidence that breakouts above strong resistence, though technically bullish, have been short-lived and corrections of 7% to 10% have followed. Friday’s close of 1149.99 is right at the 1150 level considered strong resistence for the S&P 500.  An upside breakout will likely be seen in the week ahead, driven by short covering by those who believe that 1150 will now form support, but new investors could be coming late to the party. In the days and weeks to come, it will be important to keep an eye on the CBOE Volatility Index (VIX) for signs of a reversal to the upside, a signal that the market may begin to correct. I’ll keep you posted on any apparent warning signs. All you have to do is watch for my new blog posts.

I am happy to report that our model portfolio’s continue to display powerful performance with our hedged portfolio closing Friday at $1,566,908 and our basic portfolio climbing to $1,801,968.

 

Learn how we do it at http://optionsprofitzone.com.

Good Trading,
Michael

Standing at the Crossroads

January 31, 2010

The major stock U.S. stock markets may have reached a crossroads after the Dow Jones Industrial Average posted another 1% decline last week, following its 4.1% downturn the previous week. The 3.5% loss for the month of January was the worst performance for the blue-chip index since February 2009 resulting in downside penetration of its 20-week moving average. My friends at Schaffer’s Investment Research revealed that the technical backdrop has weakened considerably noting that the S&P 500 Index has broken below its 80-day moving average for the first time since the March 2009 bottom. Additionally, “the SPX was pushed back violently after a few attempts to overcome its important 160-month moving average, which is situated in the 1,150 area and acted as support at the 2002-2003 market bottom. At present, the SPX has retreated about 6.5% from the peak highs observed a couple weeks ago. ”

Good news including Ford’s announcement of its first full-year profit since 2005, higher consumer confidence, and Apple’s new Ipad was not enough to offset higher than expected unemployment numbers, concern about slower growth in China and economic woes in Greece. January’s poor showing may not bode well for the rest of the year. Historical data seems to indicate that January sets the tone for the next 12 months. It will be interesting to see if the Dow can hold above the emotional 10,000 support level. If not, we could soon test the primary support at 9,000.

Marc Faber, famed contrarian investment analyst known as Dr. Doom, has recommended pulling your money out of stocks right now, predicting that the S&P 500 could fall as much as 20% to 920. He believes that stocks are expensive due to the absence of a meaningful economic recovery. ” With unemployment staying at a relatively high level and with the revenue being weak, I don’t think corporate profits will be that great in 2010,” Faber said. “Basically, the profits have been boosted by aggressive cost-cutting. The revenue side of corporations is weak.” Faber advised investors to buy U.S. stocks on March 9, 2009 when the S&P reached its lowest level since 1996.

The coming week’s calendar is busy right out of the gate starting with Monday’s economic data, which will include December’s personal income and spending, December’s construction spending and the January Institute for Supply Management manufacturing index. The day will also see earnings releases from Exxon (XOM). January’s auto sales and December’s pending home sales are due on Tuesday, along with earnings from BP plc (BP), United Parcel Services (UPS), Whirlpool (WHR), and News Corp (NWS). Wednesday will bring the January ADP employment report, the ISM services index, and weekly crude inventories. It will also be a big day for earnings with Comcast Corp. (CMCSA), Pfizer Inc. (PFE), Time Warner Inc. (TWX), Broadcom Corp. (BRCM), Cisco Systems Inc. (CSCO), Visa Inc. (V), and YUM! Brands Inc. (YUM) reporting. The fourth-quarter productivity report, and December’s factory orders are scheduled for Thursday with earnings reports from  Burger King Holdings Inc. (BKC), The Clorox Co. (CLX), Kellogg Co. (K), MasterCard Inc. (MA), and Sony Corp. (SNE). We’ll end the week with more corporate earnings and January’s unemployment rate, nonfarm payrolls, and December’s consumer credit report due on Friday.

The numbers for our managed portfolios are still being calculated, though I’m sure in light of the market’s performance we will have lost some ground. I expect that our hedged portfolio fared the best, as it should in the environment we are experiencing. I’ll post them when they are available. In the meantime, keep your eye on the volatility index (VIX) for clues as to the market’s conviction.

To quote Cream’s 1970’s rock standard…”I’m standing at the crossroads, believe I’m sinking down.”

