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Wall Street's Wednesday Lunch Options

By Chris Tyler, Optionetics.com | Wed May 2, 2012 10:09AM PT

A weak jobs preview and manufactured pressure overseas produces some bearish follow-through Wednesday. As of 11:00 ET, the SP-500 is (SPY) is off 0.45% and reaffirming some “Sell in May” seasonality below 1400.

"May-Day!!??" Following Tuesday’s first-half, false-positive “Go Away!” to “Sell in May” tendencies, bulls are improving upon a bearish second half technical tail turner as profit-taking pushes its way below 1400 support and through yesterday’s flattish opening lows. In the spotlight and Wednesday’s primary driver, investors are reacting defensively to weaker-than-forecast private payrolls data from ADP.

The ADP report, a customary and typically volatile sneak peek at the more closely-watched BLS jobs report out on Friday showed companies added 119,000 workers in April. That compares to forecasts of 170,000 and flies in the face of Tuesday’s optimistic glad bagging over stronger-than-expected ISM data hinting at sturdier labor numbers as forthcoming. “Doink!” That said, the good but overlooked result of the latest economic evidence could be recent wishful optimism regarding QE3 becoming a reality.

Across-the-pond, Eurozone manufacturing surveys for April saw uniform declines led by Germany’s PMI data. A decline of 2.2 points to 46.2 and deeper into contraction territory marked its hardest drop in about three years and came in just shy of prior estimates at 46.3. At the same time, the broader Eurozone PMI dropped 1.8 points to 45.9.

Not helping matters, an uptick in unemployment for the region’s largest economy, as well as weak PMI data for France and Debt PIIGS constituents Italy and Greece have assisted in putting European markets under pressure. For its part, Germany’s DAX finished down 0.75%, while intraday the EUR/USD currency pair is off 0.60% and below key 10, 30 and 50SMA supports for the first time in 15 sessions.  

In those other intertwined markets of influence, after a tail-turning technical doozy on Tuesday, the iShares Bull ETF (AAPL) is up to its old game of applying a small bit of lipstick to a market bull under duress. Shares of AAPL are up 0.35% and bucking the broader averages with reports this morning appearing on iPhones and iPads of Target (TGT) axing Amazon’s (AMZN) Kindle e-readers and tablets.

Bulls reacting poorly to Wednesday’s global data have found an ally in the US Dollar (UUP). Shares have found a gap bid of 0.40% above its 200SMA while confirming a two-month double bottom within its weekly uptrend of nearly one year. Those like money manager Peter Schiff who are calling for a collapse in the Greenback and on video at CNBC.com; apparently didn’t receive today’s technical memo.  

Shares of the US Oil Fund (USO) are off 0.60% in narrow inside trade and just below Tuesday’s breakout attempt of both 50SMA resistance and prior key weekly highs from November and January. Aside today’s bearish economic grumbling, bulls are sweating through a slightly larger-than-forecast build of 2.84B barrels of oil compared to estimates of 2.50B.

And the CBOE Volatility Index ($VIX) is up 2.15% to 17.50%. With the sentiment gauge butting heads with its 10, 30 and 50SMAs while toying with a rather historically neutral level; investors are neither panicked nor throwing caution into the wind.

On the corporate confessional side, atop the bears radar are shares of Chesapeake Energy (CHK). The stock is off nearly 13.50% after announcing weaker-than-expected results and word of fresh potential improprieties from CEO Aubrey McClendon.

On the heels of yesterday’s well-received exoneration regarding Chesapeake's CEO's stake in The Founders Well Participation Program, a fresh investigation by Reuters has found evidence of Mr. McClendon running a $200 million commodity hedge fund and one which may have been in potential conflict with Chesapeake and its natural gas and oil business.  

In those sometimes accurate heat-seeking option markets, a larger-than-normal, expected move of about 7.5% in CHK shares as estimated by near-term implied volatility in front of the report, has proven modest compared to today’s actual gap and drop with two sessions still on the board for the factored Weeklys contract. Additional analysis on Chesapeake's earnings pricing by option traders, as well as some in-the-mix targeted buyers now faced with pre-expiration losses can be found in yesterday morning’s “Earnings Front” column on the Optionetics homepage.


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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