|
PureBytes Links
Trading Reference Links
|
Wrong! Dispatches from the Front: A Volatility Nightmare
By James J. Cramer
1/10/00 5:35 PM ET
Volatility nightmare. Instead of the dot-coms calming down and trading
with more precision and in smaller increments, the opposite has
occurred: Everything is now trading like a dot-com.
Look at the points put on in the semiconductors and the semi-equipment
stocks. Or check out the action in Compuware (CPWR:Nasdaq), which was
down 4 in regular trading and is now up 4 after a failed bear raid.
Sun Microsystems (SUNW:Nasdaq) and Nortel (NT:NYSE) are going nuts on
the hardware side. And last week Procter & Gamble (PG:NYSE) and Bristol
Myers (BMY:NYSE) shocked to the upside.
What the heck is going on?
We left the office today stunned at the ranges that all stocks are now
trading in. These are frightening ranges for those of us who like to
control our risk (and, as a hedge fund manager, that's my key
variable). We love it, of course, when they go up, but the ride down is
too hard to hedge against. I'm shaking my head here, wondering whether
the dot-coms have infected the rest of the market with illiquidity.
Perhaps, and I am still working on this thesis, what has happened is
that the market makers in the Nasdaq simply have ceased to try to make
orderly markets. They are solely acting as agents buying stock and
selling stock for customers, without positioning a thing. If someone
wants to buy Oracle (ORCL:Nasdaq), she goes to a market maker and the
market maker, rather than stopping her on the stock and working the
stock in, just goes out and lifts all of the offerings. The market
maker wants none of the risk of the trade.
(To join the discussion on this article, visit our Message Boards:
http://www.thestreet.com/bbs/Forum4/HTML/000038.html)
(To refresh, in the old days, a market maker used to work an order. You
wanted 15,000 Oracle? He shorted you 5,000 and then he tried to work
the stock in over time. Now he doesn't short you anything; he is losing
too much on that 5,000. He just goes in as an agent and buys whatever
is available from others.)
Suffice it to say that if you thought that parts of the market were not
for the squeamish last year, you ain't seen nothing yet.
The flaw here is that it still doesn't explain how listed stocks became
so illiquid. That's going to take some digging, but I bet that the
listed market makers at the big brokerage houses are just as unwilling
to make orderly markets, too.
James J. Cramer is manager of a hedge fund and co-founder of
TheStreet.com. At time of publication, his fund was long Nortel, Oracle
and Sun Microsystems. His fund often buys and sells securities that are
the subject of his columns, both before and after the columns are
published, and the positions that his fund takes may change at any
time. Under no circumstances does the information in this column
represent a recommendation to buy or sell stocks. Cramer's writings
provide insights into the dynamics of money management and are not a
solicitation for transactions. While he cannot provide investment
advice or recommendations, he invites you to comment on his column at
jjcletters@xxxxxxxxxxxxxx
*****
JW
|