Following Thursday’s second-half Bearnanke & Fitch buzz-kill, bulls attempt to embrace similar ObamaSpeak and a Spanish bailout. As of 11:30 ET the SP-500 (SPY) is up 0.10% in Day 5 of the bulls’ rally attempt and Day 1 of the bears’ confirmed counter-trend rally.
"We are seeing weakness in our economy.” And with those words (we think) by our Commander & Chief this morning while speaking from the White House briefing room and giving Europe a “to-do” list of their own, bulls have been called back into modest action Friday, reversing early losses of about 0.35% in the SP-500 into slightly narrower gains of 0.10%.
On the heels of the Fed Chief’s disappointing testimony before the JEC which spoke of similar economic woes but failed to change monetary policy language to hint at QE3 as part of the June FOMC meeting, it appears Friday's reiteration of sorts has allowed investor optimism to once again see the silver lining of QE3 in the country’s economic storm clouds.
Across-the-pond and following credit ratings agency Fitch’s late Thursday credit downgrade to Spain, investors are cozying up to a possible request this weekend by Spain asking for help from the Eurozone in recapitalizing its banks. Optimism of a bank rescue comes despite the country’s Deputy PM insisting no appeals would be made until the results of its stress tests of Spanish banks are announced on June 21.
In those intertwined markets of notice, Black Gold (USO) is under relative pressure. An intraday loss of about 1.55% has the oil proxy testing last Friday’s eight month lows as those bulls appear less sure about the global economy than their equity-trading brethren.
The iShares MSCI Spain Index (EWP) is displaying relative strength with a gain of 1.55%. At the same time, the EUR/USD is under modest pressure of 0.35% and Germany (EWG) is following suite with its loss of 0.55%. The price action hints at the fore-mentioned trader belief Spain will ask for a bailout this weekend rather than wait and the cost of which, while providing clarity, also weighing on the shoulders of the currency pair and the region’s largest and most secure economy.
Comex Gold (GLD) is off by 0.40% but has reversed off session lows where losses of about 1% nearly filled last week’s bullish gap. Traders looking for a bullish pullback entry into weekly double bottom hammer support have a nice opportunity to explore long delta option strategies with GLD’s ultra-liquid call and put markets.
And after gaining about 5% to a test of its mean-reverting 10SMA, the VIX ($VIX) is off 1.50% near 21.50% and back at its 30SMA. A week ago prices firmed by nearly 11% to fresh intermediate highs approaching a historically elevated and short-term fearful 27%. Today’s action is an about-face of that sentiment. Instead, index prices are looking optimistically confident, though not complacent, with theta-chomping bulls back at work and more fearful of missing out of weekend decay opportunities than fearful of unexpected, market jolting surprises.
Finally and in those sometimes accurate heat-seeking option markets, footwear manufacturer Skechers (SKX) are trying to bust a technical move higher with heavier-than-normal call activity "maybe" looking to confirm the action. News is absent but with shares up about 4%, the stock action is staging a five-week base breakout to fresh one-year highs through its 200-Week SMA.
Most active, the in-the-money June 18 call has traded about 2,000 contracts, but compared to much larger open interest of 4,500, determining today’s positioning as opening is a more difficult task. That said, with the contract sporting an 85 to 90 delta and priced just $0.05 to $0.10 over parity at $1.15 to $1.20 versus shares at 19.10; as a means to effectively play a breakout with just one-sixth the risk of the underlying, we can’t blame would-be fast-money bulls for slipping into something more comfortable than stock.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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