All posts by jimmybob

A Self-Fulfilling Prophecy?

The market, at times, can be the worlds best predictor of the future. Most times, the market has reacted ahead of events that would have normally caused a sell-off, because the outcome was “Priced-In”.

 

Bonds
Bonds

One of the less proven theories with the market, is the one of the self-fulfilling prophecy. Where rumor and speculation that may be 100% off base, actually cause the outcome to occur.

 

For example, a blog can say Morgan Stanley is going bankrupt because of it’s exposure to European debt. Traders then tank the stock to all-time lows on that fear, people withdraw funds from their accounts because of  fear …ect. Ultimately the company may have to resort to the outcome that was predicted, not because the blog was right, but because of what the rumor and speculation caused.

 

This maybe the case with the European Debt crisis. Over the past week, we have seen bond yield rise in Italy to obscene levels. Monday we saw the Yields rise in other European countries such as Spain and France. Is this a self-fulfilling prophecy?

 

 

As these yields rise, European countries will find it much more expensive to pay off their debt. We are starting to see a trend that may be unsustainable, and result in at least a few of these European countries going default.

 

I guess only time will tell!!

 

Bonds… Bonds… BONDS????

So lets see…

 

You have Greece on the verge of default on it’s debt, who almost slapped away help., Who’s Prime Minster decided on Sunday that he does not want to be a part of the process anymore. And now less then 12 hours later  it’s all about Italy stealing the headlines. Rumored to be the next Eurozone country to need a bailout of sorts.

 

When you go to a bank and try and take out a loan, and the bank tells you you’ll be paying 50% interest on that 10 year loan, you would think that’s a problem right? It’s a tad bid of an exaggeration but the

Italian bond rates have been soaring through the roof:

 

Italy Bond Rates
Italy Bond Rates

The yield on 10-year Italian government bond topped 6.6% to set a fresh euro-era high in morning trading, according to FactSet Research data.

 

These are all troubling signs. Obviously these concerns are things to look at when trying to figure out the market direction in US markets. So understanding the short and long term ramifications are key to creating a strategy to profit from it.

 

More to come tonight on that topic.

 

Happy Trading Tuesday!

 

Big Ben and the possibility of QE3 can’t stave off Eurozone Fears

The market notched another triple digit day, this time to the upside. When you see volatility like this, you can expect a big move coming very soon. News out of Europe continues to be the catalyst, irregardless of Ben Bernackes pledge today that they will do what it takes to keep the economy on pace.. ie. Quantitative Easing #3 is ready to go and in his warchest if needed.

Futures are down at the moment, indicating a 1% haircut at the open:

 US 30 Dec 11 11655.00 11768 11800.00 11614.00 -113.00 -0.96% 5:19:00
 US SPX 500 Dec 11 1220.95 1234.25 1237.95 1216.95 -13.30 -1.08% 5:18:34
 NQ 100 Dec 11 2298.80 2314.5 2324.40 2291.20 -15.70 -0.68% 5:18:34
Headlines out of Europe that France and Germany have given Greece an "ultimatum" , has world markets on edge once again. We will see how this pans out. A greek default may have devastating effects on the market short term, although long term it may be a better option then the current scenario.
What will stop other countries like Italy or Portugal to get the same deal Greece is getting? Let them default, deal with the consequences, and move on.

Blood, Sweat, and FEARS 11-1 Recap and Tomorrow’s trade idea PCLN

Just when you thought it was safe to go back into the equity cookie jar, you get sabotaged by the Cookie Monster... Of course the cookie Monster is Greece. Greece is the worlds 32nd largest economy with almost 10 million inhabitants.

Greece
Greece causing market turmoil!

Its Prime Minister George Papandreou, was able to cause a worldwide panic sell off in the markets with his call for a referendum and confidence vote on friday. Now to those betting on a downturn, this was good news. Stocks sold off over 5% in most Europe countries, and 2%+ in US markets.

Whether the sell off continues tomorrow, is yet to be seen, as market futures are slightly higher as I write this:

US 30 Dec 11 11697.00 11682 11716.00 11618.00 15.00 0.13% 5:13:48
US SPX 500 Dec 11 1226.45 1224.5 1228.45 1216.55 1.95 0.16% 5:13:46
 NQ 100 Dec 11 2310.30 2303.5 2313.80 2294.10 6.80 0.30% 5:13:48

One of the Stocks I am watching into tomorrow are one of the high Beta Growth Stocks PCLN.

PCLN is a best of breed stock, but will succumb to continued severe price fluctuations based on market conditions. If there is a continuation of the sell-off, PCLN can see $460 in short order.

PCLN
PCLN Buy Puts 11-1

 

Have a Happy Trading Day on Wednesday folks!!!

 

Market Recap 10/31/2011 – GMCR VXX $USD

The last day of October ended in a sea of red, as the Eurozone Debt Deal Euphoria faded, and folks started realizing that this deal will not be a long-term solution. Couple that with Japans currency intervention, and you have a recipe for a sell-off. Option Traders can have their most profitable days on down days like these, as the VIX (Volatilty Index) goes up, premiums go up. And if you are on the right side of the trade with PUTS, you have a double whammy of profits.

Stocks to Watch going into Tomorrow:

 

GMCR - The stock closed at $65.02. Its been a battle of the Bulls and Bears after it broke to the downside from $75. There are Analysts who continue to stand by their $120+ price targets(and pump them on CNBC), and there are others who think this has a ways to go before it hits bottom. One of the most requested stocks to short out their right now. Gravity will do its work here before earnings on the 9th.

GMCR CHART

VXX - The Stock closed at $40.11. VXX is an ETF that tracks the VIX(volatility) futures.  It Bounced off the lower bollinger band once again, and looks ready to head higher into tomorrows session.

$USD – As a trader, if you are not looking at or watching currencies, you are not going to be as successful as you could be. The USD ramped up hard overnight, as Japan intervened in the currency market to weaken the yen. In the process, the USD jumped almost 400 PIPs against the Yen. If your are not familiar about currencies and PIPs, we will explain at a laster date. Either way, looks like the $USD is set to break its 50 day moving average. Stronger $USD usually equates to weaker equities, so we could see another move to the downside the next few session. Something to keep an eye on for sure.

Have a great Halloween and Good Luck with your trades tomorrow!