Spreads were broadly wider in the US as all the indices deteriorated (with HY underperforming IG once again as both reached 3-4 week wides but IG maintained a very tight range like stocks while HY slipped all day). Indices generally outperformed intrinsics with skews widening in general as IG’s skew decompressed as the index beat intrinsics (HY-IG and IG hedge technicals holding IG back), HVOL underperformed but narrowed the skew, ExHVOL outperformed pushing the skew wider, XO’s skew increased as the index outperformed, and HY’s skew widened as it underperformed. (The HY-IG differential is a better indeication of risk aversion currently than IG since technicals are holding IG back and we note thios would imply a higher VIX and 950 S&P give or take – given empirical levels).
The names having the largest impact on IG are Quest Diagnostics Incorporated (-1bps) pushing IG 0.01bps tighter, and CIT Group Inc (+102.23bps) adding 0.38bps to IG. HVOL is more sensitive with Canadian Natural Resources Limited pushing it 0.3bps tighter, and CIT Group Inc contributing 1.7bps to HVOL’s change today. The less volatile ExHVOL’s move today is driven by both Quest Diagnostics Incorporated (-1bps) pushing the index 0.01bps tighter, and Constellation Energy Group Inc. (+26.65bps) adding 0.26bps to ExHVOL.
The price of investment grade credit fell 0.25% to around 99.05% of par, while the price of high yield credits fell 1.44% to around 86.69% of par. ABX market prices are lower by 0.25% of par or in absolute terms, 0.72%. Broadly speaking, CMBX market prices are lower by 0.3% of par or in absolute terms, 1%. Volatility (VIX) is up 3.62pts to 27.89%, with 10Y TSY rallying (yield falling) 10.1bps to 3.47% and the 2s10s curve flattened by 6bps, as the cost of protection on US Treasuries rose 2.62bps to 29bps. 2Y swap spreads widened 0.6bps to 40.56bps, as the TED Spread widened by 0.1bps to 0.26% and Libor-OIS deteriorated 0.1bps to 25bps.
The Dollar strengthened with DXY rising 0.53% to 79.307, Oil falling $0.68 to $66.83 (underperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.57% today (a 0.48% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $14.87 to $933.68 as the S&P is down (976.5 -2.91%) underperforming IG credits (123bps -0.25%) while IG, which opened wider at 121.5bps, outperforms…
HY 12 doesn’t believe in this rangebound mumbojumbo – credit traders have to really earn their living. Speaking of, when will “liquidity providers” also get involved in this product and start trading amongst themselves.
You may have read a slightly different variation of this article before. I wrote the original article a couple of months ago, however, Foreign Policy magazine wanted to republish it. I added some new examples, explained a few things slightly better (hopefully), and updated statistical data which did not change much: Chinese monetary base is exploding, GDP growth is accelerating, Chinese US dollar reserves topped $2.2 trillion and exports keep collapsing. Now China is very serious about using their hard earned US dollars for “buying American” companies (they must have read the President’s memo).
Financial commentators are obsessively debating whether the recent rise in the Chinese stock market means there’s a bubble — and if so, when it’s going to burst. My take? Who cares! What happens to the broader Chinese economy is what we should really be watching. It will have a far-reaching impact on the rest of the world — much more far-reaching than a decline in stocks.
Despite everything, the Chinese economy has shown incredible resilience recently. Although its biggest customers — the United States and Europe — are struggling (to say the least) and its exports are down more than 20 percent, China is still spitting out economic growth numbers as if there weren’t a worry in the world. The most recent estimate put annual growth at nearly 8 percent.
Is the Chinese economy operating in a different economic reality? Will it continue to grow, no matter what the global economy is doing?
The answer to both questions is no. China’s fortunes over the past decade are reminiscent of Lucent Technologies in the 1990s. Lucent sold computer equipment to dot-coms. At first, its growth was natural, the result of selling goods to traditional, cash-generating companies. After opportunities with cash-generating customers dried out, it moved to start-ups — and its growth became slightly artificial. These dot-coms were able to buy Lucent’s equipment only by raising money through private equity and equity markets, since their business models didn’t factor in the necessity of cash-flow generation.
