With respect to generally accepted market bottom indicators or “confirmation” of a new rally, this thread is setup to track the major indexes or “market” (NYSE compostite or NYA, Nasdaq composite, Dow Jones Industial Average and S&P 500 Index) in its attempt to find a bottom and begin a new rally.
Thus far on Wednesday, 01-Aug-2007 - perhaps mitigating the recent attempt (Monday for the NYA and SPX):
U.S. stock prices reverse course again
Last Update: 8/1/2007 1:13:00 PM
NEW YORK (MarketWatch) - The stock market’s attempted rebound took on a shaky tone Wednesday, with stocks reversing lower as an indecisive market tried to move past the latest hit to the credit markets, this time trouble in a third Bear Stearns Cos. hedge fund.
With today having undercut Monday’s lows, this recent rally attempt has now been killed.
Gilbert
"With today having undercut Monday’s lows, this recent rally attempt has now been killed."
Actually, today’s activity comes close to establishing a low and ending the bounce. Some of the sideways action, unfortunately, prolongs the culmination of this - but it is indeed near. My prognostication remains the same as before… end of low and commencement of rally today (unlikely) or Thursday (likely). Low could go another four points below today’s. Rally will be staircase in pattern, turning parabolic when everyone jumps on-board, at which point it will become terminal. This will be followed by sideways consolidation, and an even larger eventual decline than the one we’ve seen so far. My options will have expired by then.
"This will be followed by…an even larger eventual decline…"
On this you and I, Lew…seem to agree. Furthermore, I take it you would like your index options to expire worthless, as I mine.
The difference (I think) is that mine are WOTM (way-out-the-money) above overhead resistance (highs), while yours are below (seeming) support.
Correct me if I am wrong, but you are trading the RUT options, at the 710 level?
As you know of all the closely followed indexes, the RUT has declined the most by far. The Russell 2000 Index is now at March lows that may provide some support - before the perhaps eventual further demise to these benchmark indexes.
One bright spot today, has been midcap stocks. Standard & Poor’s MidCap 400 index (MID) dipped down to its 200-day moving average line intraday and found support.
The S&P 500 briefly violated its 200-day moving average line but has since climbed back above that key benchmark.
Gilbert
Scenario playing itself out, like clockwork… including my prediction of a new low roughly four (4) points below the current (as of 11:00 AM) one. Well… enjoy the rally, folks! It’s here…
"… you are trading the RUT options, at the 710 level?"
Correct - though I am trading them with a minimum 30 cent spread, and actually got as high as a 50 cent spread in one of my accounts. The trade itself comes with instructions for manual entry as a credit spread, which C2 cannot execute.
"As you know of all the closely followed indexes, the RUT has declined the most by far. The Russell 2000 Index is now at March lows that may provide some support - before the perhaps eventual further demise to these benchmark indexes."
I normally trade SPX. But for months now, in the course of my futures trades, I’ve been seeing the money shift from small/mid-cap to blue chips. The RUT is near exhaustion, and this in itself begins to act as support in a much more powerful way than technicals can.
@Lew:
If I may ask…what was the date, strikes and prices for your spread trade.
Isn’t the spread narrowing (losses) with the RUT plummet?
I would like to monitor your trade, too.
Gilbert
To be executed as a 30 cent (or better) credit spread:
BTO 100 RUTTT RUT.XO 700P 7/25/07
STO 100 RUTTB RUT.XO 710P 7/25/07
Contingent stop-loss - RUT last @ 710 or below:
STC 100 RUTTT RUT.XO 700P
BTC 100 RUTTB RUT.XO 710P
@Lew:
I realize you will be profitable if the RUT stays above your stop level.
However, you must be in drawdown up to this point, since your spread is with ‘puts’ during a decline in the index.
Is it possible to obtain your entry prices? That way I can monitor the daily value of the spread trade - in conjuction with movement of the Russell 2000 Index.
Gilbert
Entry prices, per credit spread instructions:
BTO 100 RUTTT RUT.XO 700P 7/25/07 @ $$2.331
STO 100 RUTTB RUT.XO 710P 7/25/07 @ $1.838
Note: These are not the prices reflected on C2, due to lack of spread capability.
> With today having undercut Monday’s lows, this recent rally attempt has now been killed.
Once again, right on target. Understand declines like this don’t turn on a dime. Moreover, they usually go down and suck in the late arriving shorts
and blow out the early arriving longs before the real rally begins.
Shall we (the SPX) test 1450 (or perhaps even 1440 again), before continuing the upsurge? What I find strange is that none of the vendors I track initiated a trade to catch yesterday’s (and this morning’s) surge. It’s as if they only trade when there are lesser gains to be made.
>What I find strange is that none of the vendors I track initiated a trade to catch yesterday’s (and this morning’s) surge.
That’s probably a bullish sign. The best turns are hard to take.
> It’s as if they only trade when there are lesser gains to be made.
The last two bounces off that weekly trendline (or whatever anyone wants to attribute it to) were 30+ point intraday rallies. 30+ points in a matter of hours (or even minutes) is pretty efficient movement and use of risk.
Yes… we shall test the lows before the next upward "stair step" is taken.
again I know this is off-topic:
I guess “system” vendors aren’t the only ones feeling the pinch…
Sowood founder apologizes for hedge fund losses
By Alistair Barr
Last Update: 2:40 PM ET Aug 3, 2007
SAN FRANCISCO (MarketWatch) – Sowood Capital Management Founder Jeff Larson apologized to investors during a conference call on Friday after hedge funds run by the firm lost more than half their value at the end of July. The estimated net asset value of the funds is $1.4 billion, Larson said. That’s down from a $1.5 billion estimate earlier this week, he noted. Sowood sold most of its portfolio to Citadel Investment Group because that was the best option. Without that deal, Sowood investors would probably have been left with a total loss, Larson said. Citadel got a “substantial discount” for taking on the positions, he noted. Sowood has been contacted by regulators who want to know what happened and the firm is cooperating, Larson explained. The firm is putting roughly $90 million in incentive fees that it earned in 2006 back into the hedge funds, he also said. Sowood will now unwind its few remaining positions and return capital to investors as quickly as possible, Larson said. “There is no way to express how sorry I am about what has happened,” he concluded. "This experience has harmed not just our clients but our friends."
