The Dead Cat Bounce

Now the EU is going to see what is under the lid of the Irish Banks. I hope they find more than a couple of cases of Guinness (although with all the bad debt that might be a plus). While that might have been part of the reason for the selloff yesterday the market was pretty even in selling everything except a couple of retail stocks. More than a couple of times I have used selloffs as buying opportunities but this time I want to use it to find a value somewhere else.

I am going to take a widely used volatility metric, the difference of IV30 (30 Day Implied) to HV60 (60 Day Moving Average of the underlying) and map it across Aqumin's (www.aqumin.com) AlphaVision Landscape.

Everything where IV30 is a premium to HV60 is in green (with dark green being over a 10pt difference for reference) with both metrics close to even in white and IV30 at a discount to HV60 in red.  The height of each building is 1 Week Total Return (inverse scale) to catch yesterday's smack.  Notice how the vast majority of the landscape is green with only a few red buildings.  This is because the HV60 will produce, in general, a less "bumpy" volatility number because of the greater sample size.  You should expect that in normal conditions.  Both Cisco (CSCO) and Aegean Marine Petroleum Network (ANW) stand out as having the HV60 far exceeding the IV30 which is an indicator of a market shock (the "tallness" being a severe down move).  You can contrast that to Puda Coal (PUDA) which also had a significant down move but the market is not pricing the IV30 at such a discount (the skinny white building in the back corner of the sector).

For CSCO and ANW, the forward looking volatility number IV30 appears to be discounting any future move as big as what has happened (relatively cheap IV30 versus the move) but for PUDA, IV30 is keeping pace with HV60, expecting more of the same underlying movement as came before.  This PUDA cat has plenty of bounce left in it.

Andrew Giovinazzi

For AV for Bloomberg users, just click in the View Library to interact with this view live (IV30 outpacing HV60 with 1 Week Total Return). If you are not an AlphaVision for Bloomberg Subscriber please follow the download link here:  Download AV for Bloomberg

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