Is fear dominating the conversation a bit too much? Ryan Detrick of Schaeffer’s Investors Research thinks so.
Markets / Comments Off
Today’s “Technically Speaking” column looks at the VIX, otherwise known as the stock market’s fear index, and ponders whether investors are becoming complacent amid the big market run-up.
VIX remains at low levels – last time it was below 20 was in April, when the market had a big rally and then experienced a 16% drop. Not saying history will repeat itself, but it bears watching. Caution is prudent, especially as the bullish chatter is getting louder and louder.
From Tech Speak:
Complacency may be the biggest danger to the surging stock market.
As stocks have spiked over the past two months, the Chicago Board of Options Exchange Volatility index—also known as the market’s “fear gauge”—has dropped to levels not seen since the spring, suggesting complacency could be setting in among investors. The index fell below 20 last week for the first time since early May.
Low levels of fear could signal a peak of the stock market is approaching.
The Dow Jones Industrial Average is up 12% since the end of August, while the broader Standard & Poor’s 500-stock index has gained 14%. Investors have piled into stocks amid a better-than-expected earnings season and ahead of several key events, including a first estimate for third-quarter gross domestic product, the midterm elections and the Federal Reserve meeting in November, where the central bank is expected to provide additional stimulus measures to boost the economy.
The VIX sank below 20 two weeks ago for the first time since May 3, days before the so-called flash crash. The closely watched volatility index tracks prices investors are willing to pay for options on the S&P 500. It tends to jump when stocks decline and fall when stocks rise.
When the VIX hit a 52-week low of 15.23 in late April, the S&P 500 was in the midst of topping out. The S&P 500 then began a 16% slide through early July.
But Dan Greenhaus, chief economic strategist at Miller Tabak & Co., cautioned that a VIX below 20 doesn’t mean a pullback in stocks is imminent. “This indicator is not statistically significant in suggesting an impending downturn,” Mr. Greenhaus said in a note to clients. It is “a warning sign” that investors should consider, he added, especially as the market has had such a quick run-up in a relatively short time…
Banks, China, Earnings, Economy, Financials, Internet, Markets, Media, S&P 500, Technology / Comments Off
- “The global financial system continues to be unsound in the same way that a Ponzi scheme is unsound,” John Hussman writes. “There are not enough cash flows to ultimately service the face value of all the existing obligations over time.”
- On an essentially flat day yesterday, CBOE’s VIX volatility index fell 8.5% to 18.96, lowest levels since April. “If there’s one point I would emphasize when VIX watching, it’s to pay the most attention when it does something unusual,” says Adam Warner, as VIX is exhibiting “clear signs of complacency.”
- Growth of Chinese and Brazilian credit-card balances from 2008 to 2009 “can be a source of either encouragement or worry — or both,” FT’s Alphaville says. “A sustained run-up in debt can be ultimately destabilizing,” blog notes. “So can a burst of capital inflows. And this is all playing out rather quickly against a background of currency wars, central bank interventions, and expected quantitative easing in the US.”
- Remember when the critics came out in droves when Apple (AAPL) released its first versions of iOS without cut-and-paste functionality? “It’s hard to imagine any company launching a new mobile OS would take a similar tack,” John Paczkowski writes. “Yet that’s exactly what Microsoft has done with Windows Phone 7, which will arrive at market next month without that feature.”
- Amazon’s (AMZN) attempting to carve a niche market for Kindle, with plan to launch “Kindle Singles” — essentially works that may be longer than a magazine article but shorter than typical books. MediaMemo blogger Peter Kafka raises some obvious questions: What will pricing look like? How will wholesale pricing work? And is this directed at conventional publishers, or self-published by the authors? AMZN didn’t immediately comment to Kafka.
- Windows Phone 7 may be Microsoft’s (MSFT) best chance at making a serious dent in the smartphone market, Ryan Kim writes at GigaOm. “They’ve done a good job creating something that looks and feels distinct,” he says. “We still need to put the phones through their paces but the basic building blocks are there.”
