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“It’s All Greek to Me” June 20, 2015

Posted by Tom in Thoughts.
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Currently the hot topic for the markets worldwide is Greece.  According to reports, we shouldn’t have to wait much longer than Monday for an indication of what might happen after June 30.  My feeling is that the Greek banks will be forced to close up shop on Tuesday (they are using borrowed money from the EU, ’cause they don’t have any to back their deposits), when the populace realizes the situation, then the real negotiations begin over the next 2 weeks.  It’s human nature to wait until the eleventh hour and/or begin to feel the pain before things get serious.  We’ll see.

The US market are relieved over the FED’s decision to hold rates to zero for another 3 months.  So the slow grind higher continues within a trading range.  True, we did break higher on Thursday but that was on modest volume (possible UTAD?).  Friday was a downer on heavy volume, but keep in mind that Friday was options expiration and folks had to square up their positions.

NASDAQ

Monday should be interesting.  This market could fall back into it’s range and the Greek banks could close.  I’m not a buyer here and it’s probably a good idea to be patient before adding new positions.

There is strength in Healthcare, Biotech, Internet and Wireless sectors.  Small Cap stocks have been doing very well too, but that could change quickly.  I note that Market Sentiment is neutral.  Looks like many investors are going to wait and see how the markets respond to the turmoil in Greece.  There will be turmoil, it’s just a question as to how it turns out.

Have a good week.          …………..  Tom  …………….

Comments»

1. Howard - June 22, 2015

Hi Tom, Good post… thanks. I was interested in your thoughts about interpretation of volume based upon the cash index…. Looking at the Composite, SP500 and Dow indexes they all show increased supply on Friday however their ETF equivalents and the futures (ES, NQ, YM) are showing a different volume picture.

Tom - June 22, 2015

Hey Howard- I feel that volume with Indexes are a little “flaky” in that they are really average volumes of the underlying stocks. So the volume signature is less robust than that of an individual stock; still useful, but less robust. ETF’s are another story. Since they are derivatives their volume shows Demand but Supply is not “pure”, in that shares of ETF’s can (and are) created. Just talk to a major player for ETF’s and if they buy or sell (usually over $1-5 million worth) of an ETF they don’t do it on the secondary market, they go to the market maker. They market maker will literally create or redeem shares based on the iiv (intraday indictivate value) of the underlying basket / index that the ETF represents. Stocks have a fixed number of shares (“float”) available and can not be created, thus Supply and Demand really affect the price directly.

But I’m getting away from the real answer to your question: Friday was options expiration, so there can be a large volume spike as folks settle up their positions via the underlying stock. Usually the price of the index gyrates around with that spike in activity, but closes out fairly “true”. I take volume on the 3rd Friday of the month with a grain of salt.
Always good hearing from you. Cheers ! …….. Tom ………

hlask - June 22, 2015

Many thanks for that Tom – I wasn’t aware of the ETF mechanics but that makes sense. I would think then that futures supply and demand also directly affects price so for liquid contracts that’s the route I will probably follow.

Best regards

Howard


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