Timer Digest Commentary

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Fari Hamzei

Yesterday we saw U.S. stocks close sharply higher as a drop in oil prices calmed worries about inflation and news of an unexpected rise in home sales raised hopes that the housing market is stabilizing. Unquestionably, the rumors of the impending freedom for British Royal Marines held captive in Iran since March 23rd, fueled the strong bid across BigCaps, TechLand and Small Caps. And as George W spoke in the Rose Garden, bashing the Dems, our favorite Defense stocks BA, NOC and RTN, provided us an early warning of the explosive move.

Good Friday has historically provided an up bias for the market; however next week, we expect some selling as we all need to meet our obligations to Uncle Sam by April 15th.

Interesting Trades on Globex Last Night

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From our Virtual Trading Room Transcript
April 4, 2007
about 0717 PDT

Brad_Sullivan> one thing worth noting
Brad_Sullivan> that happened in the SPminis last NIGHT
Brad_Sullivan> nearly 28,000 contracts traded at 1447.50
Brad_Sullivan> and it was all in a short time period
Brad_Sullivan> with buyers coming in at 1,500 contracts a clip
Brad_Sullivan> and they were immediately pared off
Brad_Sullivan> by a seller
Brad_Sullivan> I have to say that I have never seen anything like that
Brad_Sullivan> it happened around 5:30 pm CDT
Brad_Sullivan> not sure what it means if anything
Brad_Sullivan> but it wreaks of something

Equity Index Update

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Brad Sullivan

Welcome to Q2…it seems like yesterday we were making our new year resolutions and now we are 25% through 2007. From a market perspective, we have witnessed a shift from the downward sloping volatility over the previous 8 months and now find the index markets in a rather interesting position. Clearly the global indices are a crossroads in terms of velocity and direction. Was the February 27th decline a warning shot of what may lie ahead? Is the U.S. economy slowing to the point of a needed rate cut? Is the Sub-Prime fiasco about to play a much larger role in the domestic consumer? Will the U.S. dollar continue to drop against the rest of the world? If the FED is worried about inflation…when will it show up in our readings?

As you can deduce from my thinking…there are many scenarios facing the index market over the ensuing months. One aspect of the trade that appears to be a pretty good bet from where I sit is that volatility has put in a floor and will remain elevated (relative of course) to those lows seen earlier this year. Listed below are the global performances for the indices. Once again…the U.S. is a laggard.

Global Stock Market Recap

Timer Digest Commentary

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Fari Hamzei

1410 on SPX is our next support.

Since we have not seen the much needed volatility retest (see my February 28th post http://www.hamzeianalytics.net/2007/02/volatility-my-two-cents.html), the current hostage crisis with Iran (British Royal Marines arrested during a routine patrol and taken to Tehran), coupled with Crude Oil Futures at six-month highs and the SubPrime Contagion, should be the impetus for this all crucial retest.



I suspect, unless Iran Nuclear Issue with the UN and this hostage crisis with the UK are resolved quickly, we will visit March lows (1364) and shake the trees till we get rid of the weak longs.

HOTS Mid-Week Options Commentary

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Peter Stolcers


I've been pretty vocal about how the market has discounted every shred of bad news. Even now, as the evidence mounts, the "spin doctors" are looking for a silver lining. Normally, the Fed Chairman has a positive influence on the market. That might still happen today, however, I heard concerns about a slowing economy and elevated fears of inflation. Productivity has slowed and resource utilization is very high. If companies absorb higher costs, the profit margins will be impacted. If they pass on higher costs, the consumer will experience higher rates of inflation. Neither outcome is desirable. I can't wait to hear the first positive twist on these developments. Chairman Bernanke is always very hedged in his statements and there were comments about full employment and a "resilient consumer". He also stated that the recent $2 spike in oil was not factored into his statements and it needs to be. In other words, sustained oil prices above this level could cause them to move rates higher. Gasoline inventories are low and there has been a draw on crude. Driving season is upon us and with the unrest in the Middle East; prices are not coming down anytime soon. The market spiked when it broke above SPY 141 and part of that rally was short covering. As you can see in the chart, we are not able to hold the gains. It is likely that we will test SPY 141 today and we may see a sharp decline. The market has been able to string 3 negative days together and that could be very damaging for the bulls. The bears would prefer to have a steady decline because it is sustainable. The large "air pockets" and snap back rallies are more noise than anything else. If we close below SPY 141 and there continue to be consecutive declining days, get short. The option implied volatilities are on the rise, but they are not expensive. I will buy in my put credit spreads and I will buy puts on weak stocks if that happens. I believe the bears will be able to drive the market lower today.

Crude Oil, VIX and S&P-500

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Sally Limantour

The relationship between oil and stock prices is on the front burner again as prices skyrocketed with May crude oil trading to $68/ barrel. “Oil surged $5 in 7 minutes late yesterday on speculation the U.K. would mount a rescue attempt.” (Bloomberg)

As the situation between Iran and the UK gains attention and concerns over the stability of the Persian Gulf and the Straits of Hormez move to center stage we now have concerns over the US naval forces there. This many ships in the Persian Gulf are of great concern… but should we be surprised?

Back in late January I voiced concerns over the changing “guard” in the Middle East. For the first time President Bush was putting in a US Navy Admiral as the US Central Command Commander-in-Chief. Admiral William Fallon was appointed on January 30, 2007. That seemed suspect to me as what had been up until now a protracted land war was soon, in my opinion, “going to see water - lots and lots of water. Can you really have a navy admiral running things and not have some ships in the picture? The geography of this war may be shifting.”

Stocks are acting defensive. We have geopolitical concerns, a slowing economy and inflation in some of the commodity prices. My favorite trade is long gold/short stocks right now and will continue to hold this.

The VIX is still relatively low when looking at a monthly chart and I wonder how long the VIX will find support in the 12-13 area. Will it soon have a higher low – 15-18 as its support line as we move into heightened concerns in the Middle East and inflation kicks up?

The next two are market profile charts for S&P-500 and Russell 2000 e-minis . The long horizontal letters represent supply above the market.

Commodity Prices

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Sally Limantour

Commodity prices have been moving higher as all three indices are up. While many of the markets are higher, the grain prices are lower. Many of you have emailed me asking why in last week’s class I was liquidating all of my grain positions. What technical indicators were telling me it was over? Other than RSI being over bought and trading near the top of the BB it was really a money management decision. All of these markets – corn, wheat and soybeans are up exponentially since first accumulating long positions in September and with the USDA report looming ahead of us on March 30th, I felt it was prudent to say “Thank You” and stand aside. It is not often that prices double in a matter of months as we saw in the corn market. A lot is riding (both politically and economically) on this report, so why be a hero? We can always get back in and hopefully at lower prices.

The energy markets are all moving higher and crude oil is 1.0% higher, while RBOB gasoline is 3.4% higher. The world is watching the situation with Iran and the UK and concerns over the Persian Gulf and the Straits of Hormuz are moving to center stage.

The weather is getting warmer and driving season is upon us as the nation’s refineries are low on gas! The spreads are reflecting this tight supply as the nearby spreads are trading to a premium to the deferred spreads. This does not look like a tight situation that is going away anytime soon.
Any breaks into last week’s range I would be looking at buying. Also the May/ June spread at 8 cents/gallon looks possible with stops under 5 cents. (note you can look at the mini contract and the symbol is QU).

Finally with commodity inflation heating up it is looking more and more to me like the bonds could trade to the 109 area. I will be looking for set ups to go short.