Weak manufactured global data, Eurozone fiscal reform concerns and a couple stateside biggies on tap for Tuesday produce “risk off” conditions Monday. As of 11:15 ET the SP-500 (SPY) is down 1.15% as day nine of the market’s rally attempt shapes up more and more like an early warning signal or umm, flag, to sell prior to May.
Apathetic Chinese PMI data still toiling with economic contraction, slumping factory conditions for Europe, the worst since June 2009, and the winds of unwanted political change in France and the Netherlands raising fiscal budgetary concerns have challenged bulls biding their time the past two weeks to a test of recent corrective lows.
By the numbers, China’s preliminary HSBC or “flash” PMI rose from a final reading of 48.3 in March to 49.1 during April. Separately, Germany, the Eurozone’s largest and most robust economic engine showed sure signs of sputtering as similar manufacturing data saw business activity contract at its fastest pace in nearly three years, while the broader Eurozone PMI fell to a five-month low.
Not helping matters, Sunday’s presidential elections in France saw Socialist candidate Francois Hollande take the first of two rounds of voting against President Nicolas Sarkozy. If elected following an early May runoff election, Mr. Hollande stated he’d seek to renegotiate France’s fiscal / austerity measures, which in turn has intensified, already on-edge Eurozone credit markets.
Stateside, jitters from across both ponds has likely also agitated bulls in front of Tuesday’s FOMC decision on interest rate policy and Apple’s (AAPL) all-important, earnings release. For its part, the iShares Bull ETF is off fractionally by 0.40% and currently displaying a bit of relative strength after flashing a slightly larger bit of technical weakness in dipping to fresh corrective lows of 13.50%.
In those intertwined markets of influence, the iShares MSCI Germany Index (EWG) are off 3.25% and testing recent corrective lows and its 200SMA for support. At the same time, the EUR/USD is under modest pressure of 0.50% and confirming its 50SMA as resistance.
The iShares FTSE/Xinhau China 25 ETF (FXI) is off 2.80%, while the commodity complex is under relative technical duress led by silver’s (SLV) 3.0% dip to fresh intermediate lows following investors’ bearish reply to Monday’s weak global manufacturing reports.
And as bulls in the SP-500 wrestle with the index’s recent corrective lows, the CBOE Volatility Index ($VIX) is putting together a sympathetic, but less fearful nod Monday. The so-called fear gauge is up 11%, however, its current challenge of the 20% level and recent highs puts the mean-reverting sentiment index up only 6% above its 10SMA and still removed from any elevated short-term panic readings of 15% or greater.
On the corporate confessional side, while Apple’s 4.5% heft in the SP-500 can’t be dismissed as being just one company amongst 500, bulls did receive one sign of improved conditions within the US housing market from homebuilder DR Horton (DHI). The outfit bested profit views by $0.04 on earnings of $0.13 per share on much stronger-than-expected sales growth of 27.6%, higher closings and revenue and pre-tax income picking up across all of its regions.
Management at DR Horton noted the company’s results reflect a strong operating position which will allow it to grow profitably in the current housing environment. Intraday, shares of DHI have given up out-the-gate gains and are trading off fractionally by 0.65%, but shaping up nicely within a base-on-base, weekly cup pattern.
Finally and in those sometimes accurate heat-seeking option markets, Wal-Mart (WMT), the world’s largest discount retailer, is atop the unusual volume list for SP-500 component stocks with more than 67,000 contracts trading on roughly 200% its daily average.
Shares are off a heady 5.0% following a hard-hitting Sunday NY Times spread. The investigative report exposed bribes, corruption, tax evasion and many other detailed dirty deeds going on south of the border as the company gained a massive retail foothold in Mexico during the past decade. For their part, option traders in Wal-Mart appear to be buying the story and not looking for a discount as premiums spike to three-plus month trading highs and above statistical short and longer-term statistical volatility in fairly even shopping of the outfit’s calls and puts.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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