A prior resistant vote by bulls proves futile Tuesday. As of 12:30 ET the SP-500 (SPY) is off -1.35% as temporarily detained “Sell in May” follow-through, breaks key support.
Following Monday’s defiant front which held corrective support in the SP-500 and even produced a fractional doji gainer in the face of bearish Eurozone election upheavals, bulls have rescinded on the optimistic promise of that candlestick’s meaning. “Doink!”
With nary an officially-sanctioned economic report stateside or abroad, Tuesday’s turncoat behavior mostly lay with a more appreciative and fearful stance that conditions within the Eurozone are likely to get worse before the climate might change for the better.
In the spotlight and no longer easily shaken off, bulls are growing increasingly worried over Greece’s ability to form a unified government after New Democracy’s Antonis Samaras failed to reach a consensus. That responsibility now appears to be on the lap of the party Syriza’s head, which received the second most votes over the weekend.
In those intertwined markets of influence, “flight-like” reactions are a bit more forthcoming Tuesday and still spearheaded by markets in Greece where indices have hit two decade lows. Stateside, the thinly-traded Global X FTSE Greece 20 ETF (GREK) is off 7% on top of Monday’s 6.34% dip.
A bullish resistant front of 1.28% for the iShares MSCI France (EWQ) Index on Monday which shook off news of its newly-elected socialist head is now bowing 2.75%, though maintaining price action above its April lows.
Surprisingly, the EUR/USD is off just 0.10%. The action has been held to an inside candle which has maintained key three month long support at the 1.30. Technically speaking, bulls hope the test will morph into a quadruple bottom, while bears likely have their eyes on the prize of a descending triangle setting up below the 200SMA and 50SMAs.
Commodities led by metals have become less precious with both silver (SLV) and gold (GLD) hitting four month lows today with matching 2.0% declines.
The US Oil Fund (USO) is off an additional 1.30% after leading to the downside the past week. Continued perfect storm pressures of OPEC disclosing it wants lower prices, a turn of the spigot towards the open position from Iran and broader market demand concerns tied to weaker investor sentiment regarding global growth prospects are acting as primary drags for oil bulls.
The iShares Bull ETF (AAPL) is off 1.20% and mostly matching tit for tat the percent loss in the SP-500. Technically though and for a third session, AAPL is trying to find support from its pre-earnings gap area.
And the VIX ($VIX) is finally paying a bit of fearful respect that those things which go higher, may not be unidirectional. The sentiment gauge is up 7% near 21%, testing April’s corrective and panicked highs, as well as signaling its own fearful short-term 10SMA differential of 16%.
With the SP-500 having broken its April correction lows by about 0.75%; bulls interested in potentially overdone value positioning, have a couple nuggets to graze on. That said, just don’t dust off Edwards & Magee, as you may find a broken bear flag signaling today and some selling in May, not yet ready to go away.
Finally and in those sometimes accurate heat-seeking option markets, put bears spied positioning yesterday are having a “time” of it in watch and accessory outfit Fossil (FOSL). Shares are off a cuckoo-like 37.75% as traders react negatively to the company cutting its Q2 EPS guidance below Street views.
On the option side, commentary on Fossil put activity written yesterday afternoon at IBD discussed the well-traded May 120 and 105 puts. Our view, given recent earnings reactions in the low teens and a disruptive technical breakdown and an expected move of about 14% through next Friday based on ATM implieds, was to view the bear put spread as a smarter directional position for those wanting to play a downside reaction. While the spread has failed to match up to outright purchases, it certainly winded up making good sense and cents and maybe enough dollars to even buy a Rolex.
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.
