Inside Days

by Larry Levin

Today was another fairly slow day. There was an attempted sell-off when the market opened, but managed to rally into the afternoon. However, from approximately 12pm (CST) through the close, the market took a siesta...basically trading within a 5-point range.

If it wasn't for a scant ½-point trade through Friday's low, today would have been another "inside day." Friday was an "inside day" to Thursday’s range and Thursday was close to being another "inside day" day to Wednesday's range.

An inside day occurs when today's range is within the prior day's high and low. During these times the market volatility is shrinking, temporarily, and will lead to increased volatility in short order. When a market like the S&P futures have several days of an inside pattern, traders should be prepared for action, whether it is a one directional break-out or a two-sided very high volatility trade. The last time a similar congestion pattern emerged, the S&P futures rallied almost 24.00-points on the break-out-day that was followed by another +12.00-points shortly thereafter.

Perhaps increased volatility could hit the tape from AIG spillover weakness? It was down 11.7% today after its auditor questioned how the company values some of its derivatives. Hmmm, maybe Arthur Anderson should have questioned Enron?

PricewaterhouseCoopers LLC said AIG had a material weakness in its internal control over financial reporting and oversight related to the valuation of a derivatives portfolio owned by AIG Financial Products Corp., a unit of AIG, the company said in a regulatory filing. With that, Fitch ratings agency said it may cut AIG's AA status a notch.

AIG Financial Products has a large exposure to CDO-type securities. The unit's credit derivatives portfolio had a net notional exposure of $505 billion at the end of September. More than $62 billion of that was related to CDOs, mainly backed by subprime U.S. residential mortgage-backed securities.

Wait, wait...what's happening here? Companies, whether they are accounting or rating agencies, aren't "playing ball" anymore? How dare they do their jobs and question the viability of toxic CDO values! Have these companies that heretofore have been asleep at the wheel finally found their moral compass? If so, it’s about time.

Real Time Trading Signals*for

Trade Date: 2/11/07

E-Mini S&P Trades*
(before fees and commissions):

1) V-A buy @ 8:45am at 1325.50 = +2.50 (1 lot)

2) MD rev. buy @ 8:55am at 1324.50 = -1.5 & -1.5

3) V-A sell @ 9:35am at 1326.00 = +1.0 & +1.75

4) OTF sell @ 10:05am at 1328.00 = -1.25 (1 lot)

5) FT buy @ 11:25am at 1331.50 = b/e & b/e

6) FT buy @ 1:35pm at 1335.25 = +.75 (1 lot)

7) OTF sell @ 2:05pm at 1339.00 = -1.75 & -2.00

E-Mini Russell Trades*
(before fees and commissions):


1) Sell @ 8:48am at 693.0 = +.5 (1 lot)

2) Sell @ 9:13am at 691.9 = -1.3 (1 lot)

3) Buy @ 9:41am at 693.4 = +1.2 (1 lot)

4) Buy @ 9:50am at 694.2 = +.4 & +1.7

5) Buy @ 10:24am at 697.0 = -1.2 & -1.2

6) Buy @ 10:42am at 694.3 = +.5 & -.7

7) Sell @ 10:53am at 695.0 = +.4 & b/e

8) Buy @ 11:18am at 696.8 = +.3 & b/e

9) Buy @ 12:32pm at 701.2 = +.5 & +1.7

10) Buy @ 1:15pm at 703.1 = +.5 (1 lot)

11) Sell @ 1:46pm at 700.9 = -.9 & -.9

12) Sell @ 2:01pm at 700.8 = +1.0 & b/e

13) Sell @ 2:53pm at 700.2 = -1.0 & -1.0...$50.00


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