I am actually putting my toe in the water on the short side with the Qs.

UPDATE:  March 21, 2006 2:00pm

42 and change is definitely a key level technical level, but I am considering several other factors relative to the charts:

1) Relative outperformance of Low Quality
Stocks
2) Decreasing Breadth
3) Length of bounce
4) Bulls are Everywhere!

Doug Kass notes that new 52 week highs keep fading relative to market highs.

The bounce — 6 down days in a row followed by 6 up days — feels tired.

Bulls everywhere comes from Jeff Saut quoting Richard Russell’s comments.

I’ll have more on the relative outperformance of the junk later tomorrow . . .

UPDATE 2:  March 21, 2006 3:40pm

I have no experience trading VIX options (who does? They are brand new), but I decided to buy some May 12.50 calls  — just a smidge, to test out how they trade.

Category: Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

34 Responses to “Qs”

  1. Clayton Bigsby says:

    HEY HEY HEY…… C’mon in!

  2. jcf says:

    RIGHT ON!

  3. emdgmd says:

    If you don’t mind me asking, what kind of stops are you looking at?

  4. Cullen says:

    The waters fine….

  5. Mark says:

    Maybe we all should wait a coupla days given Barry’s tendency to be “early”. :)

  6. jim says:

    Walking the dog, and kicking the cat, short at $43 is where it’s at.

  7. Mark says:

    Pretty pathetic RSIs for the top of a bull move don’t ya think? (50s on weekly and daily). If it crawls to 42 count me in.

  8. JR says:

    Putting $$ $$ where mouth is – THAT is what i am TALKING about. Glad to have you with us :-)

  9. Bynocerus says:

    Quick observation:

    If you look at an intraday chart, there’s a fairly obvious h&S pattern within the NDX’s 4 months and counting h&S pattern. The sellers took the NDX right down to the bottom of the channel, but when they couldn’t break to the downside this morning, a flood of buyers came in and negated the intraday h&s top. The daily h&s is still (too) obvious, but it appears that day traders are entirely responsible for today’s action up until 2 pm.

    How in the world has it gotten to this? We’re now trading the whole stock market based on intraday charts? If I’m a long term investor, that’s a big fat red flag.

  10. Roberto says:

    Check out the quotes I just posted Barry. I wonder why they all have the same theme in common at the same time?

    http://tinyurl.com/n2lac

  11. john says:

    All I see are candlestick topping formations whereever I look – SPY, DIA, the indices, and the Q’s. I think it hits 40 before it hits 42.

  12. Michael L says:

    First Diana Swonk on GMA yesterday about DJIA 12,000 in the first news segment. That’s the kiss of death.

    Kosmo saying we’re in a new leg last week (during options expiration week? He’s a pro?) and now he sez “We’re not ready to rally yet”?

  13. Mark says:

    john-

    Just came back in. Checked the charts. I think you are right. Barry probably grabbed the last beer, the blonde standing by the door, and turned off the lights on the way out.

  14. emdgmd says:

    Another great call Barry! Thanks for keeping us little guys in the loop. I really appreciate your insights.

  15. EKC says:

    Barry, are you trading for your fund or your personal account? What’s your time horizon ?

  16. Tyrone Biggums says:

    Barry…. you sir, are a rock star!

    you called the QQQQ pop a few weeks ago (even if a little early). you called IBM and you timed today’s crap out almost perfectly. I bow in your presence!

  17. Mark says:

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  18. Brian says:

    Yeah, it’s uncanny. The Nasdaq pinched a steamer right after you posted this.

  19. Damian says:

    I don’t trade the VIX options yet – I was talking with friend of mine who has traded them – found it tough to make money because they are so thin.

  20. B says:

    Intraday and short term traders play an important role in the market by providing liquidity and have always bounced the market around. Even some institutions and hedge funds will work a short term strategy. It’s not just long term traders trading 4 billion shares a day on the NYSE and Nas. Actually some programs that exploit short term inefficiencies between the futures markets and cash markets are in and out thousands of times a day on program trades.

    The Q’s, SMH, Diamonds and Spyders have alot of short term traders. Thats hundreds of millions of shares daily right there. Lucent is the most actively traded every day because it’s highly liquid and prone to disproportionate moves as a percentage and the price is so low. Same with SIRI.

    It’s very profitable if you know what you are doing. A smart trader, who knew the semis had an extremely high probability of running hard today, took 2.5% out of the SMH today. I even posted a link on here yesterday where an adept trader was telling you to work the semis this week. He didn’t tell you why because he doesn’t want to give away his secrets. 2.5% is smokin for a day. Some people waited all of last year to get that in their mutual fund. The smart Q traders saw a condition arise that was likely high odds as well on a short at noon.

    Intraday trading is little different than long term trading. It’s the same as long term investing. You just need to be really fast because you don’t get a few weeks to analyze a trade. You get five minutes.

  21. Bynocerus says:

    Big ups to Barry today. I use margin, and if I had shorted when he did (~1:00), I would be walking around with a giant bulge in my pants right now. 3.5% in three hours ain’t too shabby (using margin).

    Looks like, if nothing else, this could make a nice couple-of-day scalp for the shorts. 1650 is still the key on the NDX, though. A decisive break and Barry will have a lot of company.

  22. todd says:

    Richard Russell made some interesting comments about the NASDAQ in his last “letter.” He expects to see the NASDAQ breakdown as well…

  23. areyburn says:

    By coincidence, I shorted some today around noon.

    Barry, in case you read this. I had a thought. What did the yield curve look like in the late 1960s and early 1970s? Any of this “slightly inverted” then not, action back then? Don’t have the time or resources to find out myself.

  24. Greg says:

    First you nearly top tick the day.
    Then the Q’s get smooshed AH on the MSFT news.
    What, are you both lucky *and* good?
    Nice trade.
    But please don’t tell us you’re going to abandon strategizing and become… Cody.