Michael

Dow Revisits 10,000

November 8, 2009

Bull ImageThe bulls reclaimed territory last week amid a flurry of corporate earnings and economic data propelling the Dow to the first weekly close above 10,000 since October 2008. The week began with positive forecast from Ford and a better-than-expected manufacturing index. The mood continued on Wednesday with the Fed reporting “economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” But Thursday’s 200 point rally was the kicker after an upbeat report from Cisco and a jobless number that was encouraging to some.

The S&P 500 closed higher for five consecutive days as the dollar resumed its weakness and the volatility index began to decline after peaking around 31. The VIX found resistence just below its 200-day average and moved back below its 80-day and 160-day moving averages, confirming a resumption of its downtrend. Assuming the patterns in the dollar and the VIX continue, the markets should resume its climb. The S&P could see a rally above 1100 by the end of the month. A break above 10,100 on the Dow would indicate that the correction has ended and another run at the 10,500 resistence level would be likely. A breakthrough of 10,500 would probably lead the Dow to 12,000 before encountering another level of resistence. The NASDAQ may be the weaker of the primary indices as buyers of technology shares seem to be waning. Failure of support at 1650 would confirm a correction, while a breakout above 1780 would indicate an advance toward 1900.

Historically, the November-December period has been bullish for stocks, and has sometimes been called a Santa Claus rally. It is also well-known that a World Series win by the Yankees generally precedes a market advance. Between Santa and the Yankees, the outlook appears to be good for the market, in general. Keep your eye on the VIX and the dollar for more technical indications of continued strength.

Last week was also beneficial for our managed portfolios, both seeing tremendous gains in the weak of the rising markets. Our hedged portfolio closed Friday at $1,336,272 while our newer account is still the reigning champion with a close at $1,353,343.

OPZ Running Total copy

Don’t forget to visit http://optionsprofitzone.com for your free video and DVD.

Good Trading,
Michael

“V” is for Volatility

November 1, 2009

V ImageJust as next Tuesday will bring the return of the television series “V”, a remake of the original that aired in the 1980’s, last week saw the return of “V” for volatility that left the Dow Jones Industrial Average 260 points lower for the week. Last weeks blog noted that volatility had picked up amid the strength of the dollar and that a break below 9900 could lead to a test of the 9500 support level. Friday’s close at 9712 was a large step in that direction, erasing the previous day’s gain which was the best one-day move in a strong three-month period. Thursday’s 200 point gain was the result of the GDP report stating that the economy had grown at a 3.5% annual pace in the third quarter marking the end of the recession.

However, concerns that the recovery was unsustainable after government stimulus recedes, weak consumer demand and a stronger dollar lead to Friday’s decline and an increase in volatility. The Chicago Board of Options Volatility index, known as the VIX, closed above 30 for the first time since July. A VIX above 30 has historically been a signal of bearishness in the markets, indicating that Monday will probably see a continuation of weakness. All of the major indexes closed October below their 50-day moving averages, another indicator of more weakness to come. A break below 9500 would signal a secondary correction. The initial target for a correction would be  9000 with primary support at 8100.

Adding to the decline was the expectation that CIT Group, was expected to declare bankruptcy as early as Sunday or Monday. Sunday, the rumors were proven true as they did indeed file after a debt-exchange offer to its bond holders failed. A restructuring plan, however, was approved allowing CIT to continue operations. Under the reorg plan, creditors will own the company and bond holders will end up with new CIT debt worth about 70% of the face value of the old debt. The government will lose the $2.33 billion it invested in CIT shares in December 2008 through the Troubled Asset Relief Program (Tarp). It declined to give more aid earlier this year.

Monday will bring earnings announcements from Ford and Chesapeake Energy, as well as, more economic news in the form of construction spending, the ISM manufacturing index and pending home sales. Later in the week we’ll see earnings from Cisco, Time Warner and Pulte Homes. More importantly,  the FOMC will announce it’s monetary policy on Wednesday and we’ll end the week with reports on wholesale inventories, non-farm payrolls and unemployment numbers on Friday.

As expected October ended up being a rough month and November may get off to a volatile start. Keep your eye on the VIX for clues as to the direction of the markets and don’t be afraid to take your profits early on Monday. You’ll want to raise cash in order to have buying power when the market resumes its march forward.

It’s not a suprise that our managed portfolio took a bit of a hit this week, closing at $1,242,126.

OPZ Running Total copy

 

Michael