Skip to main content

Morning Update


Light volumes and little economic news produced another tight trading range in European equities. Shares gained marginally on comments from China’s Premier said that easing inflation leaves more room for monetary stimulus. European CPI was reported in line with expectations at -0.5% M/M and + 2.4% Y/Y. Spain is reported to be requesting an emergency disbursement from the EU for a bank bailout.

In the US initial jobless claims were up to 366K versus 365K expected. Last week’s numbers were revised to 364K from 361K. Housing starts in July were down modestly after a strong increase in June, coming in at 746K (-1.1 M/M) and near expectations for 750K. Building permits increased by 6.8% M/M to 760K, beating estimates. This news has US equities set to open at the highs of the week and the top of the market’s recent consolidation.

With trading volumes at yearly lows due to summer vacations and traders waiting eagerly to hear more from Central bankers about stimulus, we would not be surprised if the market continued to trade in a choppy range or slowly grind higher for the rest of August. Next Wednesday FOMC minutes will be released and on August 31st Bernanke will speak from Jackson Hole. These events will give the market better insight into the Fed’s plans and is could be a catalyst for the market to break out of its range. At the moment we recommend using the buy-write strategy (selling a call against a long stock position) to reduce downside risk while maintaining profit potential if the market remains flat or increases modestly.

Comments

Post a Comment

Popular posts from this blog

Morning Update

ECB officials said last night that ECB President Mario Draghi will likely wait to hear Germany’s Constitutional Court’s ruling on the EFSM before publicly unveiling his plans. Many were hoping Draghi would unveil his plan after the ECB’s September 6th meeting, but this is becoming increasingly unlikely. Today Reuters is reporting that Germany is the latest European nation to begin studying the possible impact of a Greek exit from the Euro. This comes ahead of Chancellor Merkel’s meeting with Greece’s Prime Minister today. Merkel has repeatedly said that she would like Greece to remain in the common currency, though clearly someone in Germany believes a Greek exit is possible outcome worth preparing for. This morning US new durable goods orders numbers we released for July, coming in at a gain of 4.2% M/M. Though this was strong than expected, it was primarily driven by strong aircraft sales. Non-defense orders excluding aircraft were down a sharp 3.4% M/M versus a 0.2% decline expecte...
Post a Comment
Read more

Is the KCJ Foreshadowing a 2008 Repeat?

The CBOE Correlation Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ measures the implied movement of the S&P 500 components options, compared to the implied movement of the S&P 500 index options. Simply put, the higher the number, the more likely all stocks are going to move together. Conversely, a low number will be characterized by sector rotation, and flat markets; one sector moves higher, another moves lower.  (Source: Access Hollywood) Correlation, for lack of a better term, is correlated with volatility. Not surprisingly, 30-day S&P 500 historical volatility is near the low level of 6.5%. Currently at 33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but not lower than where Lindsay Lohan was in 2007).  So far this year, the market has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector rotation. A...
Post a Comment
Read more