Today we’re going to do something a bit different … The indices are rising because the financial stocks are waking up. Morgan Stanley reported today and gapped up accordingly. So far it’s a positive earnings season, and as counter intuitive as it may seem (general state of the economy considered) we could be in for a strong summer rally. The autumn could well be different but there are a couple of months to go until then..
When something is brewing in the financial sector, the OVI is often very responsive in advance. Before we look at today’s financial stock performances, let me take you back to early 2008 when a monster bank, Bear Stearns, went bust.
Take a look at these charts and see for yourself what the OVI can do:
BSC Chart 1
As you can see, the stock is holding support around $77. The OVI has plunged to its maximum negative reading, but there’s more support just under $70.
BSC Chart 2
This is highly unusual. The OVI is rooted to the floor and a new support level just under $70 is under threat. This would have the alarm bells ringing (unless you’re Jim Kramer from CNBC!)
BSC Chart 3
Goodbye Mr Bear Stearns. Wha’s the message here? Someone somewhere knew SOMETHING … and the big players were betting hard in the options markets. This is what the OVI picks up.
Ok, so for today, let’s look at a few financial stocks, starting with Morgan Stanley.
MS
MS has gapped up to above $23 on earnings at the open today. I realize we don’t generally trade earnings but the OVI was clearly alive to this:
GS
Could be about to wake up too …
BAC
This has been such a dog, even the OVI is still asleep on this one, despite two days of decent performance with the stock.
When there’s something big brewing, the OVI should pick it up.
For example AAPL has gone nuts (forgive the pun!) in the last few weeks and the OVI was right there with it all the way. The Cup and Handle was easy to trade through its resistance level.
More soon!
Guy
