Index Option Trader

$100 Oil - Here We Go… Again

February 20, 2008 – 1:55 pm
From TheOilDrum.com The price for West Texas Intermediate (WTI) oil closed above $100 for the first time on February 19, 2008. "Rising oil prices have been giving a clear signal of pending shortages for over five years now," according to TheOilDrum.com. By ignoring this signal, world leaders are steering the world toward an energy disaster characterized by shortages, high energy prices, inflation, civil unrest and famine. The $100 a barrel closing price is a sign that times will never be the same again. "The world is entering a new era. In this new era, the supply of energy will dominate the political landscape in a way that is not being recognized by any of the presidential candidates," according to TheOilDrum.com. I still have a hard time imagining why investors are shocked that oil has traded north of $100/barrel. Sure the idea of $100 a barrel isn't too settling when you consider how ...

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Global Agriculture Inflation – A Brief Overview

February 20, 2008 – 11:24 am
Excerpt from “Waves of 2008″ written by our Chief Research Strategist Anthony Tsung. Feed Grains--Corn: • Ample supplies together with a continued lack of competition and firm demand overall, have boosted U.S. corn export prospects to a record 62.0 million. The record was reached in 1979/80 with 61.8 million. • In China, strong demand for feed grains coupled with persistent food price inflation will keep exports to the lowest level in over a decade, despite good production in the last 2 years. • Argentina exported at a record low pace for the first half of its marketing year, but a cap on both old and new-crop export registrations leave 2007/08 shipments uncertain at this time. • The EU is facing a shortage of feed grains; while much of the corn is most likely to be outsourced from Brazil, this will allow the United States to backfill in certain markets or to increase share in others. ...

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Credit Problems Continue to Sweep the Street

February 19, 2008 – 4:32 pm
Who would have thought, more writedowns? Who knew! This shouldn't come as a surprise to those familiar with the credit situation of late. Looks like the Big Boys on the Street may be ready for Round 2 this quarter, writing down north of $200 Billion in losses within the commercial mortgage-backed securities and other debt instrument markets. From the New York Times: Wall Street banks are bracing for another wave of multibillion-dollar losses as the crisis that began with subprime mortgages spreads through the credit markets. In recent weeks one part of the debt market after another has buckled. High-risk loans used to finance corporate buyouts have plummeted in value. Securities backed by commercial real estate mortgages and student loans have fallen sharply. Even auction-rate securities, arcane investments usually considered as safe as cash, have stumbled. The breadth and scale of the declines mean more pain for major banks, which have already written off more ...

Posted in General Commentary, Indices | 1 Comment »

China & Ford Motor – What do they have in common? Implications –The X Factor

February 18, 2008 – 7:59 pm
Excerpt from "Waves of 2008" written by our Chief Research Strategist Anthony Tsung. The X factor, is the rising cost of inflation and the over aggressive stance by the communist party to impose regulations on their own labor market and to increase tariffs on trade in their efforts to curb potentially devastating growth. [This portion of the report will expense with the agriculture inflation that the world is experiencing for the time being]. The most recent law comes into affect January 1st, 2008, of next year. This news, in my observation goes largely unnoticed by the market [perhaps due to the heft of the news from the credit crunch that has dwarfed most events else where in the markets.] It was reported on June 29th that China’s legislature passed a sweeping new labor law today that strengthens protections for workers across its booming economy. This comes in the face of pleas from ...

Posted in Equities | 2 Comments »

SPY Symmetrical Triangle

February 18, 2008 – 4:45 pm
It has come to my attention that the SPY has formed a textbook symmetrical triangle lately. This type of continuation pattern, shown below, is classic before a break in either direction. With SPY trading below both its moving averages, the amount of bearish sentiment among investors, and tons of upside resistance, one would think that SPY will be headed lower. If SPY pierces either the up trend line of the triangle pattern, look for SPY to head higher, but be aware of the major resistance at the 144-146 levels as we are still in a confirmed downtrend. If SPY pierces the lower trendline of the triangle pattern, look for the SPY to head considerably lower and a retest of the lows around 127. As a fan of contrarian signals somewhat, I think that SPY will pierce the upper trend line and head a bit higher here as it is the move ...