The value now is anywhere between 1.4B and 1.5B and have “lost more than half their value at the end of July.” That is down from about $3B!
The said words and the $90M from “2006 incentive fees” are small consolation to those that lost out.
Gilbert
@Lew,
That was some (nearly) 30 point drop in the Russell 2000 index today.
Granted 785 down to 755 in one day is not close (yet) to 710, but it has to make you re-evaluate the basis for the trade?
-‘recap’:
The Nasdaq dived 2.5%, the Dow industrials 2.1%. The S&P 500 plunged 2.7%, the NYSE composite 2.6%, as both those indexes sliced through their 200-day moving averages.
Volume swelled across the board, adding another round of distribution to a market beset by selling lately.
Friday’s action confirmed what has been evident for more than a week: The market is in a correction.
When a market correction lasts long enough, it can eventually take a bite out of every leading stock (or growth issues). Over the past two weeks, more and more top-rated stocks have fallen in sharp volume.
The safest place to be during a market correction is in cash and out of stocks. If you want to hold, make sure you’re only doing so with the highest-quality stocks.
Even then, if a winner flashes sell signals, it might make sense to take profits off the table, rather than watch your gains wither away.
Gilbert aka PaySense
@Lew:
I am trying to understand your spread trade. From the info you provided I concluded the following -
Lew Payne:
25-Jul-2007
100 contracts
BTO RUTTT 700p $2.331 $1.50 (0.831) - $3.30 (0.969)
STO RUTTB 710p $1.838 $2.30 (0.461) - $5.20 (3.362)
0.493 credit spread or $4,930 possible/expected profit.
$12,920 open loss right now.
03-Aug-2007: $23,930 open loss right now.
These have moved against him signicantly.
These numbers were derived from bid/ask prices the other day (I think Thursday) and Friday’s close.
BTO RUTTT 700p $2.331 $1.50 (0.831) - $3.30 (0.969)
STO RUTTB 710p $1.838 $2.30 (0.461) - $5.20 (3.362)
In other words…
on Thursday(?) your sell price (bid) for the BTO 700p was $1.50 - leaving a loss of $0.831.
Also on Thursday(?) your buy (ask) price for the STO 710p was $2.30 - leaving a loss of $0.461
combine the two x 100 contracts = “$12,920 open loss right now” (as of Thursday).
combine the two with Friday’s prices [$3.30 and $5.20] and the result is "$23,930 open loss right now."
Now what puzzles me is when I pull up Live, Long and Prosper.
Nothing shows up with such deep drawdown.
I also have a spread trade with the 50c and 51c. The credit spread (like yours) is less than $1. So if the QQQ closes at Jul expiration less than 50 + the credit spread I will be profitable.
With your construct, 700 plus (less than $1) and you too wil be profitable - however anywhere higher…between 700 and 710 could become a HUGE loss. say 5 x 100 (x100) or $50,000.
Does this compute with your analysis?
Gilbert
"Does this compute with your analysis?"
Nope. RUT above 710 is full profit for me.
“Does this compute with your analysis?”
I’m on vacation, so my reply is sporadic and short.
As long as RUT stays above 710, I derive full profit from my trade. Full profit is defined as the credit spread price. As soon as the RUT hits 710, my stop-loss close order triggers, limiting losses.
Theoreticals in-between are just that… and represent liquidation value (mark-to-market) at a specific point in time. Note that, per my stop-loss order, liquidation doesn’t take place unless the RUT hits the 710 mark.
I hope that’s a bit clearer.
To those who asked why I used such a volatile index (RUT) this time…
Note that typically I’ll use the SPX for my option spreads. However, as I stated earlier in this thread (or its twin), for the past several months I’ve been seeing the money flee from small and mid-cap to blue-chip stocks. As a result, I felt the RUT was most likely to exhaust early and break out of sync with the down trend.
For the perfect example of this, look at the first half hour (chart) of today’s price action for SPX and RUT. Then chart today’s decline for both the SPX and RUT. Note that the RUT actually ended higher than its early morning (first half-hour) low, while the SPX continued to decline. The RUT is now exhausted, and more resilient to downward moves than its cousins.
Thus, my 710 put price has a very low probability (2.3%) of being hit. Still on vacation. Replies/comments will be sporadic.
@ Lew:
I DO see your trade clearly. You ARE using all your equity to make a few k. And you may NOT see the RUT go as low as 710.
That being said (and you didn’t answer my ‘computational’ inquiries) time IS on your side as this part of the option premium keeps decaying.
HOWEVER, that being said, your DD from the position WILL likely show up 3-4X the few k you are expecting as profit.
Furthermore, with the relative strength seen today from the RUT in comparison to the other indexes, you are experiencing repreive.
BUT if you look at any correction that lasts a bit longer, the RUT, MID, SML, NYA, QQQ - any of which can further breach lower support levels…maybe, MAYBE it “happens” that the Russell 2000 close on August 17, 2007 (MIGHT) be anywhere from a 1 to 10 points below 710.
Albeit not a LIKELY scenario and like you say a “very low probability (2.3%)”, but you have NO accounting for this possible occurance that WOULD instantly wipe out any account.
Gilbert