Funds to buy Lucent’s equipment quickly dried up, and its growth should have decelerated or declined. Instead, Lucent offered its own financing to dot-coms by borrowing and lending money on the cheap to finance…
Pre-market, the SPY has traded as low as 98.54 and is currently at ~99.10. The support we have been observing at 99.40 has been broken and we will now look for that level to act as resistance if the market is going to continue lower to the next level of potential support at 98.40. The biggest level of potential support for this market is now down near the prior resistance at 96 which is the approx 38.2% retracement of the rally from the July low to the Aug high and the VWAP from the low to Friday’s high is found near 96.75 The market has been volatile lately and we now have a lower low to accompany the lower high, the intermediate term trend is lower.
Bloomberg reporting that Sergey Aleynikov wants a dismissal of his criminal case. Whether or not Goldman, which woke the FBI at 3 am to get on the case stat, will agree with his view is a different view.
At a hearing in Manhattan federal court on Aug. 10, defense attorney Sabrina Shroff said she will seek to persuade prosecutors to enter into a rare “deferred prosecution” agreement. Under such agreements, prosecutors usually agree to dismiss criminal charges provided a defendant doesn’t break the law for a specified period of time.
“I’m seeking a deferred prosecution in this matter,” Shroff, who declined to comment today, said in court on Aug. 10, according to a transcript of the hearing. “I’m looking to show the United States Attorney’s Office that my client never engaged in any improper behavior, was a well-respected employee, was not fired, was not reprimanded, nor were there any complaints issued against him.”
As a reminder, Sergey was arrested on July 3 and charged with “theft of trade secrets and transportation of stolen property in foreign commerce” and that the proprietary code, worth millions of dollars, lets the firm do “sophisticated, high-speed and high-volume trades on various stock and commodities markets,” prosecutors have said in court documents.
The Aug. 10 hearing was called for a judge to weigh a request by Shroff that Goldman be forced to turn over Aleynikov’s personnel file. U.S. District Judge Paul Crotty in Manhattan granted the request after Shroff said she couldn’t seek a deferred prosecution deal until she reviewed his Goldman file. Goldman Sachs had refused to surrender the records.
What is deferred prosecution?
It is common for lawyers to seek deferred prosecution deals with prosecutors, who rarely grant them. Among the beneficiaries of such agreements were former Credit Suisse Group banker Frank Quattrone, who was accused of obstructing justice, and the accounting firm KPMG LLP, which was accused of conspiring to sell illegal tax shelters.
At this point the smart money is on this case getting promptly swept under the rug, especially as Goldman has recently went on an aggressive reputation cleansing crusade, and the Aleynikov case is likely merely a case of remote file back up. If…
Based upon the search terms that are landing visitors on the blog this morning, it seems as if many readers are interested in how to trade the VIX. This question really boils down to two separate issues: strategies and trading vehicles.
Since I have talked about strategies repeatedly in this space in the past, I thought I would offer a quick summary of trading vehicles today.
First off, it is not possible to trade the VIX directly. The VIX index (sometimes referred to as the cash or spot VIX) is a statistic that the CBOE calculates and disseminates every 15 seconds during the trading day.
Fortunately, there are a number of VIX derivatives that allow traders to take positions on the VIX without owning the underlying. In no particular order, they are:
VIX options – these include standard options as well as VIX binary options
VIX futures – standard VIX futures contracts have a contract size of 1000 times the VIX; the recently added mini-VIX futures have a contract size of 100 times the VIX
VIX ETNs – currently consists of two exchange traded notes: the iPath S&P 500 VIX Short-Term Futures ETN (VXX) and the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ). The former targets one month VIX futures and the latter targets five month VIX futures.
In addition to VIX products, one can always trade options on the SPX (or SPY). A long VIX position is very similar to a long SPX straddle (or strangle); a short VIX position is very similar to a short SPX straddle (or strangle.)
For some additional reading on these subjects, readers are encouraged to check out:
One of the biggest stories of 2009 is turning out to be the rapid rebound in the China, both for the economy and for Chinese stocks.
Second quarter GDP was up 15% quarter-over-quarter in China and industrial production is up 10.8% year over year through July. A number of other statistics also show strong growth returning to China following the enactment of recent stimulus measures. Additionally, when pressed for areas of current and future revenue growth in their recent earnings conference calls, American companies were quick to point to the strong rebound in China as one of the few or sometimes the only area of growth.
