bloggers were all over the market's moves this past week, and this weekend, we'd like to share the Best of the Blogs with
readers. As always, these posts represent the best our writers offer each trading day.
This week, take a look at
reasons for tech's next rally,
on embracing your role of a small investor,
on false liquidity; and
on six factors that rallied bonds Friday morning.
Cramer's Blog: Headed Into Tech's Next Rally
Originally published 1/24/2006 10:26 AM EST
Johnson & Johnson
says things are challenging.
says things are challenging.
did not say things are challenging.
did not say things are challenging.
said things are anything
we have a metric: the "challenging" metric!
I have to tell you that all of this handwringing about tech is gravely mistaken, with the possible exception of
, which is a play on losing share to
coupled with a slowdown in PCs
To me, the majority of the problems with tech were all about problems with making product and executing, and that if there had been more test and measurement --
? -- and more product, the numbers would have been better.
That's not the case with J&J or DuPont. They had all the product that was necessary but costs were too great with the latter and the former has an environment that has made drug companies public enemy No. 1,
The bears want very much to portray the problems with tech as a slowdown, perhaps linking it with the $700-a-month heating bills some of us are getting. Sure enough, I would agree with that if
were at $39 instead of $49, and if there weren't such unbelievable demand, still, for video games, iPods and all of the other cell-phone-cum-mini-PCs out there.
I believe we are headed into the next rally in tech. I believe that this rally will take us back to where we were before the nasty selloff, ex some of the PC players.
And it is worth playing, for certain.
They are making
mighty tough here; wish they had rushed the report. ... Still stumbling over the
call and its unreal nature. No slowdown, but not great. Still a mystery to me, given the way the Net is playing out. ... No backing away whatsoever for me with
. That's just one cheap stock.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Rudolph Technologies to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Cramer was long Motorola, Intel, Yahoo! and UnitedHealth Group.
Rev Shark's Diary: Embrace the Benefits of Being a Small Investor
Originally published 2/16/2006 12:01 PM EST
The bulls are stating to kick up their heels now. They have shrugged off some momentary weakness and we are working steadily higher on good breadth. I'm long and holding strong.
There have been a lot of cries of anguish lately from folks who have been trying to play the "catch the bottom" game in the oil sector only to be surprised when the selloff in the sector continued much further than they though it would.
I've made no secret in my writings of my distaste for the "I'm losing money so let's buy more" approach to investing. However, if done right, that approach can work very well.
The big problem is that it tends to be a much better approach for big funds and institutions than for small individual investors. Individuals with limited capital have a tendency to buy weakness too early and in too large of size. They end up with an outsized position, and then when they don't get the turn back up right away, emotions kick in and they have a tendency to panic-sell.
Institutions and large hedge funds tend to play the averaging-down game much better simply because they usually have more discipline and a more systematic way of doing it. When you are working with large amounts of capital it is much easier to set up an approach in which you make a dozen buys as the stock moves around. So you end up with a decent price even if the stock falls much further than you had hoped.
The primary theme of the book, Invest Like a Shark, that I am working on (very slowly) is that individual investors should not try to approach the market in the same way that mutual funds, hedge funds and institutions do. Successful strategies for huge funds don't work as well for the small guy. And in many cases the small guys can do things that big guys can't, such as waiting for something to turn up before throwing their money at it.
Speaking of bottom-fishing, the Google (GOOG:Nasdaq) buy yesterday is working out nicely today. The key here was to stay patient while the selling played out the last couple of weeks. The pace of the selling had slowed nicely the last three days and there was good support at the 200-day simple moving average.
What makes this trade work, however, is the catalyst of option expiry that I discussed yesterday. There is strong pressure to "pin" this stock higher, and that is what has triggered it today.
At the time of publication, De Porre was long Google, although holdings can change at any time.James "Rev Shark" De Porre is a self-taught trader who primarily trades for his own account from his home on Anna Maria Island, Fla. He is a member of the Michigan Bar Association and a former tax attorney and CPA. De Porre holds business and law degrees from the University of Michigan. He was formerly the host of America Online's The Shark Attack and presently operates SuperTraders.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here to send him an email.
