Wednesday, July 15, 2009

Stop Trading

No, really. What's the point?

Even Bloomberg, who is apparently a fervent reader, is chiming in on this observation and providing their 2 cents on the aberration formerly known as a market:

July 15 (Bloomberg) -- The VIX rose with the Standard & Poor’s 500 Index, a sign from the options market that the steepest three-day rally for stocks since June is poised to end.

The Chicago Board Options Exchange Volatility Index, as the VIX is known, added 1.7 percent to 25.44 at 2 p.m. in New York. The S&P 500 gained 2.4 percent. They have moved in the same direction 6 percent of the time since January 2003, according to data compiled by Charles Schwab Corp. The S&P 500 reversed course the next day 66 percent of the time, including seven of the past nine instances.

“That is remarkable,” Randy Frederick, head of trading and derivatives at Charles Schwab in Austin, Texas, said of the tandem move by the S&P 500 and VIX today. “The VIX is expecting something here, either a pull back this afternoon or tomorrow.”

Both indexes rose on July 6. The next day, the S&P 500 retreated 2 percent. The volatility benchmark, known as Wall Street’s “fear gauge” because it almost always increases as stocks fall, reflects expectations for price swings for the next 30 days and is calculated from S&P 500 options that are one or two months from expiration. Higher levels signal more risk in equities.

The government’s weekly report on jobless claims tomorrow may be spurring concern among investors, Frederick said. The U.S. unemployment rate has increased to a 26-year high of 9.5 percent.

“We’ve had some unexpected numbers recently,” he said. “There is probably an anticipation that could happen again.” Consumer confidence unexpectedly declined this month, according to a Reuters/University of Michigan index on July 10.

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