Cody Willard:
Looking for Opportunity in the Gyrations
12/9/04 8:50 AM ET
It's been quite a volatile year in the markets. From oil to technology stocks to corporate bonds and Treasuries, things have been wildly up and crazily down. It's enough to make a trader exhausted just trying to keep up with the price action -- and we're not even talking about trying to put our arms around the fundamentals underlying those price actions.
The good news is that 2004 is coming to an end. The bad news is that 2005 promises to be another hectic year. Whatever your strategy -- buying "low" and selling "high" or catching the meat of a move by chasing momentum or even being a contrarian and trying to time a turn in the market -- there've been plenty of opportunities to make (or lose) money this year. All of the noise and gyrations simply brought, and will continue to bring, opportunity.
One of the most striking aspects of this market has been the decline in the volatility indices in the midst of all these swings. The VIX is bouncing along historically low levels, and premiums on options remain relatively cheap, too. Some strategists like to point to those low VIX numbers as indicative of a complacent market. Perhaps that's the case but I'd note that the VIX has been in a drastically declining trend since late 2002 through today, a time period that's seen huge short-squeezing rallies and giant bull-bashing declines.
My point here is twofold: 1. Speaking of noise, when trader friends of mine point out the VIX as a datapoint on their trading road map, I always ask, "Have you ever actually made money trading off the VIX?" 2. Take a look at the Nasdaq (or any other stock index or oil for that matter) and you'll see that there's been a heckuva lot of volatility this year, despite the VIX being so low.
Just when most shorts had finally been squeezed out of the semis, we get a trifecta of semi blowups last night. XLNX, CYMI and ALTR all say business isn't as good as they'd hoped for. The inventory "correction" (if that's what the companies want to call it) continues. Along the semi-lines, Intel is now trading below where it was before its strong mid-quarter update too.
I've got some SMH puts that I've been buying, along with the other puts and short hedges that I've been building lately. I don't plan on touching them today. Let's crack those knuckles and get to work.
Long SMH puts, INTC calls
Gary B. Smith:
