Following Tuesday’s “bearish PM”, bulls come under a bit of follow-through pressure in Wednesday’s first half. As of 11:00 ET the SP-500 (SPY) is off 1.30% and challenging bulls to a second serving of 1300 on Day 3 of the count for some and something entirely else for others.
On the heels of Tuesday’s second half swoon back to a flat but ominous hangman or spinning top candle in the SP-500, bulls have continued to act defensively. Pressure is largely attributed to cautious follow-through ascribed to comments from a former Greek PM that Greece may leave the Euro, which in turn has bulls once again questioning the fate of the Eurozone.
The well-heeded view flies in the face of this weekend’s similarly well-cheered, G-8 “all for one and one for all” nod to keep its fiscally-bloated constituent in the family. During the first hour of intraday play, stabilization and a bid back towards the unchanged mark briefly entered the market after remarks from European policymakers suggested the need to stabilize the markets…in circular-like, but soon thereafter, failed optimism on the part of traders. “QE3! QE3! QE3!”
In those other often intertwined markets of influence; the EUR/USD is off 0.65% and breaking bearishly below its January lows and last Friday’s attempt at staging a double bottom pattern. Technically, Tuesday’s price action looks ominous with a weekly inverse up with handle suggesting the currency pair’s June 2010 low of 1.187 could be challenged in the weeks and months that lay ahead.
The 20-Yr (TLT) is disputing a bit of “somewhat surprisingly stiff pressure” noted in Tuesday’s WSLO column with a matching counter gap of 1.25% to challenge last week’s highs and weekly double top resistance from 124 – 125. “QE3! QE3! QE3!”
The US Dollar (UUP) is up 0.40% and staging a successful breakout of its handle consolidation within a “W” shaped base. Technically, as part of a larger uptrend which began a year ago, UUP appears to have some upside room before eventually testing channel and 200-Week SMA resistance near 23.25.
Commodities are under pressure with the US Oil Fund (USO) off 1.65% and breaking below 62% support from its early October lows while hitting its cheapest levels in seven months. Staunch investor appreciation of waning demand tied to worsening global economic conditions, growing optimism a deal between Iran and the U.N. will emerge and the possibility of strategic reserves being deployed are primary drivers for bulls heading south Tuesday.
One spot investors haven’t fully changed their tune on (yet) is the iShares Bull ETF (AAPL). Apple stock is flat and bucking the broader market’s bearish overtures despite reversing and swinging lower in front of the larger pack of bulls still feeding in Tuesday’s first half. Shares of AAPL recently staged a low off a mirror move test into its 50% retracement level from its pre January earnings spike.
“The Facebook” (FB) is testing a new game called “Hide & Seek” versus the popular “IPO” game of investors pulling out since going public last week. Defendants or umm, the largest shareholders caught holding the bag claim the company “hid” a weakened growth forecast during the oversubscribed feeding period or umm, road show.
Wednesday’s lawsuit is “seeking” justice for those bulls allocated shares as favored, or so they thought, clients. Intraday, shares of FB are up 1.60% near 31.50 and well south of the due diligence mark of 38 as chatter of its underwriters potentially stepping in to support the stock above the $30 level enjoys some bullish consideration. More sympathetically, shares of “Lead Underwater” writer Morgan Stanley (MS) are diving deeper by 2.25% to challenge its November lows.
And the VIX ($VIX) is up about 7.25% to 24%. The fairly well, but not overly fearful bid follows Tuesday’s test of 20% and differential of about 10% below its 10SMA. Current levels are roughly 5% above the mean-reverting average and still 7% to 8% removed from last week’s elevated and panicky highs.
On the corporate confessional side, box manufacturer and erstwhile growth juggernaut Dell (DELL) is off 17% and decisively breaking key uptrend support dating back to its March 2009 bottom. Today’s convincingly bearish reaction follows the outfit’s profit miss of three cents; worse-than-forecast year-over-year sales decline of -4.0% and below views Q2 revenue guidance.
Finally and in those sometimes accurate heat-seeking option markets, NetApp (NTAP) is busy in front of tonight’s earnings release on varied activity of 32,000 contracts with calls finding modest favor by a margin of 1.5-to-1.0. Intraday, shares of NetApp (NTAP) are off by 3% and narrowly hitting fresh lows just through key weekly triple bottom support not set on constructing a fourth point of celebration for bulls.
On the option side, with implieds flirting with 200% IV in the May Weeklys, traders are pricing in an expected move of about 15% with shares estimated, based on 1SD, to remain within 27.50 and 36.80 through Friday’s close. That said, it’s harder to find fault with Tuesday’s most active bull.
As discussed yesterday afternoon in the Option Watch column, a determined 1 x (2) frontspread was put up 3,000 x (6,000) in the May Weeklys 34 / 37 calls for a debit of $0.35. The position realizes its maximum gain of $2.65 points at 37 and just north of the expected move pricing of 36.80. Further, as that type of reaction would be about 1% above the largest in the past year, as well as the position maintaining a breakeven of 39.65 or 24% above current levels; it may not make dollars but it makes more cents and sense to us than the other side of the coin.
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.
