Midday Action: May 7
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May 7, 2008
A rather flat start on mixed reports is finding some goofy but “nothing to write home about” action. As of 10:40 ET the SPYder” (SPY) and “Cubes” (QQQQ) are fractionally mixed from a decliner of .18% to a gainer of .28% on average volume.
Not that the bulls are complaining, but investors might have expected relative weakness in the NASDAQ following Cisco’s (CSCO) cautious outlook / in-line guidance song and dance routine and very subdued flat-liner by traders reacting to the report. Intraday, shares are still under wraps, up .05 at 26.38. Conversely, with entertainment giant Disney (DIS) sporting a well-received 3.50% gainer and optimistic outlook, a gainer for the Dow (DIA) and S&P 500 (SPY) might have been appreciated as being likely. However, both those venues happen to be currently underperforming and underwater by the narrowest of margins as other market attractions have investors up in arms on today’s ride.
One catalyst driving some relative strength into the tech-heavy NASDAQ is a report of plans to build a $14.5B WiMax-driven wireless network. Spearheaded by wireless pioneer Craig McCaw and his current company Clearwire (CLWR), other involved parties include Google (GOOG), Intel (INTC), Sprint (S), Comcast (CMCSA) and Time Warner Cable (TWC); all of which are playing the offensive game for bulls to various degrees in Wednesday’s session.
After three days of vaulting and a near 9% climb to all-time-highs, crude and the US Oil fund (USO) are finding some ever-slight profit-taking on the agenda. Following an intraday larger-than-expected increase in inventories (5.7M vs. 1.6 est.), which somehow garnered the briefest of brief upside reactions, the bulls are showing some restrained profit-taking. Intraday, the USO is off .15 at 98.23 and acting “goofy” as fresh relative highs in the US Dollar are also failing to make an impression. Hmm, maybe the large number of bears, evidenced by the USO’s hard-to-borrow status, has something to do with today’s stubborn behavior?
Economic reports prompted a bearish tone in the premarket to withdraw on those efforts. A quiet reading of mortgage applications saw increased interest of 15.6% from last week’s levels. Separately and more-heralded, nonfarm productivity pleased investors with an increase of 2.2% and trumping estimates of 1.5%. Also helping bulls breathe a bit easier, associated unit labor costs came in with a similar 2.2% rise, but below views of 2.6%. And finally, an intraday report on pending home sales was in-line with estimates, falling 1.0% month-over-month. In conjunction with a lower revision for February, the year-over-year data dropped by 20.1%.
And finally, in options news the May 43 puts in AIG (AIG) are atop the block trade list this morning. A print of 13,650 contracts was put up with open interest of roughly 4,000. With the financial services giant and Dow component scheduled to release its results Friday morning (est. -.76 per share) those puts are changing hands at .42 mid market with shares near 48.10.
On paper the implieds in the AIG puts appears to make those options expensive. With a delta of only 14 though, I’d surmise the trader involved could see the position as a good hedge against an existing long. Shares have rallied 25% from their March lows. The puts traded could also be part of a synthetic call. While the combined position would translate into some deep in-the-money risk, it does afford catastrophe insurance. And finally, for a few players with deep pockets, the bet could just represent a way to prepare for a large downside move and the willingness to see some $570,000 go down the tube, if the bulls decide to show up in the aftermath instead.
Chris Tyler
Staff Writer & Options Strategist
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