The Market’s Reaction To News…

…is more important than the news itself. Right?

I was very surprised to see the market rally after the pre-market plunge caused by the weak retail-sales report Friday morning. It reminds me of how the market rallied in 2009 every time a terrible Non-Farm Payrolls report was released. Shrugging off bad news is a hallmark of bull markets. And so is recovering from a morning down-gap.

I imagine that if the shorts are taking profits, the market could continue rallying for quite a while. If everybody is short, and everybody starts to take profits, then everybody is buying, right?

The question though is, will the short-covering continue, and if so, how high will the retracement be? Will the bears want to ring the register before earnings season begins?

53 Responses to “The Market’s Reaction To News…”

  1. stringm says:

    Joan

    BIG game tonight! Lose tonight and the Celts are toast. Go Celts!!

    String

  2. stringm says:

    Jungle Lady

    Futes are green, if you can keep them there all night, Option 2 will be the map. I can’t stay up that late, so you are in charge. I need a gap open in the morning to get by Tooth’s resistance.

    String

  3. 2thfixr says:

    1098 is the bear trendline, and given the bull EW blogs, they are actually starting to look for wave ii of 3 down once it is touched. Then, they say off to the races upwards. Can’t argue, but it all comes down to where does this wave 5 end? 1093, 1098, 1110, or 1140? We’ll see. Lots of options right now for this to play out. Should be fun, regardless!

  4. Randall says:

    With you Tooth, retrace to 1110 area, back down to 1070′s, then back up to challenge 1140, that will fail leading to a significant decline below 1040.

  5. Stringm says:

    As long as we hit 1140 at some point, I don’t care how we get there! How bout those Celts!

  6. Mitch says:

    Maybe the indices horses need to be exercised back down to the 1060′s just to see if maybe they’ve chomped the bit?

  7. Mitch says:

    Joan,

    I have 1 July call option derivative (I bought a call – no buy write) and I own the principal. Here’s what the past action presents:

    Delta 0.339
    Gamma 0.384
    Rho 0.002
    Theta -0.006
    Vega 0.008
    Implied Vol 45.34

    I have many hours of chart watching and know the fundamental story of the company I bought ownership shares in. Well, I know about as much as I can. I should have insurance and have had it before but not now.

  8. Joan says:

    Mitch,
    So you are long the underlying… and long a call. I see the greeks, but I don’t really know what you are asking me?
    Are you looking for insurance – downside protection?

  9. Joan says:

    String,
    The Celts are still alive! Now for the hard part – the LA audience…

  10. Mitch says:

    Joan,

    Thanks Joan. I am interested in the volatility and the Delta/Gamma. Is it playing fair for all of the volatility? But mostly I kind of wanted to leave it a pretty open question in hopes you would expound – nothing messes a good answer up like a bad question :)

  11. Joan says:

    Mitch,
    Give me a few to get back to you, I am having problems with etrade – waiting for someone to come on to yell at.

  12. Mitch says:

    Joan,

    Lol. At your leisure (if it doesn’t feel good don’t do it).

    I love beach music.

  13. George says:

    Fish or cut bait.

    SDS had a couple of Tres Amigas sells on the daily. Now it is testing the trendline in its latest uptrend. I’d give it room to the 36MA (notice how the 36MA shadows the trendline) before cutting the remaining shares. Until then, I’m playing the counter on SSO. There’s more than one way to skin a catfish.

    http://i46.tinypic.com/108g21g.jpg

  14. 2thfixr says:

    Randall, et al–watch 1107/1108 area closely for the “top” of this move. Looks like we are in subwave 4 of wave iii of 5 of [C], with 5 of iii to make a new high above 1099.86 (around 1104?), then wave iv that has the potential to retrace (but doesn’t have to–and I’m doubtful–but hey, I just report the EW news) down to 1085, then the final wave v of 5 of [C] tops near that 1107 level from the first sentence.

    Where to then? Down in my world, but remember, I’m George Castanza…do the opposite. ;-)

  15. George says:

    2th,

    I’m still following along with you.

  16. 2thfixr says:

    Goes to show you how “badly” SDS tracks the SPX…its price is below the 200 day SMA *AND* the SPX is below its 200 day SMA. Sheesh! Financial regulation anyone??? haha

  17. 2thfixr says:

    Now that “a” of subwave 4 is done, I can give a more accurate target for 5 of iii (listed as 1104 above) as 1101.5 (3.6 point thrust from triangle mid-point) but any wave 5 can be tricky with truncations or extensions.

  18. Joan says:

    Mitch,
    Love the beach and beach music – by the way, I like your taste in music! Still on hold with etrade, no doubt I am not the only one waiting to yell.
    Re the markets, it looks like it is time for some mean reversion.
    I don’t expect much upside from these levels.

  19. Mitch says:

    Well, I’m going to try to slip in a run before we hit 97 deg with a heat index of 100 deg.

  20. 2thfixr says:

    Mitch, ran in the moutains yesterday….6600 ft. Still busted out 5 miles in 42 minutes in light air. enjoy the run!

