Sharp Increase in Daily Volatility?

George Brooks |

Intraday volatility has really intensified over the last five trading days. Quants? High Frequency Trading? Obviously, this is a change in the normal pattern of trading, and that is worth noting.

I sense part of this is driven by the following:
Safe investments (CD’s, money markets, T-bills) yield next to nothing leaving money managers little alternative but to buy stocks. But the market is up 126% since its bear market bottom in early March 2009, and up 7.3% this year alone and that makes some investors nervous.

Uncertainty resurfaced from a familiar source yesterday, the euro, as ECB President Mario Draghi, voiced concern that its strength could impede an economic recovery before it gains traction by curbing exports.

That combines with uncertainty about what Congress and the White House will do about sequester, which deadlines March 1.
While the market averages have taken four abrupt hits in the last seven trading days, each was countered by enough buying to head off an ugly follow through on the downside.

These negatives pale compared with the formidable “wall of worries” this bull market has successfully climbed since it began.
I am concerned with the volatility, and the uncertainties that stand to accompany debate over sequester, or an agreed upon alternative.
Resistance starts at DJIA 13,982 (S&P 500: 1,512). Support is DJIA 13,876 (S&P 500: 1,499)
Investor’s first read – an edge before the open
DJIA: 13,944.05
S&P 500: 1,509.39
Nasdaq Comp.: 3,165.13
Russell 2000: 908.10
Friday, February 8, 2013 (8:50a.m.)
APPLE (AAPL: $468.22)
In early trading yesterday, AAPL responded only marginally to an announcement that David Einhorn, Greenlight Capital, urged APPL’s management to “return more cash to shareholders.” AAPL has some $137.1 billion in cash, about $145 a share. But APPL’s response late in the day that it will “thoroughly evaluate” Einhorn’s proposal triggered heavy buying before the close. My read on Einhorn’s proposal which came before the open, was that this was a piece of news that called attention to a positive for AAPL. Yes, the fact the company is doing nothing about a hoard of cash is a negative, but having a hoard of cash is a hell of a lot better than being cash poor. It’s an asset than can be deployed and that is welcome for a company whose stock has been pummeled relentlessly, down 34% since its high in mid September.
Support rises to $458, resistance rises to $478.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $29.05)
Monday’s $1.62 drop turned FB’s technical pattern from positive to a weak neutral. Its price stabilized since then though rather unimpressively. Resistance is now $29.10. A break above that counts to $30.85.
Support is $28.10.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help target a bottom as with FB. Comments are based on technical analysis only.
ECONOMY:
This will be a light week for economic reports. A drop in defense spending and slower inventory growth was responsible for Q4’s paltry annual growth rate of 0.1%, following a Q3 annual rate of 3.1%.
But the Street is heartened by favorable economic data on employment, personal income, consumer sentiment, auto sales construction spending, durable goods manufacturing, and housing.
I am going to list the economic reports below but will not include the numbers from the last report, since those numbers are often revised significantly and therefore are potentially misleading.
I strongly urge you to access the website: www.mam.econoday.com for detailed reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports. The site does a great job graphically illustrating key indicators.
FRIDAY:
International Trade (8:30)
Wholesale Trade (10:00)
RECENT POSTS: 2013
Jan 28 DJIA 13,895 “Speculative Phase of Bull Yet to Come”
Jan 29 DJIA 13,881 “Market Needs a Breather”
Jan 30 DJIA 13,954 “Apple at a Key Juncture”
Jan31 DJIA13,910 “January Barometer Set to Forecast More to Come”
Feb 1 DJIA 13,860 “Is Apple Turning the Corner ?
Feb 4 DJIA 14,009 “Individual Investor Rushing In to Buy “
Feb 5 DJIA 13,880 “Enter Volatility”
Feb 6 DJIA 13,979 “Sequester Clock Ticking”
Feb 7 DJIA 13,986 “ Apple Whetting Appetites for Buying Stocks ?”
*Investment Company Institute data reported by Bloomberg
George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com

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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

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Companies

Symbol Name Price Change % Volume
AXP American Express Company 63.42 -0.43 -0.67 6,946,585

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