Steve Smith's Blog: False Liquidity and the Filling Queue
Originally published 02/16/2006 5:59 PM
Let's use another reader question to generate some dialogue. Remember, if you post a question in the blog, we can tap into more brains, gather more information, get more opinions and hopefully move closer to discovering the truth. Or at least more questions will lead to more information.
I trade options on the QQQQs. Usually I go far out (e.g. June/September right now). Despite low daily volume of a few hundred contracts a day, I sometimes see 50,000 contracts on the bid and ask. I assume those are the many market makers who are doing some sort of program trading? Is that right? My real question is -- who gets filled first on buys and sells? For example, I had a sell in for some calls at 45 cents from last week. Some were filled at 45 cents today when the bid ask was 35-45. I wasn't filled on any. I've seen this happen before. I don't have an all or none order in. If some other retail investor was willing to pay 45 cents, is it right that one of the market makers can take the bid before my order was filled. I thought they were there to make the market more liquid.
A: Those large bid/asks are definitely (I think) program-related. They represent the size the market-maker or more likely the institutions would be willing to trade given a specific price in the underlying. As soon as the bid/ask on the QQQQ moves, so does the market on options. This drives retail traders crazy when they are trying to buy a handful of contracts and see a market quoted with 1,000 up on either side, and then nothing gets filled in between. And if the underlying ticks up a nickel, the whole market disappears and becomes 10 up and 30 cents wide. This is especially frustrating in individual stocks. For example, yesterday a friend complained about the option market in
(CVX:NYSE). He was trying to buy three Feb $55 calls, the market was quoted $1.30-$1.40, 7,000 offered. He couldn't get filled at $1.35, and as soon as CVX ticked up a nickel, the offer vanished and the new quote was bid $1.35, with just 10 offered at $1.50.
Re: Who gets filled first? Basic rules of precedence are 1) price; 2) time of order entry; and 3) customers always get filled before market-makers regardless of size or time. Though price improvement will allow them to step in front.
Tony Crescenzi's Blog: Six Factors Rallying Bonds
Originally published 02/17/2006 9:55 AM
The bond market is paying little attention to the higher than expected core producer price index, which rose 0.4%, not 0.2%, as was expected. There are a number of reasons for this. For starters, the 0.4% gain follows three months of benign readings in which the core actually fell 0.1%.
Second, the data are old news to the extent that there has been a trend change in prices of some of the more prominent industrial materials, such as crude oil and copper.
Third, bond markets worldwide are more buoyant today in response to inflation news out of Japan, which accompanied its robust GDP report. As reported, the GDP deflator was down 1.6% versus a year ago, a deepening from the 1.3% decline in the third quarter. Importantly, the deflator for past quarters was revised downward; Q3 was revised to a 1.3% decline from -0.8%. This ignited a rally in Japanese bonds, which spilled over into other nations.
Fourth, with the recent auction of 30-year bonds, major bond indexes such as the Lehman index will see their average maturity levels rise more than normal at month's end. This will force the fixed-income community to raise its average maturity levels. Those that are indexed will have no choice and those that aren't will be compelled to raise their durations, too, or else risk a de facto shortening of their portfolio duration. Wall Street dealers might be more willing to hold inventory recognizing that these portfolio adjustments will be taking place. That said, although there could be substantial buying related to this technical factor, much of it will be delayed until month's end.
Fifth, the long end is faring better partly because Fed Chairman Ben Bernanke essentially gave traders a green light to continue to bet on a further inversion of the Treasury yield curve. He signaled that the inversion would not stop the Fed from raising interest rates, which should help to spark a further inversion of the curve.
Sixth, the bond market apparently feels that prices have fallen enough in the short run and that no meaningful selloff is in the cards. This is abundantly evident in options prices on Treasury futures. For the 10-year note, implied volatility for the March and April options is trading at just 4%, which appears to be the lowest level since 1998, during the Asian financial crisis. Low volatility levels often precede sharp selloffs, as was the case in the latter part of 1998, as it tends to reflect complacency, but it is somewhat rational to believe that Treasury yields won't move much in the very near-term, as there seems to be little in the pipeline that could disrupt the view that the federal funds rate is headed to 5.0%, no higher, no lower. Nevertheless, a 5% funds rate will almost certainly push yields toward 5.0%, so there seems to be little upside from current levels for the Treasury market.
George Moriarty is managing editor of RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
to send him an email.