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In late morning trade, bulls continue to “schnitzel a little” as Freddie says something other than “Relax” and the show from Cisco fails to be a bonafide crowd pleaser. As of 10:55 ET the “SPYder” (SPY) and “Cubes” (QQQQ) are off .38% to .50% on lighter consolidation-style enthusiasm.

Wednesday’s presaged bout of orderly profit-taking has continued to be the dominant theme for investors. Following Tuesday’s outsized market gains courtesy of spiraling trend persistence in commodities (GLD, SLV, DBA, MOO, XLB), financial relief (AIG, LEH) and subtle language innuendos from the Fed, today’s meaning of it all would have been an easy enough to appreciate.

For that seeking headline refuge to hit the sell key, headlining the session is GSE Freddie Mac (FRE). The government-backed mortgage company announced a substantial dividend cut of 80% to 5 cents and larger-than-expected $821M loss in reporting its quarterly results this morning. The news, so we’re told, has prompted fresh housing / credit concerns from investors. Shares are off 1 point near 7. Related financials (XLF) are finding sympathy weakness aided by fresh buzz of Morgan Stanley (MS) cutting off customer’s home equity lines and dismal results from Ambac (ABK) act as potential secondary bearish props.

Not entirely helping matters, the market is eschewing a penny earnings beat on mixed guidance from networking goliath Cisco (CSCO). Management announced pleasing longer-term prognostications, but were more cautious regarding the company’s shorter-term prospects. Net, net, the report has helped shareholders tack on 1.15 to 23.75, but failed to inspire investors elsewhere. And finally, non-competing but generally impeding corporate results and / or reactions (S, WFMI, and PCLN) are affording Wednesday’s market recipe for a bit of dough rolling i.e. profit-taking, seem right on the money.

In other market venues of notice, the US Oil Fund (USO) is up by about 0.50% near 96 in volatile intraday conditions. Prices have backed off session highs following a “surprise” double whammy of an unexpected drop in crude supplies and a larger-than-expected gas inventories decrease. Possibly more surprising are traders reaction to the weekly data off the bullish-sounding report. However, with word on The Street (of late) of massive hedge fund liquidations from commodities; another factor potentially more important to trend persistence, is making the end result a wild card for those traders, as well as for the broader market.

In options action, Moody’s (MCO) is finding some aggressive put activity. The ITM August 40 puts traded nearly 25,000 contracts in one block print, making it the largest such transaction of the day. With implieds dropping several points and further below statistical fair value following its July 30 earnings, the initiator appears to be a seller. However, whether the trader is a premium seller and opening isn’t known. With existing open interest of 33,255 the unusual volume could mean a not-so-unusual but smart “cutting one’s losses” type of commitment.

Exiting the lunchtime hour and the major averages are once more sporting an optimistic swagger as early catalysts like Freddie are dismissed and Cisco’s results now deemed worthy of a unified cheer into technology. Oil plunging further intraday to fresh three-month lows, was also a catalyst worthy of prompting the market’s recovery effort. Alas, as inventory data is now apparently being reconfigured into bulls PDAs and trading calculators and Black Gold reclaims positive territory; I can hardly wait for the next batch of market headlines attempting to clarify. In the interim, breakouts and pullbacks within a decent-looking market will have to suffice.

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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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. 

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