Taxman And Volatility Readings May Hold Us Back…
As
you may recall, I spoke of the capitulatory market action of last Wednesday
and Thursday. Now that the final equity fund money flows numbers are in,
I’d say they make a very compelling case for a short-term bottom indeed
being in place. According to www.Trimtabs.com,
equity funds had redemptions for a second straight week and that was the
fourth of the past five. Thursday’s redemptions were the highest outflow
in history, which caused us to say they certainly looked like the
capitulation the talking heads on CNBC kept calling for. Perhaps if they
spent more time listening and watching and less time incessantly blabbing,
they would notice what was really going on in the market.
As far as a tradable rally, this certainly fits the bill. But before you
mortgage the house, you may want to consider two factors that we think will
influence the market action in the coming weeks: Taxes &
Volatility.
In addition to what was already withheld from their incomes, Americans will
pay close to $150 billion in taxes in the next four weeks. If people
haven’t already sold stocks to pay their taxes, they may need to raise
cash over the next few weeks. That selling pressure could hold prices at
these levels, or send us back to test the lows.
The market’s perception of risk is tracked by various volatility readings.
We track ten different indices at www.1010WallStreet.com.
The first volatility indicator that most people learned of is the VIX, or
volatility index for the top 100 stocks in the S&P 500. The range is
normally 18% (overconfident) to readings in the low 40s (panic). Presently,
we show the VIX trading at 33.11, a level that is still quite high, meaning
investor sentiment is still quite bearish.
For these two reasons, we are using this rally to take profits and lighten
up, as tax time and volatility readings convince us that a short-term rally
will be just that, short-term.
Extremely
Heavy Put Action:
|
Symbol |
Call
Volume |
Put
Volume |
$W
Call Vol |
$W
Put Vol |
Ratio |
| XLNX | 1,426 | 20,759 | 8,257 | 52,963 | 14:56 |
| GMH | 123 | 10,001 | 179 | 22,006 | 81:31 |
| JNJ | 4,048 | 5,521 | 6,196 | 24,606 | 1:36 |
(1010WallStreet.com
has licensed the use of Hamzei Analytics proprietary options analytics)