Morning Review - 081310
Transcript of Morning Review - 081310
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
Now, before you read that as a negative enough signal to go out and actually buy some SDS, consider what kind of market we need to see to make thatsecurity pay off in size. We have attached a simple analysis that shows how many down days of 1-5% declines we need to see to get the SDS to 50, or 100. A summaryof that table:
From current market levels, you need to have 21 sequential down days of 1% to see the SDS at $50. Yesterdays close was $33.38. To see 100, you need 56days of the same percentage decline.
The real payoff in the SDS is, of course, an uninterrupted series of really rough days for stocks. You only need 5 down days at 5% to get over $50 for theSDS, or 12 similar days to get over 100. The fund has only closed over $38 twice in 2010 on February 8 and again on July 2nd. No coincidence, of course, thatthose were the two best tradable lows for the year.
To sum up, the leveraged short funds serve a purpose even if you never actually trade them. By measuring their popularity, you can get an interesting take onmarket sentiment. Demand for popular funds like the SDS will actually decline when stocks are oversold. And, of course, their prices will rise to noticeably higher levels perhaps even new highs when we have had a string of losing days.
By both measures, U.S. stocks do not look cheap enough to buy, even with the recent selloff.
S&P 500 SDS
Current level: 1,086 33.3 50.0 100.0 If SDS at 50 If SDS at 100
1% Move in the S&P 500 1,076 34.0 21 56 889 625
2% Move in the S&P 500 1,065 34.7 11 29 888 617
3% Move in the S&P 500 1,054 35.3 7 19 933 628
4% Move in the S&P 500 1,043 36.0 6 15 886 614
5% Move in the S&P 500 1,032 36.7 5 12 885 618
# Days to get SDS to: S&P 500 Would Be:
SDS M oves at 2X Inverse the Daily % M ove of the S&P 500
Month Total BGZ DUG DXD FAZ SDS SKF SMN SPXU TWM TZA
January 7,390.3 309.6 219.9 553.2 1,057.2 3,201.2 717.9 154.7 174.6 473.8 528.2February 7,701.7 288.1 190.0 592.1 1,049.6 3,517.5 746.5 156.6 198.2 460.4 502.7
March 7,511.4 268.6 196.6 552.4 1,231.1 3,240.0 576.9 135.7 226.9 520.9 562.3
April 7,113.5 256.4 181.3 497.4 1,060.5 3,194.6 580.5 122.2 218.4 494.9 507.3
May 7,319.5 265.0 158.5 538.7 937.3 3,530.5 597.6 131.4 238.5 468.6 453.4
June 8,045.3 314.8 150.3 573.3 983.8 3,698.6 637.7 148.6 330.5 569.7 638.0
July 7,724.1 303.3 146.4 522.1 1,059.6 3,521.4 556.5 115.8 358.6 516.3 624.1
Assets U nder M anagement at M onth End ( in $ mil lions)
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
15,000,000
16,000,000
17,000,000
18,000,000
19,000,000
20,000,000
21,000,000
22,000,00023,000,000
24,000,000
25,000,000
Direxion Dai ly L arge Cap Bear 3 X Shares (BGZ)
YTD Change:18.6%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
UltraShort Oi l & Gas ProShares (DUG)
Shares adjusted to reflect 1:5 stock split on 4/15/10
YTD Change:-48.9%
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
100,000,000
Direxion Daily Financial B ear 3X Shares (FAZ)
YTD Change:
44.3%
80,000,000
85,000,000
90,000,000
95,000,000
100,000,000
105,000,000
110,000,000
UltraShort S&P500 ProShares (SDS)
YTD Change:28.2%
1000
1050
1100
1150
1200
1250
80,000,000
85,000,000
90,000,000
95,000,000
100,000,000
105,000,000
110,000,000
Ult raShort S&P500 ProShares (SDS) Share Count vs S&P 500 Index
SDS S&P 500 Index
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
15,000,000
16,000,000
17,000,000
18,000,000
19,000,000
20,000,000
21,000,000
22,000,000
23,000,000
24,000,000
25,000,000
UltraShort Dow30 ProShares (DXD)
YTD Change:10.9%
20,000,000
22,000,000
24,000,000
26,000,000
28,000,000
30,000,000
32,000,000
34,000,000
36,000,000
38,000,000
40,000,000
UltraShort F inancia ls ProShares (SKF)
YTD Change:-20.3%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
UltraShort Basic M ateria ls ProShares (SMN)
Shares adjusted to reflect 1:5 stock split on 4/15/10
YTD Change:35.6%
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
11,000,000
12,000,000
UltraPro Short S&P500 ProShares (SPXU)
YTD Change:164.4%
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
UltraPro Russel l2000 ProShares (TWM )
YTD Change:57.6%
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
Direxion Dai ly Small Cap B ear 3X S hares (TZA)
Shares adjusted to reflect 1:5 stock split on 7/7/10
YTD Change:113.6%
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
U.S. EQUITIES
Shares of CSCO (-10.0%) faltered as the company posted quarterly revenue after the close on Wednesday that fell short of Wall Streets expectations. Thecompanys earnings of 43 cents a share excluding one-time items beat estimates by a penny. In other earnings news, retailer KSS (-2.7%) beat estimatesbut its full-year outlook fell short of expectations. Foodmaker SLE declined 0.7% after forecasting fiscal 2011 profit that missed estimates. In the autoindustry, General Motors reported a quarterly profit of $1.3 billion and secured a $5 billion credit facility relative to its reported IPO filing on Friday. Also,AAP advanced 5.2% as its quarterly net income increased 26% and it raised its full-year outlook.
Important Conferences/Corporate Meetings Today:BofA Merrill Lynch Specialty Pharmaceuticals Conference Southampton, NY
Important Earnings Today (with Estimates) From
Source: Thomson ONE
Three Day (High 1124.75; Low 1070.50):Prior Day SPX (High 1086.72; Low 1076.69; Close 1083.61):
S&P Futures
One Day (High 1087.50; Low 1070.50):
JCP: $0.05Source: Bloomberg
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
FIXED INCOME
Source: Bloomberg
Todays Important Economic Indicators/Events: Consumer Price Index: 0.2% Core CPI (less food & energy): 0.1% Retail Sales: 0.5% University of Michigan Consumer Sentiment: 69.0 Business Inventories: 0.2% Kansas City Fed President Thomas Hoenig speaks at 11:30am
Source: Bloomberg
Results were mixed for the Treasurys monthly 30-year bond auction. The $16 billion offering drew a yield of 3.954 percent, compared with the 1:00pmbid of 3.948 percent, while coverage at 2.77 times was lower than the 2.89 times at the previous sale. Average coverage over the past 10 auctions was2.61 times. Buyside participation was strong with dealers accounting for 35 percent of the purchases versus a 46 percent average, as indirect biddersbought 46 percent of the bonds versus a 10-sale average of 36 percent. Treasuries showed little reaction to the results.
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
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