Black Gold and Gold

Not sure if I make this clear, but I always find “Blame the Speculator When Something Doesn’t Move The Direction We Want It To” both nonsensical and a useless distraction to the trading and investing task at hand.

I find it nonsensical in that of course in the short run someone can get something moving and a stock/commodity/currency/whatever can keep moving just because it is moving. But over time, mispricing can only last so long. Every single momo “bubble” plays out the same way. Prices go up further and for longer than anyone imagines, such that most shorts get buried. And then it traps everyone the other way. Timing it is difficult, to say the least. If oil’s move is artificial, it will ultimately run it’s course.

I find it a useless distraction in that there is nothing to gain finding out “why” something is priced where it is priced. It will get you into the false causality trap that Financial TV so loves. The same exact news can cause a stock/commodity to go up one day and down the next, and they’ll get you broke learning that lesson.

Anyway, the big momentum now is to reign in oil speculators by making the CFTC close the loophole that allows traders to effectively go beyond position limits by just using another exchange. Sounds like a good idea, I mean if you have position limits you should enforce them in some sensible way. But I strongly doubt this would actually stop oil rallying in it’s tracks.

But of course it could cause a short term plunge if it actually happens.

Lance Lewis on Minyanville sees a classic “careful what you wish for” unwanted consequence of all this.

Ironically, gold and silver (given that they can be physically bought and stored as well as have ETF’s that buy physical gold and silver, and not futures) would actually be the beneficiaries of such action since funds would be forced into gold and silver by default by CTFC action limiting positions in commodity futures if they wanted to keep up exposure to “inflation hedging”.

After all, before there were commodity indexes and commodity futures, there was a reason that gold (and not oil and wheat, for example) was a currency and considered a store of value. That’s because currencies and stores of value have certain characteristics which gold also has (i.e., scarcity, portability, etc.) And those characteristics (in this case, primarily portability) may no once again push gold to the forefront for investors that are seeking to hedge against inflation.

Lance is a bit of a metals perma-bull, so take it from that angle. But that being said, I do enjoy his work , and I like the concept anyway of sitting long metals, short USO (plus long energy stocks, but that’s for another day), so this is just more food for thought.

Remember that statistical volatility “surge” on Monday? All gone, although I would suggest Noise has overtaken any real volatility move over the past week. Everything still trades on the cheap end. And generally speaking, it pays to wait for “real” volatility to pick up bofore making much of a commitment to it.

Never forget that time is truly money as options are a decaying asset. So while averaging in can make perfect sense in a stock, it may prove disastrous in an option.

OK, all that said, there is some hope around. This FSLR gapped down 10 yesterday and closed down 20 on some *news* that the Germans were going to cut subsidies. And then gapped back up 20 today when we find out it was just a bit of Teutonic humor, and the subsidies won’t get cut so much after all.

When you look at the options board you may see the June strangle bracketing the money trade for like $25 and consider it kind of high. But believe it or not, that represents a 55 volatility, as cheap as FSLR has traded in 10 month’s.

No matter how many times we see THE REACTION to A NUMBER (like today’s oil inventories) is more important than the actual number, CNBC will still get flummoxed any time the market does not behave as expected.

Anyway, long time no check on these Bullish Percent PnF charts Kevin Depew tracks on Minyanville.

Alphadawg had a great explanation of PnF chart reading the other day, as an aside.

Just to refresh, he hits up the percent of stocks above their 50 Day MA in a given index and pops it into a PnF chart. It’s not a timing tool, more of a big picture look at internal strength.

Right here right now, all 5 indices he looks at, the NYSE, Russell, Nazz, Nazz Composite and S&P are bullish, as are the NYSE and Nazz High-Low Indices.

The S&P shown here, and the Nazz 100 are in correction mode, but still bullish, the others all remain in X’x.

As far as “field position”, everything is pretty mediocre. The Nazz Composite sits at 33%, but everything else resides near 50%.

Originally this all kind of looked like 2002 redux. Big washout that summer, followed by internal improvement that never really translated to anything in the market until spring of 2003.  For it to follow 2002 though, we need a big selloff in the next few month’s down near the Jan. and March lows, coupled with higher lows in the PnF.

Earnings out in SHLD.

Pretty boring looking volatility chart, as options have essentially not moved in 3 month’s.

But remember, every other option in America got plowed, so what looks flat actually contains a bit of bid up as SHLD options held steady in the face of sinking volatility in the stock itself and ugly options action around the floor.

The typical option now sits at about 6-9 month lows, which translated to SHLD takes it down to about a 40 volatility or so. Which translates to the market pricing in a move today of about 8-10%.

As I type, SHLD is down 4.7%, so yet another dissappointment in volatility terms in a season filled with them.

On the subject of sinking high flyers, I bring you DRYS.

Geez, you truly get no happy medium in these things. Straight up pretty much for 6 weeks. Followed by a nice little 25% repricing down in a two weeks.

And again, unimpressive options action. Remember that lesson you hear on TV every day, where volatility moves inverse to stocks? That’s always true, except never.

OK, that’s an exageration. But volatility virtually always declines in bubbly stocks as they decline. The Tech Bubble melt up of 1999 and melt down of 2001 are the perfect examples, but it’s a story that gets repeated over and over again.

I did buy some gamma here (small) yesterday, but more because it feels like something has to give here in the stock real soon. Either a move to the 50 day, or a pop off the fugly RSI (2).
But longer term, it’s just like POT yesterday. You want open ended and terrfied shorts, not a range.