Sorry to ruin the party, no short selling ban. It is great to see regulators try to pull the most pathetic actions in order to create stability. 2008 Deja Vú all over again. FT reports,
European regulators failed to agree on a co-ordinated ban on short-selling on Thursday night, leaving France and other advocates of the curbs considering unilateral action to stem the recent sharp falls in share prices.
The new European Union market regulator, Esma, is trying to co-ordinate action by national regulators and more conversations could take place today. A Thursday evening conference call was unable to reach unanimity.
Full article, click here.
Time to offload some gold for gold miners? With gold prices having moved in a parabolic fashion, swapping to gold miners could be a wise trade. Some points by Purves of BGC;
We have been structural bulls on gold for three years. We still are and will likely further be for some time to come. None the less, we believe from a trading perspective, it is time to take profits. Our price objective issued on May 13th when gold was at $1,493/oz has yielded a return of nearly 21% in less than three months. We are pleased that these returns were achieved with gold closing beneath our initiating level four only of the 64 trading days that this recommendation has been in play. Currently we believe the gold miners (i.e. GDX) offers excellent value and leverage to gold prices and a superior risk return profile to the metal itself. In the event that gold continues its parabolic move, such a move will be captured by long GDX exposure.
Chart 1: Gold Prices Daily and 150 DMA Jan. 2009 – Present
Rationale For Taking Profits in Gold
1. Gold is now at more than 18% above its key support level, the 150 DMA. Chart 1 illustrates that the only time that the price of gold has exceeded the 150 DMA since then (following the September – December 2009 gold rally), the price spent the following several weeks correcting 15% to the 150 DMA.
2. The Slope of the rally since the recent breakout has been exceptionally steep. The slope of the rally has been unusually steep, some would say parabolic, since it broke out on July 13th. To put this in perspective, the slope during the current break out was .53 (14.8% return in 28 days). Compare this with the Sept. 11, 2009 break out to the Dec. 3, 2009 peak when the slope of the break out was .26 (21.7% return in 83 days).
3. Gold Sentiment at Extreme Levels. Market Vane market sentiment has come in at 90 on August 9th, a frothy level that has typically been an excellent short term sell signal.
4. The prospect for further margin hikes is real. As we have seen in with silver in this past April and with gold today, aggressive rallies are met with aggressive margin hikes. Timing these is of course difficult, but it is the likelihood of margin hikes is much more probable on the back of an exceptionally steep rally.
Guest post by Macro Story on the implications of the IV Skew. Further selling pressure…..
On a day to day basis the volatility skew is not a reliable signal for the direction of equities. What is reliable though is the trend and the charts below indicate that equities have further to fall within this current downtrend.
Skew VS SPX
The following chart is the skew (with no reference to the vix) versus the SPX. Notice the downtrending channel the skew is in.
Skew Vix Divergence VS SPX
A rather interesting similarity has formed with the current trend versus that of summer 2008 preceding the September / October slide.
Are we in a bull or bear market? According to Michael Purves of BGC we are in a Wolf market where we trade in volatile sessions pretty much range bound. Some points from a strategist that has called some really good ideas recently. The trader agrees on some of the points, although we are inclined to believe the Economy , the volatility and market microstructure (HFT etc) will cause the market to go lower eventually.
Neither Bull Nor Bear Our “Wolf Market” framework – range bound, volatile, and technically defined markets – is unfolding more or less as expected. In our “Wolf in Waiting” Report published in February, we forecasted that weak housing and unemployment would conspire with a sea change in developed market sovereign risk to drive volatility and keep the market levels range bound. This has largely happened and the SPX has thus far respected our ceiling and floors (Chart 1). At this point we believe that tactical long positions for U.S. equities can be established. We are targeting 1,250 as our near term target, roughly 12% up from current levels. However, we also believe volatility will stay in a high dynamic range. Macro risks, particularly in Europe, will need to be closely watched. The equity market will stay in a state of agitated suspension as stock fundamentals and low relative valuations face off against enduring macro risks and sluggish growth prospects. This is a Wolf Market, not a bull market and not a bear market.
