Monday, February 13, 2006


Upon observing many lists of stocks by Indices, Sectors or other screens, it is apparent that program trading by Institutions and Hedge Funds is currently moving the markets, mostly down. Every stock on each list is down equally, usually fractionally, so there is no need to consult the stock fundamentals for their weakness. The meteoric rise of Oil, Gold and other precious and Industrial metals, coupled with the incessant rising of interest rates seem to have finally taken their toll on Liquidity. Whether this profit-taking is a Force Majuere or just a corrective bump in the upward road is not known at this time.
Adding to the Bullish view is the Odd-lot shorting which has doubled from a year ago, and continues to increase, in both sales and dollars. The VIX hasn't yet shown much increase, although with hedgers not making much in profits last year, we can expect more Volatility this year - also, in two weeks, trading begins in Options on the VIX Index.Both the CBOE Equity put/call and ISE call/put ratios remain high, in conflict with each other, therefore of less predictive value at this time.
As for most other indicators, such as newsletter surveys and Bullish per cent, last week's whipsaw caused little change in their regression to the mean from January's hot rally.
Finally, Michael Santoli, Barron's top columnist, comments on the Smith Barney Panic/ Euphoria Index, which is a Master Index similar to, and included in, my toolkit, and he discusses some of the components, pro and con, and whether it should be called "Panic" when it resides so long in that region (almost a year). Rather "Caution", sort of like Level Orange, might be more fitting.
Otherwise, tread carefully, as the jury is still out except for contrasting Volatility and one heck of a bottom in October, if we follow decades of the 4-year Presidential, or Kinchen cycle.

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Zero (IN)Tolerance

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