Morning Review - 080510

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.
com
Christine Clark: 212 448 6085 or cclark@convergex.com
Beth Reed: 212 448 6096 or breed@convergex.com
Stocks closed Wednesday at a 2 ½ month high (S&P 500 +0.6%, Dow +0.4%, Nasdaq +0.9%) on better- Morning Markets Briefing
than expected reports on the labor market and service sector. ADP’s monthly employment report
showed that the private sector added 42,000 jobs last month, primarily due to a surge in the service
Market Commentary: August 5th, 2010
sector. The June figure was revised to an addition of 19,000 jobs from the previously reported gain of
13,000. Another report also highlighted relative strength in the service sector – the ISM’s non- A snapshot of the markets through the
manufacturing index unexpectedly rose to 54.3 in July from 53.8 the prior month, compared with lens of ConvergEx.
estimates of 53.0. New orders rose more than 2 points, while the employment component reached its
highest level of the recovery (50.9 from 49.7 in June, indicating a swing to expansion).
You Complete Me – Updated Economic Indicators from Google, Yahoo! and Bing Search Results
Summary: Today we update our occasional look at search engine (Google, Yahoo! and Bing) “autocompletes” for key economic phrases. All three websites try to “finish”
whatever you start typing into the search line based on the most commonly searched phrases in their respective systems. When you type in “Stocks…” for example, the
suggested “autocompletes” have changed pretty dramatically from January 2010 to now. At the beginning of the year, “Stocks under 1” and “Stocks under 10” were
popular enough searches that Google offered them up as “autocompletes.” Now, “stocks and bonds” is a suggested search and the preselected option for low priced
stocks is off the “autocomplete” menu. Other searches for key phrases, such as “I want to buy” and “I want to sell,” yield similar results as our January survey. For sale
(still): Hair, eggs and kidneys. Wanted for purchase: houses, cars and guns.
The “autocomplete” function on search engines is a little bit like that slightly overbearing but well-meaning friend that tries to finish your sentences for you.
Sometimes they get it right, and you think, “Yes! My friend and I are really on the same wavelength.” And sometimes what they come up with is some freakish
combination of weird, sad, and scary. And you wonder why you are friends at all. Or whether or not to call their therapist.
There are whole websites dedicated to the oddball “autocomplete,” showing how Google, Yahoo! and Bing can go dangerously, humorously, or disturbingly
astray. You need to keep in mind that these companies each spend untold millions of dollars trying to make autocomplete better. They really want to save you time on
the way to a successful search, so they pop up the most common searches for whatever partial phrase you are in the middle of submitting. Punch in “When can,” and you
will get suggested “autocompletes” like “When can you get pregnant,” or “When can I retire.” Common enough questions, and you can see why Google, in this case,
pops them up as you type. And then there are times when it all goes horribly wrong. Type in “My son’s” into Google and you’ll see what we mean. The first proposed
“autocomplete” result is, oddly, for what used to be called “foundation garments.” Why people are looking for their son’s bras is really beyond me.
Market Commentary – Pages 1-4, Equities/Conferences & Earnings – Page 5, Fixed Income – Page 6, Options – Page 7, Exchange-Traded Funds/Indexes – Page 8, Social
Media & Internet Blogs Top Stories – Page 9
1 1
Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com
But, oddities aside, scanning through “autocompletes” for commonly searched items can be a thought provoking way to consider what people are most often
searching for when online. We did this exercise at the beginning of the year (see January 13th, 2010), plugging in phrases such as “I want to buy,” “I want to sell,” and
so forth to see what “autocomplete” filled in as the most common ending. The upshot was that back in January the most common searches were pretty bearish in the
view of the economy. So we went back to the well this week to see if things have changed in Google “autocomplete” land, and we threw Yahoo! and Bing results into
the mix as well.
Here is what we found – screenshots follow this note if you want to see the entire list of results:
• The phrase “I want to sell my…” is still dominated by many of the phrases we saw listed in January. Cars and houses, yes. But also kidneys, hair and eggs.
Bing also carries “diamond ring” and “timeshare.” One depressing new entry in the Google “autocomplete” for this category is “dog.” It was not on this list in
January; it is #5 on the list now.
• “I want to buy…” still has the “Big Three” of house, car and gun in our Google search, just as it did in January. Live ostriches and monkeys are out (#2 and #6 in
January), replaced by boats and iPads. And, thankfully, many people are searching to buy a dog. Hopefully they can hook up with the people trying to sell them
from the prior search.
• If you plugged in “Stocks…” into Google back in January you got choices like “stocks under 1” and “stocks under 10.” Now you get “stocks and bonds,” an
answer that did not appear in “autocomplete” back in January. Yahoo! users seem a little less sanguine, as their top “autocomplete” for “Stocks” is “to own in a
recession.” Either way, there does seem to be a more pronounced risk aversion among search users. Interestingly, that is mirrored by a persistent movement out
of U.S. stock mutual funds and into bond funds and ETFs. One notable addition to the Google list: stocks to short. Perhaps indication retail investors don’t exactly
trust the current market rally.
• The search for “Food Stamps” we did in January on Google has changed, but only because that site now has much tighter geographic targeting. So as a New
York City user, you get only local search results. Using Bing, Florida, Texas, California. Oregon, Georgia, Indiana and Colorado pop up as the top states for searches
related to this government assistance. That list is largely the same as the Google search we did back in January.
• And as for the word “Filing,” “bankruptcy” is no longer the most popular Google “autocomplete.” We’d be quick to say that’s a good thing, except it’s been
replaced with none other than “unemployment.” Not much better. Bankruptcy is still on the list however, coming in at number 4, and even stands atop Bing’s
“autocomplete” list. It’s no surprise that filing taxes and filing for divorce are still just as popular as they were in January – after all, taxes apply to pretty much
every internet user, and it’s been said tough financial times translate to tough times for marriages as well.
Overall we can’t say that much has changed in search engine land to indicate better economic times. Those interested in stocks seems to be more prone to risk aversion,
food stamps remains a disturbingly popular topic, people still want to buy guns, and ladies still want to sell their eggs for cash. But hey – at least bankruptcy is moving
down the list. That’s something.
2
Jan 2010 - Now
Jan 2010 - Now
Jan 2010 - Now
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Jan 2010 - Now
Jan 2010 - Now
4
U.S. EQUITIES
BKS surged 19.2% after announcing that its founder and largest shareholder may consider participating in an investor group to acquire the bookstore
chain. PCLN (+22.0%) forecast 3rd quarter earnings excluding some items of $4.78 a share, topping the average analyst estimate of $4.18. Competitor and
biggest online travel agency EXPE rose 6.4% in response to the news. According to MGM’s (-1.7%) CEO, the casino operator plans to build “multiple
properties” in Macau as it expands in Asia. In earnings news, WFMI (-8.4%) and AOL (-29.5%) declined after missing estimates, while CBS (+4.2%), RL
(+7.8%), and TWX (+0.3%) advanced on better-than-expected earnings.
Important Earnings Today (with Estimates) From…

S&P Futures
LNT: $0.43 CNK: $0.24 HAR: $0.32 MCHP: $0.49 NGLS: $0.43
One Day (High –1126.00; Low – 1112.25):
BZH: $-0.28 ED: $0.51 HEW: $0.74 MHK: $0.72 TWC: $0.93
NILE: $0.23 CTB: $0.41 HOC: $0.96 NFG: $0.51 VR: $0.97
AGO: $0.73 CROX: $0.23 H: $0.08 OCR: $0.62 VIA/B: $0.65
CVC: $0.39 DTV: $0.59 INCY: $-0.04 PLA: $-0.15 WPI: $0.81
CPKI: $0.17 EIX: $0.68 KFT: $0.52 RMD: $0.66 WMG: $-0.36
CAH: $0.49 ETH: $0.15 LYV: $-0.06 SAPE: $0.07 WTW: $0.72
CF: $3.16 FIG: $0.08 LIZ: $-0.47 BID: $1.07 WRI: $0.41
CI: $1.01 FTO: $0.46 PCS: $0.13 SEP: $0.44 Source: Bloomberg
Important Conferences/Corporate Meetings Today:

BMO Capital Markets Focus on Healthcare Conference – New York, NY
Prior Day SPX (High – 1128.75; Low – 1119.46; Close – 1127.24): Three Day (High – 1126.00; Low – 1104.75):
Source: Thomson ONE