- Small business optimism barely nudged higher in September, but it still remains at recessionary levels. Poor sales remain the biggest hurdle for small businesses during this sluggish recovery. “Usually small business owners complain about taxes and regulations (that usually means business is good),” Calculated Risk says. “But now their self reported biggest problem is lack of demand.”
- Not only are small businesses not interested in getting more financing, but they increasingly think financing conditions will worsen from current levels, writes FT’s Alphaville, based on NFIB’s small business survey for September. “Maybe investors are front-running the Fed, but small businesses seem unconvinced that further easing will actually loosen credit.”
- Wall Street pay is on pace to break a record high for a second straight year, WSJ reports.
- So far so good. Intel earnings beat expectations. And, as MarketBeat notes, the deets beyond the headline numbers also look pretty solid.
Banks, Economy, europe, Financials, Housing, Internet, IPO, Markets, Media, Newspaper Industry, Recession, Technology, Unemployment, Washington / 1 Comment
- Hewlett-Packard’s (HPQ) suit against former CEO Mark Hurd looks “very much like it was filed in a fit of passion after hearing that Hurd had signed on with Oracle,” Reuters blogger Felix Salmon says. “There’s no tactical or strategic rationale for this: it’s just petulance, really.”
- “Hurd’s knowledge of H-P’s server and data storage-systems business will undoubtedly come in handy at Oracle, which has been aggressively moving into that very space ever since its acquisition of Sun,” Digital Daily blogger John Paczkowski says. “In that sense, Hurd’s hiring is a real coup for Oracle. Who better to put the screws to a rival than a former CEO with a bone to pick?”
- There are currently 161 potential IPOs on file that are hoping to raise $56B. Staggering numbers but, as Josh Brown points out at The Reformed Broker, not necessarily as great as they appear. “Between LBO retreads and the previously bankrupt, it remains difficult to get excited about the initial public offering dealflow, robust as the pipeline seems to be in dollar terms on the surface.”
- Former OMB Director Peter Orszag makes his debut as a columnist for the New York Times by advocating an extension of the Bush-era tax cuts for two years for the middle class, and even for the upper class if that’s what’s needed to get a bill through Congress. “Higher taxes now would crimp consumer spending, further depressing the already inadequate demand.”
- The labor force had little to celebrate this Labor Day, Robert Reich says. Organized labor is down, and non-organzed labor is facing joblessness and underemployment. “Face it: The national economy isn’t escaping the gravitational pull of the Great Recession.”
- If the market has been overly bearish lately, paving the way for relief rallies and such, it’s not really showing. John Hussman notes the VIX, which remains in relatively placid territory. “It’s difficult to look at the evidence and conclude that investors are excessively bearish, much less terrified here.”
- FCIC hearings revealed how reliant Lehman was on daily, short-term funding to cover longer-term costs. “It was a recipe for disaster, a trailer park in search of a tornado,” Barry Ritholtz writes at The Big Picture.
- “The truth is that the trouble in housing is not, for the most part, a demand-side issue,” Ryan Avent writes. “The problem is the millions of homeowners stuck in houses they can’t afford to sell. These households represent a significant shadow supply of foreclosures-in-waiting. I agree that it would be silly for the administration to try to support housing prices by offering more goodies to potential homebuyers. But it doesn’t follow that letting prices go their own way will magically get housing markets moving again.”
- “Newspaper advertising revenues are on track this year to dive to a 25-year low of approximately $26.5 billion, or 47% of the record $49.4 billon in sales achieved by the industry as recently as 2005,” Alan Mutter notes.
- What’s up with Google’s logo today?
Banks, Economy, Financials, GDP, Internet, Markets, Media, Recession, S&P 500, Stimulus, Technology, Unemployment, Washington / Comments Off
- “The arguments for a slowdown and double-dip recession are basically the same: less stimulus spending, state and local government cutbacks, more household saving impacting consumption, another downturn in housing, and a slowdown in Europe and in China,” Calculated Risk blogger Bill McBride notes. “It is only a question of magnitude of the impact.”
- “Of course, you never know until after the fact whether a correction is just the first leg down in a new bear market,” Tom Petruno says. “That, once again, is the agonizing question for investors.”
