Monday, October 15, 2012

Aqumin Volatility Newsletter 10/15/2012 $WFC, $JPM

Lonely at the Top

This was yet another day last week when the economic news was ok (earnings were not too bad) but the market found a way to sell off a little. In reality it seems that good news is not good enough. Consumer sentiment has the highest reading today in years and the market still sold off. After the steady pabulum of Central Bank easy and liquidity injections the Algo guys have no reason to jump in and buy stocks. The old fashioned fundamentals are starting to come back into play.

Take the Wells Fargo (WFC) earnings report. Lower margins but higher profits reported, and the stock could not find a solid bid until the middle of the day. WFC is the lone red block in the lower left hand corner of my AlphaVision™ for Bloomberg screen, which means it is the # 1 market cap stock for the financial sector for the stocks I cover here (all the CBOE option listed names). This is the VWAP screen that shows me what part of the market is picking up momentum. Actually WFC got a little stronger as the day wore on (up means trading above VWAP).

10-15-2012 8-05-55 AM

Trade wise I think the bank got over sold (with JPM), as the results were not as bad as the dire thoughts on this earnings cycle might suggest. I also like when the market is relatively weak, that I see some momentum come back into the name. For me it makes a nice time spread to ride out the rest of the earnings season. Buy a back month out of the money call, sell a front month out of the money call and let the movement go to the strike. At some point someone with some money will figure out this cycle is not as bad as the pundits would have us believe.

AlphaVision™ – data from Bloomberg

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