Schaeffer's Trading Floor Blog

Perspective on the VXO

by 2/18/2005 9:18 AM
Stocks quoted in this article:

In the heat of the moment I know that I throw out the term complacency...but I don't always have time to explain what I mean. So before the action gets ramped up today, I want note this monthly chart of the SPX and the CBOE Market Volatility Index (VXO)...which is one example...


Created with SuperCharts by Omega Research

The VXO (along with its sister indices the VIX, QQV, VXN) is sometimes called a "fear gauge" and a low reading is interpreted (by contrarians) as a sign of complacency while a high reading is a sign of - you guessed - fear. (You can find more thoughts on the VXO in this post - Why the Low VXO?)

The simple view here is that the VXO is at multi-year lows (multi-year as in Mr. Greenspan had yet to make his infamous "irrational exuberance" speech) while the market is well off its highs...

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Stocks quoted in this article:

PPI data is out and caused stock futures to reverse. The overall PPI number showed a rise of 0.3 percent which was inline with expectations. However, the core number (excluding food and energy) showed a rise of 0.8 percent which was higher than expected. I am seeing this spun a couple different ways, but the immediate reaction is S&P futures is clear...


Chart Courtesy of Thomson/ILX

The S&Ps were a point and a half above fair value but are now two and a half points below fair value. However, there is still an hour until the open so things may continue to change...

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Worth Noting?

by 2/18/2005 8:14 AM
Stocks quoted in this article:

If you haven't heard, there was a story floating around yesterday that Smith Barney had let go of its entire technical analysis department...Bernie just noted a Dow Jones Newswires recount that of the situation that I found interesting. According to the article, the firm released a statement that noted they did this because they wanted to focus on fundamental analysis.

Given that seemingly everyone in the world is already using fundamental analysis you have to wonder about the logic. If you want to make money, you need an edge - and that seems like it is difficult to do by running with the crowd. Also, it makes me wonder how much value you can get by focusing strictly on fundamentals given all the "incidents/questions/restatements" we have seen in regard to published numbers.

As an example, below is a "joke" that one of my accounting professors back in college told at the start of one of the advanced accounting classes that highlights the "flexibility" of accounting...

    A firm needs to hire a new accountant so they bring in three candidates. The CEO calls the first candidate into her office for the interview and asks - "What is five plus seven?"

    The interviewee looked around and tries to figure out the catch. After giving it careful thought he answers with the correct answer - "twelve". The CEO thanks the candidate and escorts him to the door where she calls in the second person. This plays out the same way. Same question...same answer...same reaction.

    The third candidate is brought in and asked the same question. The interviewee immediately jumps up and makes sure the door is locked and then shuts the blinds. He walks over to the CEO, leans in close and whispers - "what do you need it to be?"


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Good Morning

by 2/18/2005 7:44 AM
Stocks quoted in this article:

We head into this expiration Friday with stock futures bouncing a bit. With just under two hours until the open, the S&Ps are about a point and a half above fair value. Oil is up 25 cents to 48.47 while gold is down 80 cents to 427.7...


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Final Figures

by 2/17/2005 4:38 PM
Stocks quoted in this article:

As I noted below, the selling pressure remained until the close....

Index Index Value Point Change Percent Change
S&P 500 (SPX) 1200.8 -9.6 points -0.79 percent
Dow Jones Industrial Average (DJIA) 10754.3 -81 points -0.7 percent
Nasdaq Composite (COMP) 2061.3 -26.1 points -1.25 percent
Russell 2000 (RUT) 631.1 -7.7 points -1.21 percent
CBOE Market Volatility Index (VXO) 11.68 0.37 points 3.3 percent

The NDX and COMP showed the largest losses of the major indices as semis, networking, and internet were hit hardest - relatively speaking. I want to stress relatively because overall the losses were not extremely large. If you look at the top and bottom performing Exchange Traded Funds (which I failed to post earlier - my apologies) you can see what I mean.

Top Performing Sector Exchange Traded Funds:

  • streetTRACKS Wilshire REIT Fund (RWR) = +0.66 percent
  • streetTRACKS Gold Shares (GLD) = +0.49 percent
  • iShares COMEX Gold Trust (IAU) = +0.42 percent
  • iShares C&S Realty Majors (ICF) = +0.35 percent
  • iShares DJ US Real Estate (IYR) = -0.06 percent
  • iShares DJ US Healthcare (IYH) = -0.07 percent
  • Pharmaceutical HOLDRS (PPH) = -0.10 percent
  • Health Care Select Sect SPDR (XLV) = -0.13 percent

Bottom Performing Sector Exchange Traded Funds:

  • iShares GS Networking (IGN) = -1.33 percent
  • NASDAQ 100 Trust (QQQQ) = -1.34 percent
  • Energy Select Sector SPDR (XLE) = -1.34 percent
  • iShares DJ US Telecom (IYZ) = -1.41 percent
  • Oil Service HOLDRS (OIH) = -1.49 percent
  • iShares GS Semiconductor (IGW) = -1.50 percent
  • Semiconductor HOLDRS (SMH) = -1.51 percent
  • Technology Select Sector SPDR (XLK) = -1.63 percent

It appears that there was a general bias towards weakness but losses were contained at roughly a percent and a half. On some days we see sharp weakness in a just a few groups that drags the market down. Generally this tends to be result of some sort of news driven catalyst. I think days like this are different as it hints at more broad based selling.

Tomorrow we have options expiration ahead of a three-day weekend for the market...


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