A Chinese stimulant is followed by an anxious dose of economic and credit market depressants much to the chagrin of bulls. As of 11:45 ET the SP-500 (SPY) is off 1.20% and signaling follow-through may be in the cards for a grizzly flag pattern on Day 7 of a more maligned rally count.
Proffered hints of Chinese development projects have been made to look a bit less clear for wide-eyed bullish optimists and helped slam the brakes and reverse Tuesday’s bid. According to public sources, policymakers from China are now backpedaling on prior stimulus teasers largely responsible for the broader market’s post-holiday bear roast.
Across the other pond and also putting bulls over the flame, consumer sentiment for May came in softer than forecast for the Eurozone and the U.K. announced a less-than-jolly plunge in business confidence. More qualitatively and pressing as far as investor buttons are concerned, is Spain and ever-growing worries regarding its banking system and fiscal health.
Spain has stepped into the spotlight and picked up the slack as one Greek Tragedy takes a stage break in front of its June 17 elections as the country’s borrowing costs are being pushed to record levels following Tuesday’s late debt downgrade to “B” from “BB-“ from petite, but apparently influential, ratings outfit Egan Jones.
In those intertwined markets of influence, the US 10-Yr is seeing a flight-to-safety as yields hit record lows. The liquidly-traded 20-Yr (TLT) is moving in sympathy with a gain of 2.50% to 126 and shares taking out its record highs of 125 set back in October of last year.
Apparently the US Dollar (UUP) and gold (GLD) can, on some occasions, both trade as aligned safe havens. The UUP is up about 0.55% after gapping higher, while GLD has reversed course to an equal-sized gain after tumbling out-the-gate to strike fresh marginal lows through its two week consolidation pattern set just above its January lows.
Bearish sentiment and risk aversion have continued to help drill oil (USO) to seven-month lows; though you wouldn’t know it looking at gasoline prices as that derivative spread expands much to the chagrin of consumers eyeing the summer driving season.
Technically, today’s drop of 3.50% in USO has broken 62% support from its early October lows of 29.10 and according to charting lore, all but sets up a test of that level in the weeks that lay ahead.
Materials and Pick & Shovel stocks (XLB, FCX, MT and CAT) are showing similar outsized losses following Tuesday’s relative strength bid designed by bulls on Chinese economic stimulants.
The CBOE Volatility Index ($VIX) is up about 12% to 23.50%. The sentiment gauge is marginally back above its 10SMA and still within its two week contraction pattern below recent fearful highs of 25% now lined up with the 200SMA.
And surprisingly enough, the iShares Bull ETF (AAPL) is mostly flat on the session and acting more like the Rock of Gibraltar than an apple prone to gravitational pull. Technically, shares of AAPL are positioned in an inside candle testing 10SMA resistance within a week long sometimes bullish, sometimes bearish-looking consolidation.
On the corporate side, one former well-held and nearly precious commodity of choice, RIM (RIMM), is off 8.50%. The manufacturer of the once can’t-do-without Blackberry smartphone announced yet another warning that its days of global domination are over. The outfit is now forecasting a Q1 loss and noted challenges for the next several quarters as it goes through a significant transformation; which includes hoping other entities might also seriously explore its strategic options.
Finally and in those sometimes accurate heat-seeking option markets, shares of eBay (EBAY) are off 5.50% and getting the attention of both bulls and bears after an analyst report on channel checks suggests weak revenues. Intraday, a heavy and rather evenly-traded 43,000 contracts have changed hands in its call and put options.
Concentrated attention is currently being paid to eBay’s June 40 straddle market. The delta neutral long volatility / long gamma spread is priced at $2.40 on 37% IV with volume of 4,200 in the calls and 3,400 in the puts compared to open interest figures of 4,300 and 2,400 respectively.
With today’s auctioning of shares seeing weak demand and folks like Guy Adami of CNBC chiming in with a bearish nod of the stock in a double top pattern dating back to October 2007; implieds across-the-board have conversely, but not-too-perversely, found willing buyers driving premiums up to multi-month highs.
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.
