Some Observations - August 10, 2011

[ernsttanaka]

Based on my vix reading I am getting optimistic.

On the hourly graph I am seeing lower highs over several days - while the market is still scaring everyone under his/her bed. I often see that as an part of a bottoming process.

If I was day-trading the IWM -- I would look for long entries -- and pass by the short set ups.

BUT a vix of over 40 is also saying anything can happen.

Let's not forget people are buying options priced such that we expect the SPX to be +/- 40% in an year from now. That is 700 -1600.
Big parties are buying options or at least not to sell options at those inflated prices. That is the reason the vix stays up. So GS and like are currently thinking that this wide range to be the most probable scenario, otherwise selling premium would be the smart trade.

As for my 'bread and butter' for AUG - I was flat before the big moves - gaining again not 100% my goal. But my ego can live with that considering the circumstances.

Ernst

[adam ali]

Charts on the VIX:

http://www.businessinsider.com/putti...context-2011-8

[adam ali]

Asomani above presents an interesting cumulative tick chart on the IWM that shows apparent accumulation. Yet, Manucastle in his post stated: Yesterday, the R2000 tick ($TIKRL) behaved VERY differently than the NYSE tick ($TICK) and the all market tick (TIKUSC). The R2000 declined for most of the day while the other 2 were generally rising.

Billy, do you know of an explanation for this apparent discrepancy?

[Billy]

Asomani above presents an interesting cumulative tick chart on the IWM that shows apparent accumulation. Yet, Manucastle in his post stated: Yesterday, the R2000 tick ($TIKRL) behaved VERY differently than the NYSE tick ($TICK) and the all market tick (TIKUSC). The R2000 declined for most of the day while the other 2 were generally rising.

Billy, do you know of an explanation for this apparent discrepancy?

Asomani and Adam,

I use Cumulatice TICK as a detector of buy/sell programs. There is no denying that the NYSE TICK points to program buying for the last two days. Now, as I mentioned elsewhere, the baskets of stocks being bought seems to be mostly defensive stocks. This is further confirmed by the lagging RUT TICK, since the RUT is mostly made up of "aggressive, risky" stocks. Hence, it is too early to call a potential bottom based on cumulative TICK alone, because we want to see "aggressive" buying programs, not "defensive" buying programs as first hints of a bottom.

These buy programs may also be used tactically to support prices in a consolidation before a new wave of selling.
Billy

[adam ali]

Update on regulating short-selling:

And Spain....Senior government sources tell Class CNBC, CNBC’s Italian partner, that a short-selling ban will be imposed in France and Italy after Thursday's market close.

The report conflicts with what CNBC has been told by the European Securities and Markets Authority (ESMA). The independent European Union body, which provides a forum to national financial European regulators, told CNBC on Thursday that it is increasing its market surveillance following the rumor-led drop in French banks' shares that took place on Wednesday and then again Thursday.

While he couldn't comment on whether a ban on short-selling was to be carried-out, a spokesperson at the ESMA told CNBC there were talks about such a move but that such a move wouldn't be "today, or tomorrow, or next week."

The ESMA is aware of the speculation problem, he said, and that markets have become jittery about it. "Today it’s about France; earlier, it was about Greece," he said.

Being a coordination organ, the ESMA cannot enforce such a ban, but what they can do, the spokesperson said, is offer a table around which European regulators can meet and agree on a coordinated action.

[adam ali]

Ernst,

Any thoughts on the VIX today ? I would have thought it be down more but that's a very seat of the pants observation.

[Timothy Clontz]

The VIX is the volatility index -- basically measuring how much prices are expected to CHANGE in either direction. Since the SPY is up 3% today (when an average up day since 1950 is 0.66%), the volatility remains extremely high.

Most folks are looking for a fast rush up to the long term moving averages (around 1250) before a renewed bear market. That's a LOT of price movement. The VIX should stay relatively high until a new bull market begins.