- Financial regulatory reform legislation, in its present form, has several positive aspects, writes Mark Thoma. Still, it fails to eliminate the too-big-to-fail problem and, as a whole, leaves him wanting more. “As with health care reform, the legislation is unsatisfactory in many ways — it leaves much of the job yet to be done — and it’s not clear that Congress will have the will to follow through,” Thoma says.
- YouTube is the latest to weigh in on the Great Flash War of 2010, siding with Adobe (ADBE), which makes Flash video technology that Apple (AAPL) has banned from its devices. “Today, Adobe Flash provides the best platform for YouTube’s video distribution requirements,” writes John Harding, a YouTube software engineer. That’s why “our primary video player is built with it,” he adds.
- “Restaurants are a discretionary expense, and they tend to be ‘first in, last out’ of a recession for consumer spending,” Calculated Risk says, as opposed to the housing market, which is considered a first in and first out sector in the recession-dating cycle. “Since restaurants both lead and lag recessions, this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.”
- Verizon (VZ) will reportedly begin launching its LTE network in 25 markets starting November 15, according to gadget blog Boy Genius Report.
- “The inventory boost has accounted for over 50% of GDP growth so far during the recovery, so a substantial pickup in final demand growth will be necessary to keep gains in employment and output from slowing economists from the Dallas Fed write. “That the required pickup will occur is far from obvious.”
- There’s increasing evidence the economy’s poised for another rough patch in 2H and beyond,” Pete Davis writes. “What more can Washington do? We’ve already done about everything anyone can think of to stimulate the economy. It’s had some beneficial effect, but it may not be enough.”
- Just as the S&P 500 keeps making lower lows, the VIX run-ups can’t quite reach their previous highs. “The increasing sluggishness in the VIX reflects what I call a progressive desensitization to fundamental factors…and technical factors that investors experience after the novelty of various threats — including very serious ones — begins to wear off,” VIX and More blogger Bill Luby says.
- He’s human? Six-time Wimbledon champ Roger Federer ousted in quarterfinals.
Banks, Economic Indicators, Economy, europe, Federal Reserve, Financials, Gold, Housing, Internet, Markets, Media, Recession, S&P 500, Stimulus, Technology, Twitter, Unemployment, Washington / Comments Off
- Gold hit a fresh record high yesterday just as the euro and stocks also gained, while the VIX fell to a six-week low. “Maybe the strange cross-currents were a sign that some market players were wrapping up their week a day early and heading for the beach,” Tom Petruno says. “In fact, Friday might be a good day to take off.” Spot on – Dow finishes up 16 in a sleepy session.
- Not much action out of Palm since word of acquisition by H-P (HPQ), but expect that to change in the near future, Digital Daily blogger John Paczkowski says. At a developer event yesterday, PALM developer liaison Josh Marinacci offered some of the company’s upcoming plans. “We are working on future devices. And a new version of the OS. So I think you’re going to find the next year very exciting.”
- It appears the White House may be changing its mind on reining in CEO pay, according to The Huffington Post. But the change doesn’t seem to be garnering the attention it deserves. “Well, the BP disaster, in particular the intense press coverage of this week, appears to have provided the Administration with some very useful air cover, by diverting public attention from the final rounds in the battle to reform Wall Street,” Yves Smith says.
- Investor sentiment readings this week were mixed. “Although far from extreme bearishness, this level of optimism is consistent with an oversold market, but does not necessarily signify that all is clear,” Pragmatic Capitalism notes. “The majority of the reliable short-term buy signals have coincided with lower levels of bullishness.”
- Ratings agencies played a prominent role in the financial crisis, but the big three agencies have “escaped much blame, liability and scrutiny for most of the post-crisis period,” FusionIQ CEO Barry Ritholtz writes. But that may be coming to an end.
- Enthusiasm for Apple’s (AAPL) iPad has been obscured by excitement over its new iPhone 4, but DigiTimes says the tablet computer is moving quickly. The Taiwanese technology publication says iPad monthly shipments reached a whopping 1.2M units and could balloon to 2.5M by year’s end.
