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Wall Street's Monday Lunch Options

By Chris Tyler, Optionetics.com | Mon April 16, 2012 9:08AM PT


Retail sales and China boost bulls’ out-the-gate, but rising credit yields and one heavy Apple succumbing to gravity makes for a more taxing Monday. As of 10:30 ET the SP-500 (SPY) is off fractionally by 0.15% as an optimistic “Day 4” of the market’s rally attempt is another trader’s bear flag failing at prior key support.  

On the officially-sanctioned economic front, retail sales data for March topped forecasts of 0.3% with a gain of 0.8%, though slipping two-tenths of a percent from February’s downwardly-revised 1.0% increase. In conjunction with a better-than-expected 0.8% increase for sales ex-autos, analysts have been allowed to feel a bit more optimistic about the strength of the US recovery;  though reaction from traders is displaying a bit less enthusiasm intraday.

Also engaging bulls out-the-gate, over the weekend China’s central bank made a surprise move and loosened its currency’s trading band. Following Friday’s GDP miss and increased chatter of a hard landing for the increasingly important economic heavyweight; the action suggests policymakers’ confidence in the country’s strength and ability to avoid that type of unwanted slowdown in growth.

On the corporate confessional side and in what will be a fairly strong week of key earnings releases, a miss from former Dow constituent, but still influential financial heavyweight Citigroup (C) has nonetheless resulted in a bid of 2.25%, but one struggling with a bearish flag pattern against its 50SMA. By (some) of the numbers, Citigroup announced a five cent profit miss of $0.05 on earnings of $0.95 per share and slightly weaker-than-forecast revenue growth of 1.6%.    

An upgrade to Dow constituent Caterpillar (CAT) and no downgrades of market consequence has also helped with Monday’s early optimistic tone. Shares of CAT are adding 1.25% and only behind BofA’s (BAC) 1.50% increase after broker Longbow upgraded the machinery giant to “Buy” from “Neutral” with a price target of $132.

Elsewhere and with premarket and opening optimism now a bit more technically constrained, a good deal of bulls curbed enthusiasm can be attributed to bears taking a technical swipe at shares of gravity-defying “iShares Bull ETF” (AAPL) and the SP-500’s most influential component.

After opening up a bit more than 1%, AAPL is off 2.25% and flirting with a first break of its 30SMA in 2012. Analysts at ISI Group report an absence of news acting as a driver and shares likely “collapsing” under their own weight or i.e. succumbing to gravity with YTD gains of about 45%.

Tech peers and market heavyweights, Amazon (AMZN), Google (GOOG) and Priceline (PCLN) are also flashing similarly stiff percentage losses of 1.75% to 3.35% and certainly not helping bulls with a program of continued bargain-hunting.

And while not garnering a lot of attention this morning, weak reports on regional manufacturing and housing haven’t acted as market supports; well, unless you’re rooting for more substantial evidence for QE3. The Empire survey tumbled by a much larger-than-expected 13.6 points to 6.6 and much weaker than views of 17.5, while the Housing Market Index fell three points to 25 versus forecasts of a point increase to 29.  

In those intertwined markets of influence, the EUR/USD is bid and thus far, held a test of the key 1.30 level. However, last week’s bearish spike in sovereign debt yields remains in play. Debt PIIGS constituent Spain continues to see record CDS pricing, yields on its 10-Yr obligation have risen above 6.0%, while the safe-haven German 10-Yr has seen its yield drop to a record low.

Finally and in those sometimes accurate heat-seeking option markets, other than Apple’s 500,000 plus contracts traded, it’s a rather quiet affair outside the CBOE Volatility Index ($VIX) and its gain of 1.50%. That may not sound like much, but in reclaiming the 20% level and finding support off its 10SMA, the sentiment gauge is a bit more thought provoking than otherwise. Our technical opinion is the bid could be suggesting last week’s fearful trio of over-the-top short-term readings might actually prove an early exit for bulls "to sell and go away" prior to the official May starting date for bears.

 

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
 
The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

 


Recent articles by Chris Tyler, Optionetics.com


September 21, 2012  -  Wall Street's Friday Lunch Options
September 21, 2012  -  Hot Shots: All Aboard or Train Wreck?
September 20, 2012  -  Wall Street's Thursday Lunch Options
September 19, 2012  -  The Expected Move: Bed Bath & Beyond Earnings
September 19, 2012  -  Wall Street's Wednesday Lunch Options


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