Chart 1: 2011 Wolf Market Inner and Outer Ranges for SPX From February, 2011
The flagship fund of Paulson & Co, the world’s third-largest hedge fund, lost more than 10 per cent of its value in the first week of August alone, the FT reports. At Friday’s close, the Advantage Plus and unleveraged Advantage strategies were down 31 per cent and 21 per cent respectively for the year http://ftalphaville.ft.com/thecut/2011/08/11/650286/paulson-fund-loses-10-in-week/
George Osborne is to tell MPs on Thursday that he has drawn up contingency plans to deal with the fallout of a new European banking crisis, amid renewed market turmoil and speculation about the health of the French banking sector. The FT reports Mr Osborne will tell an emergency session of the Commons that there is no immediate threat to financial stability http://ftalphaville.ft.com/thecut/2011/08/11/650201/osborne-to-outline-contingency-plans/
French president Nicolas Sarkozy gave his finance and budget ministers a week to devise new measures to cut France’s budget deficit as shares in the country’s banks plummeted in the latest bout of financial markets turmoil http://ftalphaville.ft.com/thecut/2011/08/11/650251/focus-of-eurozone-crisis-turns-to-france/
Groupon has abandoned a controversial accounting measure in a revised prospectus for its initial public offering filed on Wednesday. The FT reports the Chicago-based online coupon company was criticised after its initial filing in June for using a metric called “adjusted consolidated segment operating income”, http://ftalphaville.ft.com/thecut/2011/08/11/650241/groupon-revises-its-ipo-prospectus/
Shares in Cisco Systems rose as much as 13 per cent in late trading after profit and sales beat analysts’ estimates, Bloomberg reports. It was the first time in six quarters that the shares gained after results. Profits of 40 cents per share in the fourth quarter exceeded average analysts’ estimates of 38 cents http://ftalphaville.ft.com/thecut/2011/08/11/650231/cisco-shares-jump-on-earnings/
Trading in equities and derivatives has hit record levels this week, the FT reports, as investors traded frantically in response to a tumult of factors such as the US Federal Reserve’s decision to stick with near-zero interest rates until 2013, http://ftalphaville.ft.com/thecut/2011/08/11/650191/trading-volumes-reach-record-levels/
The yuan strengthened beyond Rmb6.4 per dollar for the first time in 17 years, Bloomberg reports, supported by the Federal Reserve’s pledge to keep interest rates at a record low and signs China willhttp://ftalphaville.ft.com/thecut/2011/08/11/650136/yuan-strengthens-against-dollar/
Asian shares hit the skids again Thursday amid another battering for global markets, while the euro was choppy as investors remained cautious. Japan’s Nikkei Stock Average fell 1.6%, Australia’s S&P/ASX 200 lost 1.4%, South Korea’s Kospi Composite dropped 1.8% after slumping over 4.0% on the opening bell, and New Zealand’s NZX-50 was 0.1% lower.http://online.wsj.com/article/SB10001424053111903918104576501051890278110.html?mod=WSJAsia_hpp_LEFTTopStories
We are slowly but surely getting that Lehman Deja Vú. First all was fine, then they started offloading assets and finally we all know what happened. The run on BAC has started. FromReuters;
It was the first time the bank has expressed regret over its 2008 Countrywide purchase, which has saddled Bank of America with billions of dollars of mortgage losses.
Moynihan’s admission shows the extent to which the bank is still reeling from the housing crisis, and the intensity of investor fear that losses from that deal will force the bank to issue more shares to bolster its balance sheet.
“Obviously there aren’t many days when I wake up and think positively about the Countrywide acquisition in 2008,” said Moynihan during a conference call arranged by Fairholme Capital Management, one of the bank’s biggest shareholders.
and now we also get reports of BAC trying to find buyers for it’s stake in China Const. Bank. Let’s see who is eager buying assets in this wild market. As everybody is unwinding market exposure, it is not easy to find buyers, unless you really sell it cheaply. The fire sale has started…