STREETWISE: Traders bask in volatility

Some investors, spoiled by too many years of bullish market activity, might say the happy days are over. The Nasdaq Composite Index is down more than 20% for the year. The Dow Jones Industrial Average and Standard & Poor’s 500 stock index have fallen 5% and 4%, respectively.

Life can be so unfair – unless, or course, you’re a value investor, a bear or a day trader.

According to Leuthold Weeden Group Capital Management, both a bear and a value player by design, the market of late has never been more attractive for day trading.

Volatility – like the flame that attracts the moth – will provide an adrenaline rush to any self-respecting high-transaction trader. And, according to Steve Leuthold, chairman of the Minneapolis asset management company, market volatility is currently off the charts.

Last month, 82% of the Nasdaq’s trading days were calculated as “highly volatile,” meaning they experienced movements up or down of more than 1%. And 32% of last month’s trading days on the Nasdaq were deemed “ultravolatile,” representing movements of more than 3% up or down.

For perspective, consider that since 1971, when the Nasdaq began trading, the historical annual median for highly volatile days has been 17%, and the median for ultravolatile days has been 0.5%.

That means there have been years when the Nasdaq did not experience a single ultravolatile trading day. Yet, through the first 10 months of this year, 27% of the trading days have already registered as ultravolatile, and that is up from just 8% for all of 1999.

“There has never been anything like this,” Mr. Leuthold says, adding that while volatility can inspire professional day traders, it can wreak havoc on the amateurs.

No Bermuda shorts

Despite an explosive 138% gain so far this year for Ace Ltd., a Hamilton, Bermuda-based provider of property and casualty insurance, there are value investors that still see plenty of upward potential in the company.

The stock, now trading at about $38, has slipped slightly from its high a few weeks ago of $42.50. Part of the recent decline could be attributed to 60,000 shares sold by company insiders over three months.

Credit Suisse First Boston Corp., one of 10 companies that hold a “strong-buy” rating on the stock, has raised its operating earnings-per-share estimate for the year a nickel, to $2.45. The 2001 per-share estimate remains at $2.70.

Credit Suisse also increased its 12-month price target by $6, to $48, suggesting a 20% total-return potential.

“In 15 years, Ace has evolved from being a Fortune 500 captive to a diversified, property-casualty insurer and re-insurer,” according to a Credit Suisse report.

The July 1999 acquisition of Cigna Corp.’s property-casualty insurance operations for $3.4 million in cash is helping Ace gain scale in the United States and to bolster its status as an international insurer.

Ace is now one of the largest writers of property-casualty insurance in non-U.S. markets.