Posted in Indices | 1 Comment »

Outstanding Article on the Outlier Events of the Market

February 11, 2008 – 10:44 pm
I recently came across an outstanding article entitled, "Black Swans, Real Estate and Financial Stocks," written by Geoff Considine over at Seeking Alpha. The article nicely compliments my previous post regarding the 3+ sigma events and statistical anomalies that exisit in the market -- think the beginning of 2008. The article is located here: http://seekingalpha.com/article/58801-black-swans-real-estate-and-financial-stocksSHARETHIS.addEntry({ title: "Outstanding Article on the Outlier Events of the Market", url: "http://www.indexoptiontrader.com/blog/2008/02/11/outstanding-article-on-the-outliers-of-the-market/" });

Posted in Equities, Indices | No Comments »

A Quick Lesson In Mathematics & Statistics: Part 2

February 11, 2008 – 10:35 pm
As promised, this is Part 2 of my previous entry. In terms of post-capitulation market dynamics, there are a number of events that happen following an exhaustive sell-off. First off, buyers "at the bottom," slowly and cautiously begin to buy stock. Unsure that a bottom has been formed, many investors are hesitant to come back in. Slowly, but surely the market begins to lift even with looming economic risks and uncertainties. This is classically what has come to be known as the wall of worry. As investors come back in, natural resistance points usually are met with selling pressure. Investors must deal with everything from headline to geopolitical risk on the way back up, as the smallest bit of bearish news will bring down the market once again, hence the "worry." Market prices than usually head for the next point of natural resistance, or point of equilibrium, at the linear ...

Posted in Indices | 1 Comment »

A Quick Lesson In Mathematics & Statistics: Part 1

January 25, 2008 – 9:53 pm
I felt compelled to write to entry after receiving numerous emails about the implications of standard deviation and linear regression while looking at charts. First off, linear regression can be defined as: the best fit of sample data points to a linear model by minimizing the sum of the squares of deviations between the points and the line. Basically what were talking about here is the mean price, or the price on a line of best fit. Standard deviation on the other hand is a measure of the dispersion of a set of data from its mean. In other words, how far something is (in this case, price) is away from the mean -- or line of best fit. In a standard normal distribution at 3 standard deviations, 99.7% of all values of in a sample of data will fall within a given range away from the mean. The 99.7% figure ...

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Archive: January Trade Commentary - January 15th 2008

January 24, 2008 – 2:01 pm
With the recent downturn in the market for yet another session, it’s looking like the SPY is going to pierce the lower breakeven price at 137.59. According to our rules, we have a standing conditional order for the autotraded positions to close the position out at the market if the SPY price violates the breakeven price. From a statistical perspective, this price movement (without any reversion to the mean price) is a rare event to say the least, but will happen from time to time. With disappointing Intel results, along with all of the other bearish news on the economic front, the indices dropped considerably after hours. The Asian session got off to a weak start, but has since drifted towards the upside. We will continue to monitor the futures overnight and into the morning for any signs up a correction to the upside. If selling pressure lasts into the pre-market ...

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Archive: January Market Analysis Update

January 24, 2008 – 2:00 pm
As we wait for the market to enter into a prime entry zone for our January trade, I thought that I would reflect on the market conditions of late. As far as the first trading day of 2008, it was a complete downer to the tune of 220 points to the downside. A poor ISM report and nervous comments from the FOMC minutes aren't adding any positive marks to the bull's cause. In terms of economic reports, we have Auto Sales, ADP Employment, Jobless Claims and Factory Orders on Thursday and Nonfarm Payrolls, Unemployment, Hourly Earnings and ISM Services on Friday -- a few of which are market moving numbers. And if the volatility measure (VIX) wasn't high enough, add to the mix $100/barrel crude, record high gold prices, the ever popular credit crisis, and a slew of corporate earnings due in the coming weeks from names like CELG, STZ, ...

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