  25. Get Long Vega says:

    Barry, I like buying calls on the VIX (afterall, I am ‘Get Long Vega’). Consider selling puts to fund your call purchases if you haven’t already. Also, make sure your friendly sell-side coverage guy gets you some good info on the basics of VIX options. Some expirations are Wednesdays (not Fridays!), and there are other quirks. Also, maybe get some propaganda on variance swaps and what they’re all about. Variance is a great way to really get long vega, and now it’s trading in flavors that let you keep or not keep the waaaaaaaaaay downside skew. But you’ll prolly want that if you’re as bearish as you seem. Goldman has great stuff on how VIX options and variance swaps work, so does BNP, and markets are nice and tight. You can set up an Excel sheet and model all sorts of payoffs in variance space. It’s an interesting product IMO. The best part: the WORLD has been selling SPX and NDX paper (variance and vol) for the last three years. The big Euro banks and Merrill and Citi have been issuing massive retail structured notes with embedded optionality in them. So the banks get long a TON of vol each time they issue new notes, and they do that monthly. So as VIX and global vol in general has cratered the last three years, the sell-side has had to continually puke out the paper it got long. Most dealers were quite happy owning paper to start. They had very short memories because they made billions from ’98 to 2003 (supposedly Susquehanna made a billion on its MSFT gamma alone, but I’m not so sure). Anyway, the big banks got smoked owning paper so they’ve been puking more and more of it over the last 1.5 years. It’s gotten to the point where most kids on the sell-side trading vol only want to be SHORT paper now, a complete reversal in opinion from the heady dot.BOMB and Crash days. Anyway, the Street is short a lot of paper now. And, the Street has negative gamma to its vega position, i.e. the more vol goes up, the SHORTER vol it gets via those structured notes it issued.

    If the market really does crater owning vol is better than gold. It’ll be like the day the world comes close to crashing into the sun, and you’re the only guy who’s got zinc oxide (to paraphrase Tony Saliba).

    Don’t forget: FTSE vol got to 45 at market lows in 2003. 45! Guess where it and SPX and Nikkei and Eurostoxx vol are now?

  26. Barry 2.0 says:

    explain this to me:

    http://finance.yahoo.com/q/os?s=DIA&m=2006-12

    Strike price – 124.

    selling calls is dirt cheap – looks like a sure way to make some moolah.

    buying puts – expensive as hell.

    Shouldn’t selling a call be as expensive as buying a put?

  27. thecynic says:

    Qs got hit even more after market after the MSFT news and could be under pressure tomorrow. 40.50 looks like it will have to defend again and the next test will be crucial. the internals are fading and the former leaders are puking. the dow is outperforming because the smary money is rotating into more stable earners. this market is hard to stay short but i believe it’s the best risk reward….
    if we do have a correction this spring it will have to contend with tighter money than last year. fed tightening supposedly takes 6 months to work its way through the system and now it sounds like Ben is going thru 5%. this thing could get ugly right at the time the floor is being removed. look out below….

  28. Arthur Hill says:

    Judging from these 20+ comments, it appears that there are way too many bears right here. Wouldn’t you feel more confident if the majority of comments disagreed with your short position in the Q’s?! I see a wall of worry and Wall Street just loves to climb such walls.

  29. Because of my very public Bearishness — especially since the the end of last year when the BW forecasts came out — BP has been attracting a lot of ursines.

    Don’t take the crew here as representative of the majority of investors. This is a very specific group . . .

  30. Bynocerus says:

    Fair point Arthur Hill. I am kinda curious as to what the posters will look like two or three years from now if and when most of the damage has been done to the market. Considering that Barry was publicly bullish three + years ago when a LOT of people were thinking Dow 6,000 was a hell of a lot more likely than Dow 11,000, I wonder if the same posters congregated here then(I subscribed to RM for years, but only found this website in the last 6 months). I, like Barry, will change back to “permabull” when the markets get back to reasonable valuations. Until then, I guess I’ll just be a dour permabear.

    And, as Barry alludes to, a lot of the comments I see here are from a very specific viewpoint. However, this viewpoint is more often than not represented by some very thoughtful posters. I’ve expressed these sentiments to Barry before, but they “bear” repeating: It is gaulling to see the lackluster track records of so many market commentators on sites such as RM, then have those same commentators write (in not so many words) that anyone who doesn’t think the NASDAQ is “cheap” at 37 times earnings is an idiot.

    The original attraction to BP for me was that in his jousting with so many of the other commentators at RM, Barry (almost) always made sure his analysis was thoughtful, professional and respectful. The same could hardly be said for his opponents (David Merkel excluded), who often employ condescenion as their main rhetorical weapon. I appreciate anyone who understands that just because you disagree with someone else, it doesn’t make that person an idiot. In fact that person can be just as smart, if not, smarter than you; you simply happen to disagree. It doesn’t hurt that I happen to agree with Barry on the 6-12 month fate of the markets either.

    Truth be told, this is one of the few places I know of that takes a consistently sober view of the markets (a few others that come to mind include Mark Hulbert and Ruchard Russell). If I want cheerleading, I can go virtually anywhere else.

  31. thecynic says:

    i just heard “wall of worry” quoted 3 times from 3 different sources on CNBC in abuot 5 minutes.. and maria bartiromo wasn’t even one of them. those climbing the wall of worry probably bot the semis around noon yesterday thinking they were missing out on the new bull market…

  32. Mark says:

    The “wall of worry” comment originated at the bottom of a historic bear market to describe what happens as equities take off IN ADVANCE of the economic recovery. (I’ll have to find the first attribution.) This use of it at the end of bull markets by The Cult of the Man Cows is amusing as hell to me.