All “Fed” up and one red, less delicious apple find bulls digesting broad-based gains on Thursday. As of 11:20 ET the SP-500 (SPY) is fractionally higher but not exactly following through on breaking the other trader’s bear flag just yet.
On the heels of Apple’s earnings crush, gigantic but spot-on reaction in the iShares Bull ETF (AAPL) and the Fed’s Bullnanke “prepared to do more as needed”, which bulls took as a hint at more stimulus finding its way into financial markets; investors are showing a bit of digestive restraint on mixed and slightly less muscular reports of influence.
Economic morsels attempting to force feed a nascent bull into action are sparse, but investors have been handed a stronger-than-forecast report on pending home sales data for March. Views calling for a 0.5% increase proved modest compared to an actual spike of 4.1%. In sympathy and leading the broader market intraday, the SPDRs Homebuilding ETF (XHB) is up 0.85%.
Assisting in the bears effort to keep the SP-500’s flag below 1400 intact, weekly claims data disappointed for a third straight week. For the week ended April 21st, filings for initial unemployment benefits were mostly flat at 388,000 but above estimates of 373,000.
On the corporate confessional side, mixed results have been met with varied investor reaction with high profile misses from market heavyweight Exxon Mobil (XOM) and UPS (UPS) in the spotlight. For its part, Exxon is off 1.75% after falling short on both its top and bottom line, while UPS is off 3.0% after announcing a narrow profit miss, matching Street sales views and issuing in-line FY12 EPS guidance.
Shares of Naz’ 100 constituent Akamai (AKAM) are off 12.50% and atop the Percent Decliners list. The pressure is all the more disheartening as the bearish reaction follows a top and bottom-line beat, $150M buyback extension, Jeffries upgrade to “Buy” and shares having crafted a technically-pleasing “W” shaped base the past two and one-half months. I guess some bulls still aren’t comfortable “handling” the market’s FTD signal of the coast being clear?
On the flipside and showing there’s nothing wrong with having most all your eggs, or umm apple’s in one basket, Cirrus Logic (CRUS) is up 13.75% and bringing its two day total to 25%. The reaction for the audio chip specialist, whose fortunes are currently tied to Apple with about 70% of its revenues in the company’s “iHave” gadgets, follows a meek penny beat, modest in-line sales tally and even less-impressive Q1, below-views sales and profit guidance; which like Apple, appears to be viewed with much skepticism as being too conservative.
In those often intertwined markets of influence, a modest technical crack below 200SMA support in the US Dollar (UUP) triggered by maybe a whiff of inflation and looser money expectations courtesy of the Fed, look to be assisting gold (GLD) and silver (SLV) to gains of about 1.0% and 1.75%.
Finally and in those sometimes accurate heat-seeking option markets, Amazon (AMZN) reports after the close tonight and following decent-sized reactions from the likes of Naz’ peers Google (GOOG), Microsoft (MSFT) and Apple (AAPL); it appears option traders are pricing in another mover despite shares trading flat on the session and wedged neutrally between its 200 and 50SMAs.
Using Amazon’s ATM Weeklys April 195 straddle market of $13.60 and surrounding money 190 / 200 strangle priced at $9.10, we can calculate an average non-directional / volatility market of $11.85 for an estimated reaction of 6%. Separately, using bell curve analysis and calculating expectations based on implieds near 170%, a small bit of math leads to the conclusion traders are pricing in a 68% chance AMZN will remain within roughly 9% of 195 through tomorrow night's expiration.
The larger range value of our second calculated move factors in the theoretical concept of continuous hedging as deltas begin to take on a bias and away from a flat positional start. You may not buy the idea of continuous hedging, but many pros do, which incidentally means they’re more likely sellers of some rather rich but not out of control juice.
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.