For these reasons, I have made FXI, the iShares FTSE/Xinhua China 25 Index, the subject of this week’s chart of the week. The chart below is a weekly chart of FXI going back to April 2005 and shows the dramatic gains of 2006 and 2007, the subsequent crash from October 2007 to October 2008, and the 129% bounce from the October bottom to the August 3rd top. In the two weeks since topping, FXI has fallen about 6.4%.
In the last year, Chinese stocks bottomed before their U.S. counterparts, had a much more significant bounce off of that bottom, and also topped before U.S. stocks did. Are Chinese stocks pointing to a correction? Can U.S. stocks continue to make new highs without new highs from Chinese equities? Will technical resistance at the 100 week moving average become a significant hurdle for FXI? I expect we will have much better answers to these questions before Labor Day rolls around.
For two excellent resources on Chinese markets, I recommend:
In what was one of the most entertaining and informative live debates on Bloomberg TV since Paul vs Paul, yesterday the news station hosted Pimco's Mark Kiesel in his role as house bull (who supposedly sold his home in 2006 which according to some media makes him a swing-trade expert and top, and thus, bottom-caller) against perpetual skeptic Gary Shilling, who obviously does not share the optimism of PIMCO. His biggest concern? ...
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Deflation simply means falling prices. The 4-pack below reflects that the bond players believe in the deflation theme as the yield on the 10-year note breaks below the 2009 and 2011 lows.
Speaking of deflation and falling prices, the CRB has now broken below last summer's lows, the CRX is at last summer's lows, and Crude Oil finds itself on key rising support.
China Automotive Systems, Inc. (NASDAQ: CAAS) oday announced that its wholly owned subsidiary, Great Genesis Holdings Limited, has entered into a definitive agreement to sell its equity interest in Zhejiang Henglong & Vie Pump-Manu Co., Ltd, to the Zhejiang Vie Group Great Genesis's joint venture partner in Zhejiang. This transaction is subject to local regulatory authority approval.
Founded in 2002, Zhejiang, which designs, manufactures and markets power steering pumps, is located in Zhuji City, Zhejiang Province. According to the Agreement, Great Genesis will sell its 51% stake in Zhejiang to Vie Group for RMB52 million, which represents a 24% premium as compared to the May 20, 2012 estimated net book value of approximately RMB42 million. According to unaudited accounting information, Zh...
The small Mediterranean country of Greece has been more than a thorn in Europe’s (NYSEARCA:VGK) back for the past eighteen months; it has been the focal point of foreign press on Europe, and in this case all press is not necessarily good press. To truly understand the scope of the Greek debt crisis, one must analyze the Greek economy and its overall importance to the Euro. As ever more countries bid to enter the Euro, now Greece appears to bid for an exit, the first ever in the Euro’s history. A Greek exit from the Euro has been likened to a w...
Top 5 RisersStockRatingAnalysisWDCSTRONGBUYWestern Digital is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.KROSTRONGBUYKronos Worldwide is gaining higher expectations and its recent history of its earnings increases is significant.URIBUYProjected value continues to rise for United Rentals while long term increases in earnings growth are also becoming more widely expected.SWHCBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valu...
The market remains a mess right now as we are back to the environment of latter 2011 and middle 2010 where random comments from officials across the Atlantic move everything en masse. Today the market was hit by word that preparations for Greece's exit from the EU are being considered.
Of course a denial by another official would send the market up 1% immediately. Rinse, wash, repeat – year #3.
The bigger picture right now is all stocks are moving as one asset class as our massive correlations return. Until that changes it is very difficult to bother to be a stock picker.
EXPR - Express, Inc. – Shares in apparel retailer, Express, Inc., dropped nearly 30.0% today to a new 52-week low of $16.38 after the company projected full-year earnings below those expected by analysts. Options on EXPR are far more active than usual today, with overall volume on the stock currently at 4,460 lots, up nearly 2,000% over the stock&rsq...
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
NEW: Ilene is available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here is this week's test version of the latest newsletter. We apologize for some formatting issues that need to be worked out. Please tell us what you think.
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(