Traderbill’s Financial Markets Weblog

Last Tuesday after the close TB wrote the following and here it is again updated as of Friday:

 

Where is the stock market going? IF TB had to guess, and believe me it would be nothing more than that…he thinks the next move will be sharply down. But look:

1. The market has ignored incredibly bad economic news lately in hopes the worst is behind us.

2. The market has ignored horrible earnings reports by GE and Wachovia…winners have been minor yet due to heavy options hedging the moves are exaggerated. CAT for instance who posted positive on Friday added 55 points to the Dow alone (25% of the gain)!

3. Volume today was 1.21B shares. Since 3/24 average volume has been 1.36B shares and there has still been just 1 above average volume (1.6B over past 6 mos.) day. Monday was low for 2008: 1.16B/

4. Ratio of New 52 week Highs to Lows. Since the selloff from 12/26, there have only been 8 sessions where the ratio was positive and each was followed by a selloff (2-1 and 2/4, 2/25-26, 4/4 and 4/7…a good indicator…and 4/17-18. The ratio is now +2.6:1. Advance/Declines and Breadth have also been much worse on the downside hitting double digits several times while upside is 2:1 or less usually.

5. Volatility, TB believes is key. Due to heavy options trading with straddles, volatility is low from buying out of the money puts and calls and range trading stocks. Despite the breakdown a week ago Friday,  volatility remains below 30 on VXN (NDQ 100) and 25 on VIX (S&P 500)…this is stopping major moves but it is hard to believe after breaking down they are still playing this game with a broader band? Incredibly, on Friday both plunged to the lowest levels since 12/26 when the selloff began!

6. There are about 25 stocks in the universe that drive the indices every day: WMT; IBM, BAC, XOM, AA, CVX are most on the Dow, while the Nasdaq is generally dominated by GOOG, MSFT, AAPL, with AMZN and RIMM pretty much sidelined these days. It is not coincidental that the 4 horsemen came back in force on Friday led by GOOG which added 15 to the Nasdaq 100 (25% of the gain). BTI and IMO dominate the AMEX Comp. TB believes it is options plays in these stocks that is keeping the markets under control.

7. The bad news a week ago Friday was that several major stocks closed below their 40 day moving averages, on Monday, most indices closed below the 40 day, and on Tuesday, the 40 day was resistance. By Friday all were well above again and testing levels not seen since January. There is something ghoulish about this kind of misplaced optimism.  

 

Listen…TB has been involved in banking since 1972 and now knows that he knows nothing of banking! If transparency and fiduciary duty are paramount then we have fallen into a deep hole. To see just how bad off our financial institutions are and how stupid it is to try to forecast see Heard on the Street in today’s WSJ…what a joke…experienced analysts…yes, even of the street variety…are throwing up their hands trying to do comparisons……and beware of small banks who don’t have the ability to raise capital except thru being bought out…and by whom? Now take a long hard look at BofA’s earnings!

 

Optimism is a good thing…but blind optimism is expensive and downright foolish! That is where we are!

Adieu from a still shaking his head TB.

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful.
Copyright TBD Capital LLC April 21, 2008