Trader Talk

Bond Prices Help Ease Street Fears


Here are some Midday observations:

1) Lower short-term bond prices are being seen as a sign of less fear by the Street, which is helping support stocks this morning.

Trading desks falling all over themselves this morning advising clients on how to play the expected September volatility. After years where no one made money playing volatility, that is the big call. Merrill Lynch's options strategists, for example, are talking about going long financials, and long volatility in the financials, under the theory that "If the Fed cuts, Brokers, Banks, and Insurance historically benefit from improved liquidity. In most cases out performance comes with higher realized volatility. Look at buying out-of-the money calls on selected financial names."

2) There have been some questions on Home Depot's big buyback of roughly 15 million shares. It may happen as soon as tonight, but when it does the company will certainly issue an 8-K, which is a notice of a "significant event." At that point, Standard and Poors will reduce the weighting of the stock in the S&P 500 by an appropriate amount. It is the policy of S&P to change the weighting of any stock in the S&P 500 immediately if the change in the float is greater than 5% (smaller changes occur at the end of each quarter).

3) You think you're confused? Lowry's is the oldest technical analysis service in the country--their data goes back to the 1930s. Seasoned data, seasoned professionals, widely read on the Street. But when we have volatility that occurs well outside of historical bounds, some of the old technical tools may not work as well.

Questions?  Comments?

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