An Alternative For Measuring Market's Negative Sentiment

With the real possibility of the U.S. (and the world economy) leaping into recession before year end - perhaps triggered by the collapse of the Euro currency and the European Union - investors are jittery and three bellwether indicators attest of this nervousness:

1. VIX: a measure of volatility for the S&P 500 Index (SPY) traded above 30 since the beginning of August. Yesterday it closed at 33.38.
2. iShares Barclays 20+ Year Treasury Bond ETF (TLT): Yield on long-dated Treasuries are at record lows, with TLT making a new high for the year at $114.93.
3. SPDR Gold Trust ETF (GLD): Gold still trades near record high levels around $1,800, even though the metal corrected sharply adter the Swiss Franc lost its safe haven status after the SNB pegged its currency to the Euro.

Here we propose a different measure of market's negative sentiment by comparing the value of deep out-of-the-money and at-the-money put options on the S&P 500 Index that expire in 43 days, on October 22, 2011. What we find is downright scary!

Read the full article here.

Google's Zagat Acquisition Means Trouble For Open Table

After being criticized for its big move to buy Motorola Mobility (MMI) last month, Google (GOOG) is now cheered by a smaller, yet important acquisition of restaurant review firm Zagat.

When seen together with the company’s partnership with local search networks Local.Com (LOCM), this move helps Google expand its presence in another content area that can be monetized in a number of different ways, including offerings to local restaurants. This means that Google is going head to head against highflier Open Table (OPEN). What does it mean for investors?

While this development is expected to have a small impact on Google’s stock (up less than half percent), it already has big impact on Open Table’s stock—near 10 percent down after the announcement.

Read the full article here.

Why Precious Metals And U.S. Treasuries Aren't Good Bets Against The Current Uncertainty

With the world economy heading for a double-dip recession and sovereign debt concerns growing, small and large investors are rushing to buy three assets that are considered a safe bet against uncertainty: gold, silver, and treasury bonds. This has sent iShares Silver Trust (SLV), SPDR Gold Shares (GLD), and iShares Barclays 20+ Year Treasury bond fund (TLT) soaring, while SPDR S&P 500 (SPY) has been heading in the other direction. But are these investments the right bets against the current uncertainty?

Read the full article here.

Trading Strategies for a Turbulent September

The beginning of the month is usually positive for stocks, as pension and other automatic savings plans pour into the market. However, that wasn’t the case for September, as Friday’s employment report makes very likely that the U.S. economy-- and perhaps the world economy -- is heading for a double-dip recession.

Last time the U.S. experienced a double-dip recession was back in 1981-82, and it was ugly both for Wall Street and Main Street. Unfortunately, this time around things may be worse for the U.S. as economic policy, especially monetary policy, is maxed-out. For instance, in 1982 short-term interest rates were around 16 percent, while this time around they are near zero. This means the economy cannot count on lower rates to recover, as was the case in 1983-84. 

Read the full article here.

Netflix's Other Problem: Competition From Amazon, Blockbuster, Coinstar, And Wal-Mart

Following the news that Starz Entertainment (LSTZA) won’t renew its content contract with Netflix (NFLX), the company’s stock took a big hit on Friday trade. Losing close to 10 percent of its value by early afternoon trade—and near 30 percent from all time high. What is next for the stock?

Read the full article here.

Avoid the Fallen Dot.com Angels

Remember the high-tech bubble of the late 1990s, when dot.com and networking company stocks rose by leaps and bounds, sometimes doubling and tripling in a single trading-day?

With the bubble busting in the early 2000, these days are gone. Some of these companies went bankrupt, while others stay very close to earth like fallen angels. Recently, however, a number of these companies have been rising in price, as they reported better than expected results. Cisco Systems (CSCO), Ciena Corp. (CIEN), JDS Uniphase (JDSU), Alcatel-Lucent (ALU) and Ariba Inc. (ARBA), for instance, they all reported better than expected results, and their stocks have been edging higher.

Read the full article here.

2 Option-Based Strategies to Overcome High Volatility

Two related and unresolved economic issues are weighing heavily on the market since the beginning of August, creating lots of uncertainty for investors:

1. Will the U.S. (and the world economy) go into recession before year end?
2. Is the Euro doomed to fail?

Some have called the bottom at 1100 on the S&P 500 Index following the August 9th selling climax. Unfortunately, the answers to the above questions will only be known in hindsight, 6 months or a year from now. In our opinion, investors should remain defensive with a focus on capital preservation.

Three bellwether indicators speak loudly and attest of investor nervousness :

Read the full article here.

Time to Buy HPQ? A Resounding YES

Given the current market woes with the S&P dropping by more than 4% and the VIX closing at 42, one would be foolish to recommend equities at this juncture. After all, none of the problems that precipitated the sell-off are solved, including the sovereign debt crisis in Europe and the future of the Euro currency as well as the chance of a looming global recession.


In addition, investors sent Hewlett Packard (HPQ) 10% lower after the tech bellwether reported earnings and detailed its re-organization plans. Trading at around $23 at the open, we ask a simple question: is it time to buy shares of HP? Our answer, a resounding YES because of the following three reasons:

Read the full article here.

A Heuristic Formulation of the Margin of Safety

"The Intelligent Investor," one of my favorite books on investing written by Benjamin Graham, the father of value investing, and first published in 1949, is a classic that must be read by anyone serious about making money in the market (a less well-known book, "The Art of Speculation", by Philip L. Carret and first published in 1930 is right up there with The Intelligent Investor in my opinion, but a thorough analysis of the books' relative merits is for another day).

Perhaps if readers had to take a single concept away from Graham's book, it would be margin of safety. In his 1997 letter to investor, Warren Buffett compares the margin of safety when buying stocks to sound engineering:

Read the full article here.