A helpful doji and key time and price resistance imbue a smidgeon of profit-taking Wednesday, along with fresh and token “disappointing” economic data. As of 12:15 ET the SP-500 (SPY) is off a slightly menacing 0.35% and confirming a more muscular top in place as enabled bulls of late look a bit tired from their efforts.
Following Tuesday’s refusal from bulls to take government handouts aimed at Greece and from China’s central bank as a reason to break through “Dow 13K!” and a “good enough for government work” test of the May highs for the SP-500; a slug of mixed Chinese and Eurozone PMI data has become the easy target for profit-taking due to more easily plied and pooh-poohed investor disappointment.
In the spotlight, China announced its HSBC PMI rose to a four month high. For February the indicator increased by .9 points to 49.7 but remained below the 50 expansion / contraction level and one it’s been fighting to clear for the past several months due to still weak global economic conditions.
Germany, the Eurozone’s largest economy, is also walking the contraction expansion tightrope as evidenced by its latest Manufacturing PMI data which dipped from 51.0 to 50.1 for February. Number two France fared somewhat better by some measures as it climbed from contraction territory and a reading of 48.5 to a half full, half empty figure of 50.2.
Stateside, existing home sales have also helped construct a signal bar for bears just waking up and maybe thinking, “How’d they climb back up there?” By the numbers, January data showed annualized sales of 4.57M units and slightly less than estimates of 4.63M. The good news from today’s housing data, depending on one’s eye-wear; results topped December’s 4.38M units, but only after seeing a downward revision from 4.61M units.
In those intertwined markets of influence, a bearish daily doji in place against the May highs in the SP-500 is leading to a modicum of unsurprising and well-deserved profit-taking. As a discounting mechanism and as Greece finally secures its second bailout this week, the period also marks "wall-climbing", Fibonacci-based weekly count extensions of 13 and 21 weeks off the December and corrective October lows in the SP-500 and hefty gains of 27% and 13%.
The EUR/USD is up 0.20% but contained to inside candle action in rather narrow action. Technically speaking, a move below 1.32 would set up a bearish lower high pattern.
Tuesday’s bold technical movement and relative strength percentage gains in gold (GLD) and silver (SLV) is on hold with both metals trimming those gains by 0.20% to 0.65%. Weekly downtrends in both metals from last summer’s highs are on the verge of being broken technically if bulls can clear lateral congestion resistance established over the last three to four weeks.
The US Oil Fund (USO) is pausing in narrow trade after gaining more than 2% Tuesday and improving upon last week’s strong 4.50% showing. In the background, ongoing Iran-driven supply concerns continue to support prices while today’s economic alarm bells are acting to force bulls to take profits on bumped-up, global growth worries.
On the corporate confessional side, fashionable toys being gobbled up by bulls are spearheaded by Chico’s (CHS), Garmin and Chiquita. For its part, niche women’s retailer Chico’s is up nearly 17% after beating profit estimates by $0.04 on earnings of $0.15 per share, showing off stronger-than-forecast sales growth of 19.8% and issuing slightly above-views FY13 revenue guidance.
Navigation gadget manufacturer Garmin (GRMN) is pointing north by 8.50% after blasting Street views by $0.31 on profits of $0.96 per share, displaying much stronger-than-forecast revenue growth of 8.6% [$910M vs. $769M] and management setting its sights on FY12 EPS of $2.45 - $2.60 versus estimates of $2.41.
And bulls are devouring banana producer Chiquita (CQB) by a similar 8.5% after it issued a mixed but satisfying enough spread for its fourth quarter. The outfit beat showed a smaller-than-expected loss of ($0.12) but saw sales slip by a greater-than-forecast 6.6% from the year prior.
For the bears, “Dude it’s a Sell!” for computer hardware manufacturer Dell (DELL). The once storied growth stock is off 6.0% and testing prior resistance from the past two years after management issuing a penny miss on profits of $0.51, mostly in-line and lackluster sales growth of 2.2% and weak, below views sales guidance of around 7% for Q1.
In those sometimes accurate heat-seeking option markets, it’s also a case of “Dude, it was a Sell!” Premiums last night which reflected an estimated move of about 8% using strangles and straddles (6%) and IV analysis (10%) have proven inflated. With shares off 6%, Tuesday’s March 18 straddle priced for $1.48 on 40% IV is changing hands for $1.08 or a loss of about 30%. Current at-the-monies are trading on 25% IV and matching our own detailed forecast of what to expect from Dell’s options in yesterday’s Earnings Front column.
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.