5
FIXED INCOME
Treasuries fell Wednesday, pushing 2-year note yields up from a record low, as separate government reports showed an expansion in the service sector
and growth in private payrolls in July. The government announced that it will sell a total of $74 billion in its quarterly sales of long-term debt next week,
including $34 billion in 3-year notes, $24 billion in 10-year notes, and $16 billion in 30-year bonds. The auction size is slightly smaller than the $78 billion
of notes and bonds sold in the previous refunding in May.
Source: Bloomberg Source: Bloomberg
Today’s Important Economic Indicators/Events:

Chain Store Sales
Monster Employment Index
Jobless Claims:
Treasury Secretary Tim Geithner press briefing on the Social Security and Medicare Trust Fund – 12:00pm
Treasury STRIPS
6
U.S. EQUITY
OPTIONS
SPX – Trading in SPX Options was mixed with mostly offsetting buyers and sellers of puts and put spreads. Several large trades illustrate this pattern. The August
1100/1080 put spread was bought 5,000 times @ $4.40 and the August 1100/1070 put spread was also bought 5,000 times @ $5.90. In the opposite direction, the
August 1075/1125 put spread was sold 10,000 times. The October 1075 puts were bought about 5,000 times around $28.00 with the futures approximately 1118-19 and
the December 900 puts were sold 6,000 times @ $14.20 tied to 1120.
ETF – With the market climbing higher and the VIX drifting lower trading in the ETF space was light with more than a million contracts trading less than expected. We
continued to see some investors buying deep out-of-the-money options in Industrial ETF, XLI, through the Jan 19 Puts 11,252 times. In XLU (Utilities) one investor sold
12,000 Sep 30 / 28 put spreads. Financial ETF, XLF saw investors positioning for downside as one investor rolled Sep 15 puts to August 10,000 times, while in another
trade paper sold Dec 16 Calls 6,800 times. In Emerging Markets, EEM, volatility buyers were out as 14,000 Sep 45 calls tied to 42.25 stock traded along with a purchase of
the Dec 39 Puts 6,000 times.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Rank 7/29/2010 7/30/2010 8/2/2010 8/3/2010 8/4/2010 30-Day Implied Vol
1 MIL MIL MIL FIS MIL 32.69
2 FIS FIS FIS PTV XTO 50.48 BIGGEST MOVERS
3 PTV DF DF ARG Q 17.17 Top 10 30-Day Implied Vol Bottom 10 30-Day Implied Vol
Q Q PTV Q PTV 20.80
4
ARG 21.23% 26.07 AGN -54.50% 14.66
5 DF PTV ARG NOVL ARG 32.75
6 MCK ADM NOVL MJN NOVL 34.40 NOVL 21.22% 28.89 PNW -49.56% 39.57
7 FSLR FLIR Q CFN BIG 37.94 PTV 12.77% 51.17 Q -37.97% 23.87
8 FLIR SLE CFN SWN MJN 37.48
V 10.81% 38.68 XOM -28.27% 36.42
9 ADM AGN CLX EL EL 32.88
10 HUM SAI MJN CLX CFN 17.24 AMGN 8.90% 33.89 MDP -27.83% 33.48
11 MFE L SAI SAI SAI 21.99 BSX 6.53% 29.21 ADM -26.06% 32.33
12 MRK CLX SLE KR FLIR 23.88
NEM 6.49% 43.35 TE -26.03% 18.34
13 AGN MCK AIG FLIR PCS 25.54
14 SLE MJN SWN AIG SWN 57.35 FMC 5.41% 27.33 FLIR -24.48% 31.29
15 WFR MRK MCK AMAT KR 36.02 ROST 5.32% 33.92 MKC -24.17% 20.62
16 CLX ARG FRX SLE AMAT 22.84
17 EL HUM PBI ROST SLE 32.20
MA 5.32% 30.93 TDC -24.03% 34.11
18 MJN CFN EL BIG TSN 38.56
19 CFN CAH PCS PCS FRX 49.03