- Nevada registers the highest monthly state unemployment rate in May, coming in at a staggering 14%, marking the first time in four years Michigan wasn’t awarded the dubious distinction, according to a new Labor Department report (via NYT’s Economix blog). By contrast Michigan’s rate was 13.6%.
- Twitter’s strong growth continues. ComScore reports the microblogging service registered 90.2M unique visitors last month, a 7.6% increase from 83.8M uniques in April. “After a lull in the winter, it’s clear that Twitter is back on track,” TechCrunch says.
- “No one will pay any heed to the now discredited Greenspan who ironically was worshiped for all the things he got wrong and ignored the few times he ever said anything that made any sense,” Mish opines.
- WSJ’s Jim Chairusm writes about why the lost US goal in the Slovenia game today shouldn’t matter.
Deflation, Economy, europe, Financials, Housing, Inflation, Markets, Media, Recession / 2 Comments
- “Either market volatility is about to increase substantially from current levels or options traders have overestimated future volatility,” Bill Luby writes. “If we have one or two more days in which stocks show average to slightly higher than usual volatility, expect the VIX to begin to move back down to a level that is a better reflection of those daily moves.” Indeed, VIX drops 9.7% to 34.61 as stocks close slightly lower, paring steep intraday losses.
- Threat of deflation isn’t as concerning as some folks like to believe, says David Beckworth. Even though the recovery has been sluggish and weak, don’t expect another collapse in spending. “Both current and expected spending are growing. It may be not be growing as fast as we want, but it is growing and there is no sign of an imminent collapse.”
- “The most important thing to know about the 1,500-page financial reform bill passed by the Senate last week — now on the way to being reconciled with the House bill — is that it’s regulatory,” says former labor secretary Robert Reich. “It does nothing to change the structure of Wall Street.”
- “Amazon (AMZN) for some time has talked up the success of its Kindle, including the claim that the device is the biggest-selling item on its site. But it is hard to avoid the conclusion that Chief Executive Jeff Bezos was trying to lower expectations at the company’s annual meeting Tuesday,” Martin Peers writes at WSJ’s Heard On The Street column.
- CNet reports Google (GOOG) offered Viacom (VIA) $592 million if the media giant agreed to license TV shows and films to YouTube. Details of the offer, made shortly after Google bought YouTube in 2006, were revealed in documents released by a Manhattan court where Viacom filed its $1 billion copyright lawsuit against Google and YouTube.
- “For a brief moment last fall, it looked as though the American housing sector might not be the persistent economic drag economists had feared,” the Economist’s Free Exchange blog says. “But the good times haven’t lasted.”
- Apple (AAPL) CEO Steve Jobs plans to deliver the keynote address at its Worldwide Developers Conference on June 7, but NYT Bits blogger Nick Bilton wonders how Jobs will wow the crowd, especially since many of his secrets have been revealed. “Product images and specs have leaked out of Apple before previous keynote presentations, but this time the amount of information was a relative gusher.”
- “With margin calls back on the radar screen for the first time since the financial crisis, it’s worth noting that margin debt has hit levels not seen since early in the crisis,” Brendan Conway writes at MarketBeat.
- Calculated Risk blogger Bill McBride delves deeper into yesterday’s existing home sales report and remains worried about increasing inventory and months-of-supply levels.
- Mounting tensions in the global financial system are evident in the increasing Libor rate. “The world’s big banks continue to grow leerier about lending to one another,” writes LA Times’ Tom Petruno. Three-month dollar Libor rate earlier highest level since July, though Petruno notes it remains well off levels seen during the financial-crisis in late 2008 when credit markets froze.
- Keep an eye on the huge shift from bullishness to bearishness throughout the last few weeks.
Dow Jones Industrials, Economy, europe, Markets, S&P 500 / Comments Off
Worries about the euro have been reverberating through the market as US stocks have been sharply lower for much of the session. In the last hour, stocks came barreling back, with the Dow inching closer to positive territory, only to fall back, highlighting how volatile the markets have truly become throughout the last few weeks.
The Dow was recently off 71, but fell as much as 184 in earlier trading. Prior to today’s session, the index has had 11 triple-digit moves in the past 14 sessions, as wild swings are fast becoming the norm. The S&P 500 was recently down 3 at 1132.
