A “moodily” complacent reversal squares off with a more rightfully fearful, bargain-hunting rebound on Tuesday. As of 12:15 ET the SP-500 (SPY) is up 0.55% as a stronger positioned bull reclaims some turf in Day 7 of a better-looking rally attempt.
Building worries of the EU’s $125.0B lifeline to Spain’s banking system still insufficient to prevent further damage in the Eurozone, increased and apprehensive attention paid to Greece in front of this coming weekend’s re-vote and second-half trader talk of a pending downgrade to US banks by Moody’s have quickly become yesterday’s news as investors mount an attentive about-face focused on bargain-hunting.
Officially-sanctioned economic news is ultra-light with traders steering clear of paying any mind to import / export data showing declines of 0.1% and 0.5% during May following April’s matching increases of 0.2%. Later today and typically of even lesser notice, the US Treasury Budget will be revealed with estimates pegging a Spain-like deficit of $125.0B.
In those intertwined markets of influence, an overly-complacent and stretched VIX ($VIX) is actually now in a much stronger position to assist bullish appetites and proof positive of what a difference a day can sometimes make. Intraday, the sentiment gauge is off a mild 2.75% near 22.80%, less than 4% below its mean-reverting 10SMA and at absolute levels which are historically slightly elevated, but not too high as to spook bulls into further disrepair and despair.
On Monday, the VIX (and us) presciently warned of Monday’s out-the-gate optimism as a likely misfire on the part of investors. In front of the sell-off, the instrument stretched nearly 17% below its 10SMA into Bollinger and 50SMA support while striking a one month low narrowly through the closely-watched 20% level.
The EUR/USD is off by just 0.08% but only after reversing off its strongly-bid, fresh three week high as the beleaguered currency pair continues to struggle with credit market headwinds with a bit less swagger than bulls in US equities.
Comex Gold (GLD) is finding a nice bid of 0.70% to confirm a three day pullback pattern which all but filled a bullish gap. And on the softer commodity side and a bit less precious today, the iShares Bull ETF (AAPL) is underperforming the broader market with a gain of just 0.20%.
Tuesday’s indifferent bid in AAPL shares comes on the heels of Monday’s failed breakout attempt above its 50SMA and the Worldwide Developers Conference which appears to have left bulls disappointed as no updates for its anxiously-awaited iPhone 5 and iTV products were delivered by company execs.
In corporate confessional news, financial data provider FactSet (FDS) is seeing investors clear their books of the name as shares trade down by about 9.70% into a test of its 200SMA. The outfit reported a penny beat on profits of $1.05 per share and in-line sales growth of 10.2% but slightly lowered its Q4 earnings and revenue outlook to $1.06 - $1.08 and $204M - $208M and narrowly below Street views of $1.08 and $210M respectively.
Recent IPO and hot growth retailer Michael Kors (KORS) is up a modest and none-too-flashy 1.75% after a blue line of technical notice caused a fashion stir amongst bulls. Shares had been up strongly by nearly 12% at the open, but a test of its classically blue-hued 50SMA has proven the undoing for bulls snapping up its top and bottom-line beat and upside, above views FY13 EPS and revenue outlook.
In those sometimes accurate heat-seeking option markets, traders of all types are busy in Michael Kors as contract volume has topped 29,000 versus a daily average of about 4,000 with calls finding favor by a 2-to-1 margin. The bulk of Tuesday’s action is concentrated in the soon-to-expire June contract month. However, July is seeing some fair value shopping or maybe umm, window dressing as well.
More than 3,000 slightly out-of-the money July 40 calls have been put up on various prints throughout the session, some of which may involve rolling out from the June contract. The opening of July call positions today, with open interest of only 500, might be part of a long call strategy with implieds dropping into statistical volatility range.
Conversely and given traders reaction so far to shares of KORS, bulls could be dressing up their stock with buy-writes. Personally, we like the latter idea of accessorizing long stock in KORS, but see the less-than-trendy collar position as the more fitting option, pardon the pun, for bulls.
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.
