Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: donald sew who wrote (34402)	1/29/1998 8:28:00 AM
From: kiwi	Read Replies (1) \| Respond to of 58727

Good Morning Don & D.S.G., We had to leave the house yesterday so we had sells in for our WFC calls and we were hit at 8.5. It was kind of an unintentional chicken trade. We made our point and now look for the next trade. The BKX is forming a funky pennant that is giving us the willies. We did not like how CCI performed yesterday as well. CCI actually seems to be a better proxy for the BKX than WFC at this time. We are up on our AMR calls and we plan on selling today. What is your take on AMR and the XAL, if you have a chance? We think that the market is overbought, however the downside does seem limited right now with the strength the market is displaying. Hope you have a good and profitable day. kiwi

To: donald sew who wrote (34402)	1/29/1998 12:02:00 PM
From: Patrick Slevin	Read Replies (1) \| Respond to of 58727

S&P Futures Although you consider S&P futures to be light in volume the S&P contract is the most liquid of all futures. After the Treasuries and Eurodollars the 4th most liquid contract is 10-year notes which is less than half of the liquidity of SnPs. After this liquidity drops so quickly that the 7th most liquid contract is Crude Oil which is half again as liquid as 10-year notes. Even when taken to comparisons about what it would take to match the S&Ps with respect to profit/loss potential on the Treasuries one would have to trade 11 contracts, on the Euros 58 contracts, to match the S&Ps. This is all taken from "T/A of Stocks and Commodities", February issue. The point being that what appears to be light volume to someone trading stocks is actually anything but. No matter how big the stock market is, for example, it is just a pimple on the butt of the bond market. Be that as it may. Looking at pre-opening Globex numbers is a nice indicator for the open but only an indicator. It is very difficult for someone to draw a direct correlation as to what the stock market is doing because of various reasons. First, the S&Ps trade longer. The DJIA closes at 4 Eastern and the spoos trade until 4:15. A radical move by the S&Ps during this time skews one's perception of how one closed with respect to another. A bad earnings report, for exmple, released at 4:05 is too late for the DJIA but not for the spoos. Now Globex is very light. I read that Sunday night it actually moved up or down as Green Bay scored or Denver scored. Anyone paying attention to Globex has to understand that it's only a predictor of what might happen early the next morning. Second, the stock market takes time to wake up in the morning, lazy beast that it is. In theory, if S&P futures opened up down 10.00 the DJIA should be off roughly 86 points. (I like to think of it as "86ing the market". ---Alright, don't laugh. I've played to tough crowds before.) However IBM, for example, may not open for 20 minutes. By then the spoos may have recovered somewhat. It takes time for the stock market to get going. Further, most people think of the market as those 30 stocks which comprise the DJIA. A better correlation would be the 500 in the S&P Cash market. Looking at the PREM, or the spread, at any given time one will not see a large disparity in the motion of the Cash vs. the Futures. In any event, all I am trying to say is there is more of a correlation than one might perceive right off. The correlation has to be adjusted for things like the fact that the lazy stock market gets to work later and goes home 15 minutes earlier. The fact that people look at narrow indices like the DJIA instead of the broad market. Not to say any of this is bad, just that deriving a correlation between futures and various indices is like deriving a correlation between the OEX and a pink sheet stock or a $5 Small Cap. The one could be going one way and the other the reverse. There is not necessarily a correlation because the Small Cap is a microcosm compared to the broad OEX. As big as the capitalization is, the DJIA is infinitesimal compared to the SPX.