Behind the Market Headline News

Nasdaq markets have been dominated by some of well know large cap tech companies and many smaller less know names too. Not surprisingly, Nasdaq markets measured by NASAQ-100 have been much volatile than SP500. However, since tech bubble busted in 2000, the Nasdaq volatiles measured by VXN declined dramatically and has gradually converged to broad market volatility represented by SP500, VIX (see Bloomberg chart below). Actually, as credit and mortgage market began to melt 18+ months ago, VIX and VXN have been almost in parities. SP500 was much volatile than NASDAQ100 in two of these period, first when Bear Sterns hedge funds fiasco and second time happened in last Nov when financial system was in the breaking point. Financial sector was the one of largest sectors until last year because of market value evaporation from some celebrated financial names, like Bear Sterns, FNMA and Freddie, Lehman and Citi. Almost all these financial firms were traded at the big board and are members of SP5...

The momentum darling, RIMM, gave up over $20 after releasing the Q2 financial results (missed by a penny vs expectation, $0.88 vs 0.89), and lower Q3 bottom line and margin on Thursday after market closed. The management downplayed AAPL eroding its profitability and attributed the disappointment to shrinking margins due to increase SGAN and R&D to expand its market share. It is quite interesting even RIMM has shined for so long in the last two years and certainly a bright star among analysts and investors, underneath this seemingly unstoppable bull run, there have been gradual but significant build-up of doubts and worries when we examined the derivative markets. After RIMM skyrocketed about five-folds from fall 2006 t0 Oct 2007, and peaked about 133 in Nov 2007, the bearish sentiment began to emerge. We can assess the sentiment by studying the relative positions of the underlying call and put option open interests during the period. The open interests of call option began to slide...

Equity market experienced some major corrections in response to credit stumbles in Jan, March and July this year, VIX spiked over 30% in both Jan 22 and March 17, but failed to close above this perceived extreme reading in the latest equity sell-off in last two weeks. Many market pundits were expecting to see the spike of VIX over 30%, and which were believed to be the indicator that the market finally reached "capitulation" point and hence short term "bottom." The 30% has been regarded as such an important bogey might come from the observations that VIX pierced through the 30% every time when S&P500 index went through risk repricing (corrections) process since last August (see the chart "Historical VIX and SPX " below.) However, VIX didn't broke above this "magical" mark during the latest downturn ( VIX did briefly touch 30% intra -day on 7/15 though), the final indicator for the market bottom. Most of other market sentiment indica...