Vikram Saxena's  Instablog

Vikram Saxena
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Vikram is an electrical engineer by training and has held a variety of roles spanning multiple industries. He started his career in the semiconductor industry in the Silicon Valley, before moving to a proprietary trading desk at a bulge bracket investment bank in New York. Vikram has also... More
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The Inquisitive Mind
  • Monday Mid Day Update: Divergence Galore 1 comment
    May 11, 2009 11:56 AM | about stocks: COF, GOLD, SA, AAPL, GOOG, XLE, OIH


    As I had anticipated the equity markets gapped down at the open today. There is strong divergence all along, with large cap tech getting a bid while energy and financials being sold off. This is the reverse of the sector rotation we were seeing last week.
    Market Internals Diverge
    The market breadth is negative on the NYSE by a 4.4:1 ratio while it is positive on the Nasdaq with a 1.58:1 ratio. However Nasdaq A/D ratio is negative -1.65:1 while the NYSE A/D ratio is negative -3.25:1 consistent with the breadth.
    This divergence across exchanges, and even within the exchange suggests a confused market. The strength is the Nasdaq seems to be driven by big Tech stocks like Apple and Google, while the broad market is being sold.
    Treasuries Getting a Bid
    After the quick climb last week, treasury yields are going down and treasuries are getting a bid. There is increasing talk of Fed intervention to limit the yields and with reduced supply from the treasury, shorts are closing their positions. There is also some portfolio reallocation going on, as some managers move out from equities to bonds.
    My Portfolio
    As I had anticipated COF took a big dip at the open after the announcement of the secondary offering. It easily made my downside target of $28.54. The secondary is likely to be priced today or tomorrow and the underwriter (Barclays) is likely to support the offering till at least the end of the day. COF seems to be having strong support at $28. 
    I have closed out most of my put positions, while keeping a small amount. I converted that portion into a bearish put spread by re-opening the short put leg I had bought back on Friday. This allows me to profit even if the price goes up a bit into the secondary, while time-decay works in my favor.
    Some Other Stocks I am Watching: Gold Miners
    Based on the musings of some other traders I follow, I am also watching some precious metal related stocks like Seabridge Gold (NYSEMKT:SA) and Randgold Resources (NASDAQ:GOLD). Gold is likely to benefit if the reflation thesis gains hold, and Gold stocks are likely to benefit in this bullish tape if gold makes another run for $1000/ounce.
    Outlook for the Rest of the Day
    I anticipate the market to continue its choppy behavior, as it digests the actions of the previous week. Individual sectors are likely to have their own cross-currents. I am looking forward to building some long energy positions on any additional pullback in that sector with a focus on the oil-services and refiners.


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  • fatcat
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    Comments (734) | Send Message
    11 May 2009, 12:17 PM Reply Like
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