20 ARG AMAT FLIR MCK PPL 25.07
We ranked the S&P 500 companies from the highest to lowest 30 day implied to
21 PCS NOVL AMAT FRX AIG 24.92
historical volatility ratio. Above we identify the 10 most positive and negative
22 AMGN SWN ROST PBI ROST 25.34
movers.
23 FRX FRX ADM TSN SJM 33.30
24 SWN PFE CAH CAH MRK 28.85
25 GME PCS SJM PCLN CLX 51.86
The table to the left represents the 25 highest 30 day implied to historical
volatility ratios within the S&P 500 companies. The green represents names
LIFE GME PFE SJM PCLN
new to the list while the red represents names that have fallen out.
NOVL AMGN HUM ADM CAH
DPS EL MRK MIL PBI
SYMC MFE L DF MCK
KG WFR FIS
L FSLR
VAR 7
Exchange-Traded Funds/Indexes
Prior Day Peformance of Largest ETFs by Assets S&P 500 Sector ETFs
Name (Net Assets*) Ticker Category Daily Return Sector Ticker 1-Day Perf YTD Perf Sector Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend 0.69% Energy XLE 0.81% -1.51% Telecomm IYZ 0.37% 3.00%
SPDR Gold Shares GLD N/A 0.63% Health XLV 0.99% -4.60% Technology XLK 0.81% -2.14%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 0.14% Industrials XLI 0.88% 11.55% Consumer Discretionary XLY 1.68% 7.99%
iShares MSCI EAFE Index EFA Foreign Large Blend 0.06% Utilities XLU 0.39% -0.16% Financials XLF 0.40% 3.96%
iShares S&P 500 Index IVV Large Blend 0.70% Consumer Staples XLP 0.37% 2.57% Materials XLB 0.93% -1.27%
Prior Day Top Volume ETFs Currency ETFs
Name Ticker Category Shares Traded Currency Ticker 1-Day Perf YTD Perf Currency Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend 140,658,277 Australian Dollar FXA 0.55% 1.90% Mexican Peso FXM 0.56% 4.00%
Financial Select SPDR XLF Specialty - Financial 58,079,784 British Pound Sterling FXB -0.32% -1.81% Swedish Krona FXS -0.56% 0.14%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 55,560,622 Canadian Dollar FXC 0.61% 3.03% Swiss Franc FXF -1.29% -1.84%
PowerShares QQQ QQQQ Large Growth 39,198,298 Euro FXE -0.52% -8.21% USD Index Bearish UDN -0.45% -4.58%
iShares Russell 2000 Index IWM Small Blend 35,048,595 Japanese Yen FXY -0.53% 7.66% USD Index Bullish UUP 0.56% 2.04%
Prior Day Top Performers VIX ETNs Fixed Income ETFs
Name Ticker Category Daily Return Name Ticker 1-Day Perf YTD Perf Bonds Ticker 1-Day Perf YTD Perf
UBS E-TRACS S&P 500 Gold Hedged Idx ETN UBN N/A 5.78% iPath S&P 500 VIX VXX 0.05% -36.78% Aggregate AGG -0.18% 3.97%
PowerShares DB Agriculture Dble Long ETN FEFN N/A 5.23% Short-Term Futures ETN Investment Grade LQD -0.31% 5.19%
ELEMENTS MLCX Grains Index TR ETN CRO N/A 3.81% High Yield HYG -0.06% 0.69%
Direxion Daily Natural Gas Rela EEH N/A 3.74% iPath S&P 500 VIX VXZ -0.35% 7.90% 1-3 Year Treasuries SHY -0.08% 1.39%
JETS DJ Islamic Market Intl Index RPQ N/A 3.48% Mid-Term Futures ETN 7-10 Year Treasuries IEF -0.37% 8.16%
20+ Year Treasuries TLT -0.77% 9.65%
Others
ETF Ticker 1-Day Perf YTD Perf ETF Ticker 1-Day Perf YTD Perf
Gold GLD 0.63% 8.77% Crude Oil USO -0.03% -6.06%
Silver SLV -0.50% 8.41% EAFE Index EFA 0.06% -3.02%
Natural Gas UNG 1.02% -21.13% Emerging Markets EEM 0.14% 2.00%
SPDRs SPY 0.69% 1.39%
Major Index Changes:

None
ETFs in the Headlines and Blogs:

Tech ETFs in Focus as RIMM Takes a Bite Out of Apple - http://etfdb.com/2010/tech-etfs-in-focus-as-rimm-takes-a-bite-out-of-apple-aapl/
ETFs Bank on China’s Big Plans for Gold - http://www.thestreet.com/story/10826060/1/etfs-bank-on-chinas-big-plans-for-gold.html?cm_ven=GOOGLEN
Most Overbought ETFs - http://www.bespokeinvest.com/thinkbig/2010/8/3/most-overbought-etfs.html
8
Top Online Social Networking Stories
Latest Popular Digg.com Business Stories:

Why Do We Care About Luxury Brands? - http://www.wired.com/wiredscience/2010/08/why-do-we-care-about-luxury-brands/
Selling Electric Cars Requires Plugged-In Drivers - http://www.greenbiz.com/blog/2010/08/03/selling-electric-cars-requires-plugged-drivers
BP hit with $10bn lawsuit over Texas City ‘chemical leak’ - http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7925565/BP-hit-with-10bn-
lawsuit-over-Texas-City-chemical-leak.html
How Canada’s Dollar Got Ahead, and Left America Behind - http://www.esquire.com/features/portfolio/canada-economic-development-0910
Calculated Risk
ADP: Private Employment increases 42,000 in July - http://www.calculatedriskblog.com/2010/08/adp-private-employment-increases-42000.html
MBA: Mortgage Purchase Applications increase slightly last week - http://www.calculatedriskblog.com/2010/08/mba-mortgage-purchase-applications.html
D.R. Horton conference call comments: No more tax credits! - http://www.calculatedriskblog.com/2010/08/dr-horton-conference-call-comments-no.html
Personal Bankruptcy Filings up 9% in July - http://www.calculatedriskblog.com/2010/08/personal-bankruptcy-filings-up-9-in.html
U.S. Light Vehicle Sales 12.1 Million SAAR in July - http://www.calculatedriskblog.com/2010/08/us-light-vehicle-sales-121-million-saar.html
Pending and Existing Home Sales - http://www.calculatedriskblog.com/2010/08/pending-and-existing-home-sales.html
The Big Picture

Weekly Leading Index (Still) Widely Misunderstood - http://www.ritholtz.com/blog/2010/08/weekly-leading-index-still-widely-misunderstood/
Understanding Context: The Housing Boom & Bust - http://www.ritholtz.com/blog/2010/08/understanding-context-housing-boom-bust/
Are Stocks Too Expensive? - http://www.ritholtz.com/blog/2010/08/are-stocks-too-expensive/
S&P 500: 50% Crash Retracement - http://www.ritholtz.com/blog/2010/08/sp500-50-crash-retracement/
The Conscience of a Liberal

Hey, Small Spender - http://krugman.blogs.nytimes.com/2010/08/03/hey-small-spender/
Bespoke Investment Group

Another Lower High in Gold? - http://www.bespokeinvest.com/thinkbig/2010/8/3/another-lower-high-in-gold.html
Sector Relative Strength - http://www.bespokeinvest.com/thinkbig/2010/8/3/sector-relative-strength.html
Zero Hedge
GMI Describes “The Future Recession in an Ongoing Depression” in This Must Read Report - http://www.zerohedge.com/article/gmi-describes-future-
recession-ongoing-depression-must-read-report
9
GENERAL DISCLOSURES
This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is
provided for general informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a
recommendation or investment advice, nor an offer to sell or the solicitation of offers to buy any BNY ConvergEx Execution Solutions LLC (“ConvergEx”)
product or service in any jurisdiction. It does not take into account the particular investment objectives, restrictions, tax and financial situations or other
needs of any specific client or potential client. Please consult with your financial and other advisors before buying or selling any securities or other
assets. This presentation is for qualified investors and NOT for retail investors.
Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document
please contact the ConvergEx Compliance Department at (800) 367-8998.
The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or
changes to such opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect
actual performance. Such assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range
of possibilities. They are subject to significant revision and may change materially as market, economic, political and other conditions change.
Past performance is not indicative of future results, which may vary significantly. The value of investments and the income derived from investments
can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. The information and statements provided herein do
not provide any assurance or guarantee as to returns that may be realized from investments in any securities or other assets.
The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates.
This material has been prepared by ConvergEx and is not a product, nor does it express the views, of other departments or divisions of BNY ConvergEx
Group, LLC and its affiliates.
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.

Jan 2010 - Now

Jan 2010 - Now

Jan 2010 - Now

Jan 2010 - Now

Jan 2010 - Now

Important Earnings Today (with Estimates) From…

Important Conferences/Corporate Meetings Today:

Source: Thomson ONE

Source: Bloomberg Source: Bloomberg

Today’s Important Economic Indicators/Events:

CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Major Index Changes:

ETFs in the Headlines and Blogs:

Top Online Social Networking Stories

Latest Popular Digg.com Business Stories:

The Big Picture

The Conscience of a Liberal

Bespoke Investment Group

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