  21. George says:

    Son of a VIX

    Turns out the VIX is a good proxy for price movement. Here it is filling (or trying to fill) that lower gap. In the process, it has created a tiny gap to the upside. Regardless, it gives good signals.

    http://i47.tinypic.com/nbezur.jpg

  22. George says:

    Mitch,

    I was in Columbia, S.C. yesterday visiting my brother in the VA nursing home. Columbia sits in a bowl and I swear, it’s the hotest place on Earth. I lived there 7 years and I can vouch for that. Even Africa wasn’t that hot (or at least it didn’t feel as hot) when I was there. I’ve also been to 2th’s stomping ground in mid-summer, and while it was hot, it didn’t feel nearly as hot as Columbia.

  23. George says:

    2th,

    If I took two steps at 6,600ft. I would collapse. You must be in excellent shape. Nice you can do that.

  24. Mitch says:

    2th,

    That’s an excellent clip for the elevation! That’s my flat land one mile time! Well, I beat the heat.

  25. Stringm says:

    Tooth

    My 2 1/2 mile walk time is 38 minutes. I can run it or jog it at that same 38 minute clip.

    String

  26. Mitch says:

    String but you can party for 10 hrs!

  27. 2thfixr says:

    Everything is still pointing to 1107 if I’m reading the squiggles correctly.

    I ran the half marathon in Phoenix in January at 8:13 pace, so I was in better shape a few months ago…but I haven’t been running in the mountains for training!

  28. phil says:

    SOLD all schx bought last week @ spx 1104 area

  29. George says:

    P,

    Nice timing. I think it’s nearing an exit. Not sure yet.

  30. 2thfixr says:

    Nicely done Phil. Glad we’re on the same page.

  31. phil says:

    G

    thanks…i dont usually hold over the weekend but monday pops are too predictable to ignore,,,

  32. 2thfixr says:

    One last push for a new high, or will it come up short and indicate some down action coming? Fill my option order first please, then go south. :-)

  33. phil says:

    2TH.

    thanks…

    i want to buy pullbacks now near 1090

  34. 2thfixr says:

    If 1105.91 is the wave 5 top of that leg, and 1052.25 being the low (bullish counts) then the Fibs are 1085.5, 1079, and 1073. Hope those help y’all. time to head to work. Adios and GLTA.

    Got ya Phil. thanks for the update.

  35. Mitch says:

    I guess 1060′s would be just a paw bearish then . . .

  36. George says:

    Moody’s downgrades Greece’s government bonds to junk. (Source: CNBC-RT)

  37. George says:

    Hug an inverse anyone?

  38. Hank says:

    George,
    I doubled down my SDS position this morning. (order set last week)
    We came close to my stop order but I’m still in it. Looking for SPY drop to 108. GLTA

  39. phil says:

    GEORGE

    looking to buy near 1090

  40. George says:

    SPY resting on its 15min 36MA support.

  41. George says:

    BTW, today’s SPY gap up filled.

  42. phil says:

    BOUGHT back 1/3 of schx sold this am

  43. phil says:

    SOLD bonds bought in am plunge today

  44. Mitch says:

    phil,

    Good spot. I want to see the range high up to close

  45. Mitch says:

    BITCHomp day? Discipline, discipline, discipline.

  46. phil says:

    SOLD QID……….made 42c …..hasta all

  47. phil says:

    WHOOPS!! sold qid just in time

  48. Joan says:

    Mitch,
    RE: Greeks
    First of all, I can tell by the values listed above that this option is out of the money and probably not set to expire soon. The recent market volatility likely has had less of an effect in your options than they would if this were not the case. The Beta of the underlying is key because it is a measurement of the volatility of your stock as compared to the market
    Delta is a measurement of the rate of change in the price of your option per buck move in the underlying. Gamma is a measurement of the rate of change of this rate of change. This will increase for your call the closer to the strike the underlying moves. It will decrease the deeper in the money your call gets, as the price increases dollar for dollar with the underlying.
    Theta measures the time premium in the price of your option.
    Theoretically, it is the amount that your option will be reduced by each day.
    Vega is a measurement of the effect that the volatility of the underlying has on the price of your option. In this case it is minimal.
    So, I guess by looking at this, and knowing that you aren’t hedged, you are very bullish on this security?
    Let me know if this helps, or not what you were looking for.
    Have a good night!

  49. 2thfixr says:

    Way to make the Greek’s NOT greek Joan. Nice job. :-)

  50. Mitch says:

    Joan,

    That’s great! Yes I bought ITM. I could not get in with a value I felt comfortable with until a swing low at the open one morning – which is fine. It’s OTM now and would have to get some giddy up at some point.

    They might turn me over by expiry.

  51. George says:

    Now I know why they call it Greeks. :D

  52. Mitch says:

    George,

    I have heard that about Columbia.

  53. 2thfixr says:

    Joan, another tale from the options pit…

    Placed a limit order at 1105 for some July SDS options (20 of them) and got ONE before the ask moved up and the other 19 never got filled. So I’ve got an orphan option…. :-(

    Hope you got your trading platform up and running eventually. Nice gravestone doji on the daily…. If the top gets taken out, rally time. If not, another test (and slight break?) of the lows sometime next week or on OPEX Friday.