Tuesday, October 18, 2011

Aqumin Volatility Newsletter 10/18/2011 $HAL, $SLB, $FTI, $NOV, $WFC, $CME, $RF

What group is acting like the Financials?

There is lots of talk about correlation in this market. As in much of the traded equity world is moving in the same direction at the same time. Some blame ETF’s, EuroGloom, High Frequency Traders, Bad Policy, etc. but I think it is probably a combination of those things. On any given day since early August there seems to be only one sell or buy button and everyone jams it at the same time. So I thought it would be interesting to look at the frequency of the movement over the last week and draw some conclusions about two disconnected sectors, Energy and the Financials.

The next series of Landscape Snaps from AlphaVision™ for Bloomberg show the S&P 500 with building Height 1 Week Total Return (tall buildings are up on the week). The Color field is 10 Day Historical Volatility (HV10) less 30 Day Historical Volatility (HV30) so stocks moving with higher HV10 will show up in green and lower HV10 in red. I left the Sector plates clear so you can see which stocks are up/down and have a clear sense of the underlying volatility. Also, I arranged the plates in order of Average Total 1 Week return so the Sectors in the lower left have the highest average performance over the last week. As a reference point S (Sprint Communications) pulled up the Telecom group so that would make Energy the solid #2 performers for the week. EP (just taken over) is the reference HV10-HV30 volatility point in the Energy Group.

10-18-2011 2-26-31 PMThe Red Buildings on the top of the landscape (detail below) means that past week’s strength in Energy came on declining near term underlying volatilities. Except for a few Oil Services names (HAL, NOV, FTI) on slightly higher underlying volatility for the most part it was up, slower for this group and the #2 position for the week. I like it when a group within a group gets picked on like the Oil Services while the world just lit up for Natural Gas.

 10-18-2011 2-28-08 PM

If you hop to the back of the Landscape the low end of the scale sticks out for the Financials since it is mostly green. Here the movement has been increasing in the short term, even with what was until yesterday a solid upswing in the market. The relatively weak performance on higher (greener) underlying volatilities generally is not a good sign. Think get me out, faster. The Financials were very much counter to the declining volatilities in the market as a whole and as group I think I am going to stay away for a bit. Possibly the revenue pictures going forward are pulling things down. Either way the action is too one way.

 10-18-2011 2-30-22 PM

Going back to the Oil Services vs. the Financials thought, I don’t think the picture is as bleak as this pre-opening Landscape Snap looks for the Oil Services. HAL has not produced a quarter like the just recent since 2008 which was a record revenue year. Maybe the slap was too hard and it might be time to take another look. I can’t throw the Oil Services into the same boat as the Financials even though the market movement appears similar. I can dig that.

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