The S&P hugged the lows of yesterday for the majority of the day in a mostly quiet session.

S&P 500 Intraday Range

Quiet as it seemed, there was a pick up in volume in both the S&P e-mini contract (machines) and the pit traded contract.

S&P 500 - Daily

Poker

When I left off on my poker analogy, the market called my re-raise after the flop. I stated that I would call the market, no matter what the turn card. The turn card was dealt yesterday and the break lower showed a pick up in volume. Along with the pick up in equity volume, the credit market confirmed what it had been hinting at all of August. Credit spreads widened across the board, most notably in the financial complex.

Waiting for the turn card was the tough part. I have now bet the size of the pot and I await the market’s reaction. Based on today’s action, I’d say the market has not reacted much. It is still staring down at his cards. So far the only tell is the pick up in volume in the S&P futures contracts today.

I stuck to my plan when the turn card was dealt by buying puts in a range of asset classes and calls in 10 year Treasuries. From a chart perspective I see potential resistance in the 10 year above the 120 mark.

Treasury Futures

Gold

Gold traded strong today and was up the most it’s been since March. Depending on where the trendline is drawn, some may declare it an official breakout. Some time back, I sold my gold positions. Last year, when the flight to safety trade gripped Wall Street, gold traded much lower–as low as $680 per oz.

In light of that, I am going to see if gold can surpass the $1,000 mark–and the subsequent reaction–before I am tempted back into gold futures. For now, the physical gold that I hold in safe haven countries around the globe will suffice.

Gold

Slowly but surely, cracks in the foundation of the market are appearing and confirming themselves. If volatility is to make a sudden move higher, I am positioned well.

As I wait for the market to react to my bet, I will seek out the important tells and communicate them as best I can.

That’s a Rap.

Peace. Out.

As you are well aware, Disney (DIS) agreed to acquire Marvel Entertainment, Inc. (MVL) for 4 billion dollars—thus ending my own negotiations with Disney regarding a buyout of the Mr. Volatility franchise.

No doubt, this news will come as a relief to many who revel in the exclusivity of Mr. V’s mission; but the Disney name behind me might have been to my advantage. Moreover, it was looking like a decent time for me to partner with Disney and to play a role on their board of directors.

The breakdown in negotiations was particularly regrettable as Disney and I agreed on everything…

Except price.

When Bob Iger tracked me down at that dark nightclub in LA and offered me the 4 billion, I certainly appreciated his sagacious interest and pursuit. But alas, I had to be practical and assure him that the value of the Mr. Volatility franchise is worth at least 35 times that.

He laughed. An incensed but knowing laugh.

I laughed. A dissatisfied but resolute laugh.

He didn’t believe in my value. But did he ever value my beliefs?

So Marvel will now merge with Disney, thus securing over 5,000 Marvel characters and integrating them into their media empire. Sadly, the 5,000 will not include a single superhero for the only earthly territory yet undefended—the financial markets.

Moving forward, I will continue to execute my vision. My mission:

It is my vision that, through meaningful work and collaboration, I can better myself.
Using my inspirations as a guide, I will produce things of importance, and open doors for those that believe in themselves, and build an immense store of energy.

Number nine, number nine
Industry allows financial imbalance
-The Beatles, Revolution 9

As mentioned in a prior post, the S&P topped on October 11, 2007. In March of this year, it found support at 666. The March low was 666 days from the October high.

The Panic of 1907, was chiefly caused by a rescission of market liquidity.

The high in 1906 to the low in 1907 lasted 666 days. Markets run in cycles and the cycles don’t change.

The only thing that changes in the markets are the players.

The Panic of 1907

On the first day of the ninth month of 2009, US stocks sold off on an increase in volume. The $VIX was up 12%, the dollar up .74% and the mighty five (AIG, FRE, FNM, CIT, C) we’re all off double digit percentages, save Citibank who fell 9.20%.

Several rumors made the rounds today, which were quickly denied. The most timely denial came from the CEO of Wells Fargo (WFC). With about nine minutes of trading left, he came over the wire to reassure the world that the bank will not raise equity in order to repay TARP. Further, he said that when TARP is repaid it will be done in a friendly way and will not dilute holders.

Traders in the pit quickly laughed off the headline and sold Spooz futures into the cash close–and then some in the final fifteen minutes. Just how Wells will repay $25 billion dollars in a friendly, non-dilutive way remains a mystery.

Wells Fargo - The Timely Denial

Another rumor today was the possibility of a large bank default. As I noted on Twitter, if there is to be a default of a large bank, it is  likely a bank in Europe. Default swaps on US financials traded higher last month. Swaps on European banks traded even higher.

No matter, risk (volatility) continues to be underpriced. Some simple regression anlysis on the VIX shows that it is peeking out past the standard deviation models which options are priced. Today was the busiest day of trading I’ve had in a while.

I’m out for now. Time to hang out with Pinky.

The VIX

On August 4th, the Shanghai Composite Index printed a high of 3651. It has sold off abruptly since then. So far today, the index is off 5% at 2853. The decline is being led by oil and gas shares as well as basic materials.

China stocks bottomed before US stocks.

Shanghai Composite and S&P 500

Coupled with the Shanghai Composite Index, rates on US bonds also bottomed before US stocks.

Ten Year Rates and S&P 500

Both Shanghai and rates were leading indicators of a bottom in stocks, which begs the question: Is the top in US stocks being signalled by the same things that flagged the bottom?

If risk aversion suddenly becomes en vogue, the exits will be crowded. Buyers have bid up the market in an orderly fashion. Sellers are never as orderly.

Downside insurance remains cheap and undervalued.