OPTIONSMART MORNING UPDATE: Looking for direction
November 12th, 2009 at 4:35 am
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OPTIONSMART MORNING UPDATE: Looking for direction |
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1. OUTLOOK.Some technical resistance caused stocks to make an early pullback and spend the rest of the session trading in lackluster fashion.However, investors are realizing things aren't as bad as the headlines sound. Most analysts expect the market to sustain gains through January. HPQ issued upside guidance for Q4. After hours, AMAT beat estimates and jumped 2%. We expect a mild correction in coming days.
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2. OUR "FEAR GAUGE": Investor fear and greed play a significant role in financial markets. The question is, how can investors measure market sentiment in an emerging market situation? How can they gauge the fear? Volatility is a well-known measure of risk in financial markets. When volatility is low, there is a lack of fear. High volatility, however, suggests a fearful markets. Volatility can be calculated in two ways. Either from historical stock price data or from current option price data. Using the second method results in an implied volatility measure. This represents a forecast of uncertainty over a specific period of time. The implied volatility on QQQQ represents the consensus of option traders’ forecasts for the QQQQ stock volatility over the next 30 days. It is a reflection of fear and greed amongst a wide group of market professionals. It’s not wise to ignore this parameter. Wednesday, the QQQQ IV closed at 21.09 and slight above its 52-week lows. This fact clearly indicates that bullish sentiment still prevails. |
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2. TRADING
OPPORTUNITY: n/a
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4. WISDOM NUGGETS: We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful. Warren Buffett. |
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