Many people falsely believe that the quickest way to halt a parabolic rise at least temporarily of a marginable asset is for a rise in broader interest rates or discount rates. However, this is absolutely not true. What does the trick is a rise in margin requirements. Maybe not the first time, but eventually it does the trick and it does it rapidly. For those not aware, margin is street talk for ‘borrowed money.’ For instance, an overnight margin requirement of “2 to 1” means that one could own twice as much assets as one has monetarily. Ergo, if one had $100,000 in a stock account, one could own $200,000 of assets. When margin requirements are raised, it forces people to put more money up which in turn shrink the amount of people able to get leverage in the market. On April 27th, the COMEX raised the margin requirement on a new contract of silver from $11,745 to $12,825. On April 29th, that number rose from $12,825 to $14,513. On Tuesday (the day after silver topped and had already reversed), the requirement was raised from $14,513 to $16,200. Thus, in less than a week, one had to have 38% more money to initialize a position in silver on the COMEX. Oh and by the way, after the bell yesterday, the CME announced it was going to boost margin requirements again! Furthermore, the margin requirement as a percentage of contract value has been around 8% (about ‘12.5 to 1“). Thus, an 8% decline in the value of silver would effectively wipe out a silver contract holder. So what happened in the last few days? The number of participants declined because more money was needed to play. And many of the current holders who bought recently lost all of their investment. This is what has caused the price of silver to decline so sharply. It’s also why it hasn’t led to widespread selling in the stock market in that it’s been generally an isolated incident. The issue will be if the other commodities take their cue from the silver market. So, the two points here are- 1)be aware of the mechanics behind a market beyond the fundamentals and b)monitor the commodities markets even closer than normal in coming days as the ghost of the May 6 flash crash from last year approaches.
Markets in Asia were mixed overnight with Taiwan up 0.8%, but the Sensex was off 1.6% and Hong Kong 0.2%. In Europe, Frankfurt is off 0.8% and London is down just over 1%. Oil is down 3%, gold 0.5%, bonds are up slightly, and the dollar is much weaker against the yen (below 80 yen) but up strongly against the euro (up a full euro). Futures are weak on weak jobless claims data as well as continued commodity weakness. Look for a choppy but downside session in all likelihood while watching the commodities for a potential exacerbation. The focus will likely be on earnings plays and relative strength plays.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
TMH- closed near a high after posting good earnings
MGM- closed near a high after posting good earnings
BKS- closed near a high
BMC- decent earnings
ERTS- decent earnings
JDSU- decent earnings
NUVA- decent earnings
WFMI- decent earnings
WFR- decent earnings
TSLA- decent earnings
CECO- decent earnings
ENOC- decent earnings
EXPD- decent earnings
LEAP- decent earnings
QNST- good earnings
PPO- good earnings
CI- decent earnings
EL- decent earnings
ONNN- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
JAZZ- closed near a low after posting poor earnings
FSLR- closed near a low after posting poor earnings
LVS- closed near a low after posting poor earnings
MOTR- closed near a low after posting poor earnings
CENX- closed near a low after posting poor earnings
WWWW- closed near a low after posting poor earnings
NXTM- closed near a low after posting poor earnings
CTCM- closed near a low after posting poor earnings
REGN- closed near a low
NOG- closed near a low
MET- poor earnings
MELI- poor earnings
SWIR- poor earnings
PRU- poor earnings
RIG- poor earnings
SWI- poor earnings
SAM- poor earnings
ATML- poor earnings
MUR- poor earnings
PAA- poor earnings
IO- poor earnings
NOG- closed near a low
ACOR- poor earnings
GM- poor earnings
TBL- poor earnings
WNR- poor earnings
Earnings:
THURS MAY 5 BEFORE
ACOR AEE ANV
ATK CBOE CEDC
CI CTL CVS
DANG DNR DTG
DTV EL EXK
FO GM HK
HOC IT MAC
MGA MINI NOG
NRG PDC PDE
PXP RGLD SFY
SHOO SLE SVNT
TBL VTR WMB
WNR
THURS MAY 5 AFTER
AIG BID CF
CFN CIM CNQ
CQB DLB EOG
FLR HANS JCOM
KFT MCHP MDRX
MHK MRX NFG
NILE NVTL PCLN
PKI PSA QLGC
RAH SD SEM
SGEN SGMS SLXP
SPRD SUN V
WRC
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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