Monday, May 15, 2006

Scary, eh?

Another down day and we're through support in a very meaningful way. Volume isn't there to make it a bone-rattling breakdown and thus I am still a buyer. Besides, (thankfully) we haven't bounced this whole time.

An interesting observation from the portfolio level view: many of our OTM put spreads are now ATM an the equities had to stretch to move the prices that deep. I think this is an important fact as I often see that when a large number of OTM spreads get brought at the money a reversal has good chances of occuring.

Before it begins to seem like I am really trying to reach for a bounce let me say that I'd be buying even if the above weren't true. However, having made the observation I have reason to get more aggressive.

Finally, the VIX is above 14 and if you follow Adam Warner's logic (I agree with him) this relative number is high - too high.

We're getting deeper into NDX, Homebuiders and Semiconductors. The reversal is near but I doubt it will manifest itself as a simple U-turn. So, hang on to your hats... and pants.

Cheers,
/Dmitry

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