Friday, January 13, 2012

Aqumin Volatility Newsletter 01/13/2012 - $AGO, $MBI, $JEF, $JASO

S&P Downgrades France - Market Doesn’t Care

A couple of posts ago I commented on the resiliency and new found life of some of the financial stocks. What I think is interesting now about the S&P downgrade of France is that it seems a bit late. The market reaction today to the news was a big flop as I see the S&P 500 up a few ticks since it came out. France, with all of the EU dithering is now getting downgraded? Wow, talk about timing. The EU is a mess and somehow I think the USA is propping it up which is helping our markets overall. Either way the risk outlook, from a historical volatility view has declined a bit in some Financials so let’s take a look in AlphaVision™. S&P prescience on upgrades and downgrades notwithstanding.

My favorite activity view for intraday snapshots (see below) is the HV10 less HV30 view in AlphaVision™ for Bloomberg. Building height here is 1 week total return to give me an impression of where a stock is and the velocity of how it got there. Red stocks have declining short term underlying volatility and green stocks rising short term volatility. Note in the Financial Sector on the left, there is only one dark green stock, MBI. That means the near term movement has been sharp but overall the name is only up 3.6% for the week. Sort of like a tempest in a teapot and coming off of news. Two names registering very steep (dark red) declines in underlying volatility are JEF and AGO. JEF is the brokerage that supposedly was ready to go under a la MF Global but instead became one of the better performers this week. AGO was almost out of business a couple years ago but has since put on a nice recovery.

1-13-2012 2-21-37 PM

The story for me looking at the landscape in Financials is that the part of the industry that was near death and very volatile has settled down considerably and continues to do so. Note the green spikes on the far right in the technology sector. That is the dead cat bounce for most of the Chinese Solar plays trading in the low single digits and an area I would still avoid. I like to see that the AGO’s, JEF’S have declining historical volatility and steady movement from the bottom. Makes me think that S&P is running with a Euro story that has already been in the newspaper for a few months and is quite stale where the more interesting evolving story in the US financial stocks is finally starting to get brighter. When S&P starts upgrading US financials it is probably time to trim the positions. Until then tossing in some longer dated calls in these names is not such a bad idea.

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