Bulls pull a surprise “right back at-ya!!” move despite still worrisome “FIGs” and Apples in the mix Thursday. As of 12:15 ET the SP-500 (SPY) is up 0.80% and bulls are feeling their oats instead of indigestion pains from the day prior.
Apple (AAPL) and its 4% SP-500 heft are still off by about 0.60% and some 6% removed from Wednesday’s over-the-top bearish engulfing highs. The “FOMC” minutes, “Iran’s” saber rattling and “Greece’s” ability to live up to its austerity obligations are still less-than-savory items in the mix.
Thursday has also doled out the latest and not-so-greatest move from credit agency Moody’s. Analysts there put several key money center banks and diversified financials under review including BofA (BAC), Citigroup (C) and Goldman (GS). Intraday, early pressure has done a technical about-face with gains of 1.50% to 3% and the SPDRs Financial ETF (XLF) up 1.25%.
Bullish climbing gear worthy of countering yesterday’s precarious technical slip is being largely spearheaded by price action in the EUR/USD and a trio of stateside economic reports. A slippery of late EUR/USD has found key support off 1.30 this morning, sans a slight but gratis, wash-and-reverse maneuver. Intraday the currency pair is up 0.66% at 1.31.
Economic data, largely relegated to the bush league ranks of late, has enjoyed a triple play worthy of investors’ wallets. Weekly claims data showed a surprise and pleasant dip to 348,000 compared to the prior week’s 361,000 reading and estimates of 365,000.
Separately, housing starts and building permits both proved pleasing, as did regional manufacturing data from the Philly Fed. By the numbers, starts moved unexpected higher by 10,000 to 699,000 and well above forecasts of 671,000. Permits also improved by 5,000 to 676,000, but matched estimates.
Similarly, an intraday Philly Fed showed an increase from 7.3 to 10.2 but the result was mostly in-line with views of 10.0. Keeping the bulls from a grand slam on the economic front, core producer prices jumped by 0.4% and double Street forecasts of 0.2%
On the corporate side, shares of General Motors (GM) are zipping higher by 8.0%. The on-the-mend auto giant missed profit forecasts with earnings of $0.39 per share but managed to match sales estimates with 3% growth on revenues of $38.0B. Looking forward, management sees continued price improvement and expects to increase its revenue outlook.
Elsewhere, the VIX ($VIX) is off 6.50% and narrowly back below the 20% level after somewhat surprisingly, to us at least, failing at 50SMA resistance. The increase in investor confidence still finds the sentiment gauge about 5% above its 10SMA.
On the one hand, the VIX’s position is good news for bulls as the instrument isn’t showing flagrant short-term signs of complacency and the instrument is back into its more normalized trading range. However, rather than buying it for what it is, we’d rather buy it for what it can be used for i.e. protection, given the current testing in the broader averages.
Finally and in those sometimes accurate heat-seeking option markets, Baidu.com (BIDU) is seeing heavier-than-normal activity in front of Friday’s expiration, as well as its earnings event this evening. With shares up 2.0% at 141, the current at-the-money straddle pricing of $10.80 for the February 40 is, along with an at-the-money strangle priced for $6.25; are the non-directional pure plays on the event.
Lumping the two long curve strategies together and divided by two, one method of calculating the expected move for shares estimates a price swing of about $8.50 or roughly 6%. An alternative means using implieds of 185% suggests a 68% chance prices will remain within 9.5% of current levels. Which shall it be or will participants influencing today’s prices be altogether off the mark? Time will tell, but with that clock ticking and prices certainly steep; if you’re going to pay-to-play, we’d recommend something other than the purest but most risky plays.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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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.
