Bargain-hunting bulls follow-through Tuesday on a forceful, but none-too-surprising rally attempt. As of 11:15 ET the SP-500 (SPY) is up another 0.75% as a fearfully oversold correction into key zone support establishes “Day 2” of the count for bulls, as well as bears.
Monday was one of those “Best Since” days the media loves to harp on as a rally of 1.6% in the SP-500, the strongest in more than two months, saw its share of pen-to-paper cheerleading. More to the point, with a decline of nearly 9% over the span of 13 session Fibonacci count, the VIX jumping to a fearfully stretched high just north of 25% and SP-500 testing key support from 1278 – 1300; a more surprising move would have been a continuation of bulls “Sell in May” proclivities.
Maybe a bit more surprising is Tuesday’s continued strength or chase by bulls despite the big story of the day being the OECD slapping the Eurozone with a lower growth forecast and Fitch’s downgrade of Japan’s debt. That said, with the iShares Bull ETF (AAPL) up once more and leading the broader market to the “iTune” of 1.25% despite its massive 5.83% performance Monday, today’s bid becomes less a mystery.
Also instrumental in Tuesday’s market follow-through, continued technical dredging on Monday in many of the financials most influential Anchor Bankers (JPM, MS and BAC) have subsided. Media overkill efforts focused on massive trading losses at JP Morgan and bearish fear-mongering aimed at the need for additional regulation have taken a backseat to bargain-hunting speculators hoisting the group into portfolios from unceremonious four and five month lows and a nifty test of 200SMA support in the SPDRs Financial ETF (XLF).
In those other often intertwined markets of influence; the EUR/USD is having a more difficult time shaking off the OECD as easily as stateside bulls appear to be doing. The currency pair is off 0.25% and stalled against its 10SMA following last week’s double bottom test of its year-to-date lows.
Similarly, the Global X FTSE Greece 20 ETF (GREK) is off 1.50% and confirming its 10SMA as resistance on the heels of two back-to-back attempts at bargain-hunting. On the other hand, the iShares MSCI Japan ETF (EWJ) is up modestly by 0.20% as it looks to confirm a daily two-bar candlestick reversal pattern which tested its December lows.
Treasuries as represented by the 20-Yr (TLT) are under somewhat surprisingly stiff pressure. For its part, TLT is off 1.25% after challenging key, double-top zone resistance established from 124 – 125. At the same time though, bulls have stepped back into the US Dollar (UUP). Following a two day pullback into its 10SMA, the UUP has gapped higher to confirm a “handle” low within its 4-month “W” base.
The VIX ($VIX) is off about 2.50% near 21.50% and back near its 10SMA in mostly neutral territory. The action comes after a decent-sized intraday undercut of the mean-reverting average down to a test of the closely-watched 20% level and a full 20% below Friday’s 25% fearful and extreme closing bid.
And “The Facebook” (FB) is continuing its “IPO” i.e. investors pulling out ways with shares off about 4% to 32.70 but still sporting a dizzying market cap of nearly $90.0B. Session lows of 30.98 put The Facebook shares more than 18% below Friday’s IPO pricing of 38.
Finally and in those sometimes accurate heat-seeking option markets and moving past some concentrated activity in the SP-500 that may as well be called the "JP Morgan Chase, BofA Merrill, Citigroup Conference"; small capper, but possible up-and-comer biotech Arena Pharma (ARNA) is seeing double its average activity on volume of 11,500 with calls showing favor by a near 4-to-1 margin. Arena Pharma recently received a positive FDA vote for its weight loss drug Lorcaserin, which saw shares jumping sharply higher by more than 75%.
With shares of ARNA up about 4.40% Tuesday and confirming a multi-day pullback into 10SMA support which also held a secondary offering at $5.50; traders are showing particular interest in the ATM June 6 call and OTM June 7 call. Much larger open interest prevents carnal knowledge of whether today's efforts are closing or opening. That said, based on experience with fast food dining on decay heavy options; feasting bulls might be better served looking on the menu beyond June.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
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.
