IV90 Lows in ETF Market

Written By: Andrew Giovinazzi


Monitoring IV90 Lows in the ETF market and what that means for the broader Equity Market

Before the Meltdown of the last two days the major ETF Classes made IV90 (implied volatility of 90 days) lows or was within a few days of making those lows. The Equity markets are currently very close to year highs. The Implied Volatility in the market had gotten exhausted as the realized market volatility (HV) was underperforming on a broad basis. This pressure keeps pushing the IV90 lower as Implied Volatility comes in across the board. How does a trader or PM see that?

Earlier in the week the landscape looked like this…

On this landscape we are looking at several things- First each building represents an ETF (the landscape shows all ETF’s with traded options) and the footprint of each ETF is the end of day (EOD) volume with the SPY leading. The colorfield from red to green shows IV90 trading close to its lows (dark red with the SPY only .73 away from its IV90 lows of the year) and moving farther away from those lows from white to green. Of note is most of the heavily traded (large buildings) are very close to their IV90 lows signaling a new bottom across most of the ETF landscape. The active volume counts the most.

A new picture emerges as the market declines and IV90 starts to bounce off of its lows. This is the exact same landscape 3 days later.

Today, three days later the landscape looked like this….



Note here that the SPY HV90 is now 2.7 points away from its lows (about a 10% increase). The landscape is much “less red and more green” indicating that the market decline pushed IV90 up across the entire ETF universe as IV90 moves away from the yearly lows. The combination of short term Equity highs and IV90 lows is a signal to stay away from selling volatility in the farther out months until a move in the Equity markets occur.

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It's All About the Consumer

Written by: Andrew Giovinazzi

Consumer spending comprises approximately 70% of GDP
The unemployment rate remains high and continues to grow
Personal savings as a % of disposable income is high, but for how long?

I started with an idea on consumer spending and let AlphaVision™ show me how the market reacted to the sectors shown below after the recently updated Chain Store Sales[1] report. Sometimes simple investment concepts require simple analysis. The investment community has been focused on financial institutions (rightfully so, I might add) and the end of civilization as we know it; however, the truth is, it’s all about the consumer. Overall, financials have made sharp gains in 2009, most of them after investors digested news on banks’ stress tests and Bernanke’s optimistic expectation that the economy would recover late this year. Since short-term financial plays have been realized, what’s next? To answer this, let’s focus on consumer spending.

To see potential consumer targets (and investment targets) I looked at two sectors: Retail - Discount Stores and Retail - Drugs, the two largest outliers responsible for improvement in the Chain Store Sales report. Using AlphaVision™, I scaled these two sectors for YTD price % changes.


The metrics reveal that Wal-Mart’s (WMT) price is down nearly 7% YTD while Family Dollar (FDO) has gained over 25%. Relative to the S&P 500, FDO has gained over 38%. In the retail drugs sector, Rite-Aid (RAD) and Walgreens (WAG) seem to be making the most noise. RAD gained about 29% and WAG is up 11% YTD. Using AlphaVision’s Metric Scout [see screen shot below], I pulled a side-by-side view of YTD, YTD relative to S&P500, and month-to-date price % changes. Looking at month-to-date percent changes, it appears the retail drugs sector has made impressive gains recently and therefore, does not look as attractive[to buy] as the retail discount stores.



If the economic recovery isn’t realized as soon as Bernanke thought, consumers could continue to substitute large scale discount retailers with dollar stores. Perhaps going long FDO (and/or DLTR, Dollar Tree) and shorting WMT is a good strategy. If the worst is over and the bottom is struck, consumers will “gradually” make their way back to WMT – remember to keep an eye on personal savings and unemployment. This scenario would suggest going long WMT and short FDO. In either case, consumers will never completely stop shopping at retailers such as WMT. While I am not as optimistic about the recovery as the Federal Reserve, I believe FDO is poised for a pullback given its YTD upswing relative to other stocks in its sector. Shorting FDO and going long DLTR could be a good relative value play, or for the long-term value investor, simply going long WMT could make sense.

[1] Source: Moody’s Economy.com and the International Council of Shopping Centers

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I love the StockTwits…

Written by: andrew.giovinazzi

It is fascinating stuff to an old option trader. Mostly because it helps monitor the flow and velocity of all market participants. Thank you web 2.0.

To that end my growing company, Aqumin, has created a TweetScore (High TweetScore in Blue and Green, low in red, sorted by Stock Volume) to combine what is Twittered about with real-time information. For me I call this a leading (contra) indicator. Not perfect, but a great source of ideas.



What I like about AlphaVision is I can take a Tweet and find the other trade. For instance look at Amazon (AMZN) which produces a very high TweetScore. Everyone is talking about it and it is a great company but it trades at a crazy multiple (50+P/E). I have seen enough to know that the new buzzwords “cloud computing” (used to be Railroads, Internet, Biotech, Xerox….etc) scare me with these kinds of names. Not that AMZN cannot go higher but give me something else to buy. So I use AlphaVision to find something in the same sector. Netflix (NFLX) pops up but that is no bargain either in the single digit P/E world. But Ebay (EBAY) sticks out. The market hates it (underperformed the S&P 500 of the last 52 Weeks) and trades like a utility (10 P/E).



What is unique about AlphaVision is that it compares names and not just screens them. The whole world is looking a spreadsheet of screens. What the market participant needs now is a way of looking at multiple names, in real time with all transaction data, at one time. Let everyone else screen, with AlphaVision you can compare across multiple sectors and price feeds with various types of data. Now is the time to do something different.

Take a look at Net Margins over the trailing 12 months (TTM). Ebay is 4x as efficient but trades at 1/5 the multiple. With AV this makes the trade much easier.
That is how eBay (EBAY) popped up. No Tweets love it. But it is standing right next to Amazon (AMZN) and that is where the opportunity lies. Buy what everyone else wants (which is good for now) or buy one of the best monopolies on the web for the price of your electricity provider and get Skype in the process.

I am buying eBay (EBAY) tomorrow and holding it until they make big money on Skype. Amazon (AMZN), good company, but it does not have a history of defying gravity forever.

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