A not-so-jolly, nightmarish CDS leviathan for “Captain Morgan” nonetheless finds bulls back on deck after a brief sinking. As of 10:50 ET the SP-500 (SPY) is up 0.35% as technically correct, “buy in May” opportunities from an oversold condition continue to interest bargain-hunters.
While traders wait on word of whether Greece’s newly-elected officials can form a coalition government and maybe more or less pain-from-Spain, another (nearly) massive drag from overseas has been cast upon bulls’ compliments of blue chip financier JPMorgan Chase (JPM).
The so-called “London Whale”, played down as a small hedged position blown out of proportion by the venerable banker’s Captain Jaime Dimon back in April, was abruptly rescinded late Thursday. After the close, the firm announced a surprise update punctuated by $2.0B worth of “egregious (trading) mistakes” tied to credit-default swaps and previously described “tempest in a teapot” positions whose losses could continue to deepen into next quarter and possibly beyond.
Intraday, shares of JPM are off 8.0%. In a sympathetic nod of investors reassessing credit market risks when even the best and brightest in the business seem to be susceptible to a less than jolly ol’ rogering, shares of Morgan Stanley (MS) are off 4.5%, Goldman (GS) by 3.5% and BofA (BAC) 1.0%.
From across the other pond and on the officially-sanctioned economic front, investors are also coming to terms with a pair of reports showing underwhelming growth from China. Retail sales for April rose 14.1%, but came in shy of forecasts of 15.1%. Separately, industrial production data for April rose by 9.3% but came in shy of forecasts of 12.2%, as well as 2.6% below March’s levels. The increase marks the fastest slowdown in nearly two years and the first time since the global financial crisis began that production growth is in the single digits.
Stateside, PPI data for April and a preliminary read on consumer sentiment for May has put a couple feathers in bull’s quiver. Total producer prices dipped by a better-than-forecast 0.2% compared to estimates of 0.0%. Core levels, which axe out the little things in life called food and energy, rose by an in-line 0.2%.
Intraday, traders have cheered the market into positive territory following a report on consumer sentiment from the University of Michigan. A reading of 77.8 marks a surprise ten-month high after rising from April’s 76.4 and versus Street views calling for a modest dip to 76.0.
In those intertwined markets of influence, the EUR/USD is putting on a brave game face. Despite Captain Morgan’s released credit Leviathan or Kraken and Eurozone austerity concerns still in the mix, the currency pair is up 0.18%. Technically, the bears still look to be in control though as the instrument consolidates for a second session below key resistance of the mythicized descending triangle.
Bulls aren’t attempting to show any signs of enthusiasm for the Global X FTSE Greece 20 ETF (GREK). With questions regarding the status of a coalition government or a departure from the Eurozone still unanswered, the uncertainty is allowing bears to sink their claws into the country proxy by 2.60% to fresh weekly closing lows.
And the iShares Bull ETF (AAPL) is putting together another ho-hum, but largely beta appropriate gain of 0.30%. Bulls and bears continue to technically bide their time with a fifth session of consolidation work manufactured around its pre-earnings gap fill.
On the corporate confessional side, shares of Nordstrom (JWN) are suffering from buyer’s remorse with the stock off 3.25% following its mixed report. The high-end department store operator announced a five cent profit miss on earnings of $0.70, while revenues grew by a slightly better-than-forecast 13.7%. Looking forward, management reaffirmed its below views FY13 EPS range of $3.30 - $3.45 versus the Street’s $3.50.
For the bulls, shares of graphics chip manufacturer NVIDIA (NVDA) are atop the Naz’ 100 Percent Leaders board with a gain of 8.70%. The outfit produced matched profit views with earnings of $0.16, topped sales estimates narrowly with its year-over-year slip of -3.9% and raised its Q2 revenue forecast to $990M - $1.05B and above Street forecasts of $979M.
On the option side in NVIDIA, volume is running about 250% above normal on 34,000 contracts. Implieds have pulled in about 20% to 30% in the newly-minted May and June ATMs, while calls are finding strong favor by a 4-to-1 margin over puts. Particular and fairly even attention of 4,000 contracts is being paid to May 12 and 13 calls and June 15s in action which may include the rolling of strikes, profit-taking and of course, fresh initiations.
Finally and in those sometimes accurate heat-seeking option markets, the CBOE Volatility Index ($VIX) is bid marginally higher. With the sentiment gauge just below 19% and a couple percentage points above its mean-reverting 10SMA, the real story remains one of diffusing overblown relative fear encapsulated by Wednesday’s spike above panic highs set in April and tied to the market’s correction.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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