The increasingly volatile nature of the market is bringing back memories of the height of the financial crisis when markets spiraled out of control. But Bespoke Investment Group delves deeper into the details and finds that while volatility has increased in recent weeks, the market looks downright tranquil compared to the crazy daily moves in late 2008 and early 2009.
S&P 500 has been averaging a daily move of 1.32% over the last month, which firm notes is the highest level of volatility since mid-2009.
“But it was a routine level in 2008 and less than a third of the peak readings seen in late 2008,” Bespoke says, as the index was averaging daily moves of 3.5% to 4.5% a year and a half ago.
“On the market Richter Scale, we’re now at about a 3.5 if Q4 2008 was a 10.”
Bespoke’s “Richter Scale” may not forecast crazy volatility ahead, but the stock market’s fear gauge — the closely watched CBOE’s volatility index (VIX) — is up 5.1% at 32.83 and remains perched above the psychologically important level of 30.
The VIX skyrocketed more than a year and a half ago, but settled down in recent months, only to see a recent sharp spike. It closed above 30 on Friday for only the third time since October.
The stock market’s volatility gauge has been on one helluva ride over the last week. And while it’s settled down a bit today, it’s nearly impossible to know where it’s headed next.
The Chicago Board Options Exchange’s VIX jumped 86% last week, its highest-ever weekly spike, amid the “flash crash” that saw the Dow drop almost 1,000 points intraday on Thursday before settling with steep losses Thursday and Friday. The gauge closed above 40 on Friday, its highest level in more than year.
“While I do not expect the VIX to remain over 40 in the days and weeks ahead, I am aware that the current crisis will leave deep economic and psychological scars on the landscape that will take months and years to heal in full,” VIX watcher Bill Luby wrote Sunday on his VIX and More blog.
His call was spot on. Just as quickly as the VIX dropped last week, it staged a remarkable recovery yesterday. Amid the Dow’s 400-point gain, the fear gauge dropped 30% yesterday, setting a record for the largest single-day drop in its 17-year history, on news of the EU’s nearly $1 trillion package to relieve Europe’s debt crisis.
And just as stocks moved between gains and losses throughout much of today’s session, the VIX has been relatively quiet, recently trading down 3.1% to 27.95. While still high compared to recent weeks, when it waffled in the teens, the index now sits around levels at which it closed one week ago.
Unfortunately, investors shouldn’t expect things to stay this calm in the near-term. The VIX has experienced at least 20% single-session drops in eight previous instances, Luby notes. And, in the short-term following those declines, stocks have typically underperformed.
“All things considered, small sample size and all, I would have to conclude that [Monday's] action translates to a mildly bearish outlook going forward — at least based on historical data,” Luby says.
(Tennille Tracy contributed to this post.)
Dollar, Dow Jones Industrials, Economy, europe, Markets, Media, S&P 500, Technology / Comments Off
US stocks tumble across the board, posting their worst declines in three months, as the Greek bailout is proving insufficient in quelling the roiling fears about sovereign debt across southern Europe.
DJIA, which posts its fourth straight triple-digit move, drops 225, or 2%, to 10927, its second-largest point decline of the year. S&P 500 falls 29 to 1174; all 10 sectors finish in the red. Materials and industrials each drop more than 3%. Nasdaq Comp plunges 75 to 2424, its biggest decline since January 2009.
How about all that optimism that swirled through the market just 24 hours ago? That didn’t last very long. Volatility surges — CBOE’s VIX rises 19%. Euro plunges to a fresh 12-month low against the dollar. Oil drops 4%.
Media giant News Corp (NWS NWSA) rises 2.5% in after-hours trading as F3Q revenue rose 19% on “Avatar” results and a rebounding advertising market. News Corp owns Dow Jones Newswires, publisher of this blog.
Intermune (ITMN) shares plunge in late trading after the FDA rejects its application for lung-disease drug pirfenidone and requests another clinical trial, something that is expensive and time consuming. ITMN off 78% to $9.94 in after-hours trading.