This past week saw the kind of confounding action that often leaves investors and commentators at sea. RealMoney's bloggers took this action head on and offered their unique navigational services.
This week, take a look at
on objective analysis,
on option exchange competition and
on seven factors that hit bonds.
Cramer's Blog: Half of Allegheny: Better Than a Whole Loss
4/5/2006 2:44 PM EDT
So last night, I said to take half the gain from the excellent
, book it and play with the house's money.
Sure enough, the stock is up huge again this session. Does that mean I was wrong to take some off? Should I be kicking myself for leaving something on the table for my stock of the year for "Mad Money"?
No. Kick yourself for losses, not wins. More important, the sell-half philosophy is very important when you are dealing with a company that just added $2 billion in market capitalization. I don't know if it can enhance earnings by that much, even given the super-big price increases it has put on in the last year.
I believe the steel stocks have had a huge ramp here. I like the idea that these commodity stocks are indeed secular growers, not cyclical ones. But I think that they, like the oils, can have spells of selling off, and you have to be ready for them; you can't give up these big gains.
Oh, and if you held on to half, you are still climbing.
Not bad. Or as they say, better than a sharp stick in the eye.
Rev Shark's Blog: Time for a Little Objective Analysis
4/6/2006 12:19 PM EDT
The market is reacting negatively to a news report that Lewis Libby is saying that President Bush authorized CIA leaks. Those sort of political issues often distract the market and cause shareholder to head for the sidelines. We'll see if the story builds, but it should be all over the news media the next few days, if true.
I've been unhappy with my trading this afternoon. I was hit by a couple of negative surprises, which is just bad luck and part of the game, but some poor decisions on a few trades have bothered me much more. I'm not losing money, but I'm unhappy with myself and feel I should have been doing better.
If I were just managing my own accounts and had a lot of flexibility, I would probably sell down my positions quite a bit and simply reflect on the issues that were bothering me. It's hard to do an objective analysis when you are still holding a lot of positions. However, if you are managing a large amount of funds for others, you don't have that flexibility. You can't just sell $25 million in positions and re-buy them when you feel more comfortable. So I, instead, simply become more cautious and try to protect the downside while I sort out my feelings.
More often than not, I have found that I can get back on track simply by standing aside and clearing my head a little. The natural response is to simply press harder, and I have found that it complicates matters rather than clarifies them. Sometimes you are just out of tune, and the best thing you can do is acknowledge it and not fight it. The market is rolling over as I write as the news cited above percolates. Be careful.
Steve Smith's Blog: Option Exchanges Fight for Bigger Slice of Growing Pie
4/4/2006 10:39 AM EDT
Good news for the option exchanges: They sport double-digit growth for the fourth consecutive year. Option volume in March was up 32% vs. the year-ago period. But the
International Securities Exchange
recorded just 27% year-over-year growth, suggesting that its four-year run of gaining market share is coming to an end. That may explain this morning's announcement that ISE will acquire Longitude and its technology to offer trading in new derivatives (read: options) on such things as economic data and non-equity-related events or data.
The competition among exchanges to retain and gain market share, especially since electronic trading and multiple listing of options has basically commoditized the service aspect, means there is an increased focus on expanding product lines. So even though the overall pie is growing, the competition to grab a bigger slice is getting more fierce.
The ISE acquisition comes six weeks after the Chicago Board of Options Exchange (CBOE) penned a deal with Hedgestreet.com to add non-equity, binomial-type derivatives to its product offering. At that time,
I thought this was a good move for both the CBOE and, of course, Hedgestreet, which would get the CBOE's marketing muscle and distribution behind its fledgling business. The ISE deal is being done and developed in conjunction with
, which is increasing its pre-existing minority stake in Longitude. Having one the largest market makers and liquidity providers with an equity interest will be an important leg up for ISE in creating successful product launches.
I'm starting to think that there is less true economic value in being able to bet on employment numbers, gas pump prices or regional home prices and more that it's simply a means to increase volume by tapping into people's penchant for wanting to wager on reports that hit close to home. The fact that the exchanges will be bringing on professional market makers to provide some liquidity can make these viable markets, but the question remains: If institutions find these products truly useful hedges, what would bring true volume and economic value? Without that, it's likely to remain a niche for speculation. And that's a game the retail trader rarely wins.
Tony Crescenzi's Blog: Seven Factors Hurting Bonds
4/6/2006 12:50 PM EDT
There are a number of factors causing weakness in U.S. Treasuries:
1. The bond market started the day on poor footing, with the yield on Japan's 10-year note reaching its highest level since September 2000. More important was a sharp increase in short-term interest rates in Japan, which was spurred by evidence of tighter monetary policy actions by the Bank of Japan. The BOJ reported that the monetary base, which consists of currency plus bank reserves, saw its first year-over-year decline since January 2001, providing evidence of a tighter BOJ policy.
2. Although ECB President Trichet indicated that the market was wrong in its assessment about a near-term rate hike, he essentially affirmed the market's long-term expectations for additional ECB rate hikes. His initially calming remarks drew in longs, now bad longs. Investors realize that the ECB's single-mandate approach to conducting monetary policy (preventing a rise in the inflation rate) will force the ECB's hand the more that economic news stays strong.
3. There was apparently a very large seller of European bonds following their brief rally. Additionally, there has been talk of selling in Treasuries to buy European bonds.
4. There are rumors of a consulting report offering a different opinion about future Fed rate hikes than the market-friendly views it supposedly had offered recently.
5. The bond market is mispriced for a 5% funds rate. As I have said many times, Treasury yields rarely trade below the funds rate (only three times in 16 years for the 10-year). The bond market is fearful that Friday's payroll number will affirm the likelihood of a 5% funds rate and hence drive rates to 5% across the yield curve.
6. Chicago Fed President Moskow seems little worried about the impact that the slowing housing market could have on the economy, saying that the slowing had not hurt consumers. Many in the bond market are banking on weakness in housing to end the Fed's hikes.
7. Moskow also said that "at some point" Asians will bring reserve assets back home. Many know that the Fed is privy to information from the world's central banks and might be putting his remarks in the camp of "what does he know that we don't know." More likely, though, Moskow was merely offering an educated guess, although Japan has in fact been a net seller for a year and a half.