Central bank optimism leads to a confident, but less cozy twist higher Tuesday. As of 12:15 ET the SP-500 (SPY) is up 1.05% as investors drop Monday’s wait-and-see act for “Fed up” operations above 50SMA resistance.
Against a backdrop of weak economic data in recent weeks allowing bulls to be thoroughly convinced the Fed will extend its treasury-based Operation Twist program, the only question remaining is, “how big and for how long?” That said, a mixed, but overall decent report on housing is unsurprisingly, failing to be paid little, if any, mind by investors. Well, unless of course they're so confident they believe they can have their cake and eat it too, which we don't doubt that type conviction for a moment.
By the numbers, May starts came in weaker-than-forecast with an annualized rate of 708K units compared to views of 719K. However, April data was upwardly-revised by 27K to 744K and building permits, which forecast builders’ future intentions, grew to a much stronger-than-expected 780K from April’s upwardly-revised 723K and north of Street estimates of 725K.
Across-the-pond, easing but still sky high yields on Spanish debt, Greece quickly building its new coalition and pro-austerity friendly government and maybe confidence central bankers will still serve a dish of something along the lines of Greek Supportlova for bulls is also assisting in Tuesday’s broad-based market bid.
In those intertwined markets of influence, shares of the Global X FTSE Greece 20 ETF (GREK) are up about 5.0% and striking fresh relative highs while testing the 50SMA. The MSCI Spain Index EFT (EWP) is up nearly 4.0% and the EUR/USD is higher by 0.90% in an apparent technical counter-attack by bulls seeing something other than a bear flag set against its 50SMA.
Elsewhere, broad-based central bank optimism on the part of equity investors is mostly, still failing to manifest itself in black gold (USO) or silver (SLV). The two still-lagging industrial and economically-sensitive commodities are mixed today with a loss of 0.75% and modest 1.15% gain and both still well-contained in deep weekly consolidations following their corrective moves.
On the corporate confessional side, mixed reports from tech giant Oracle (ORCL) and economic bellwether FedEx (FDX) are nonetheless seeing strong bids. Shares of ORCL are up about 4% after gapping above its 50SMA but finding 200SMA resistance too much to “bear.”
Oracle surprised investors last night by coming out with an early earnings announcement which had been scheduled for Thursday, but likely moved forward a couple days due to circulating (and false) rumors of a major shake-up in management bandied about during Monday’s session.
For its fourth quarter, the software database giant posted a profit beat of $0.04 on earnings of $0.82 per share. The report also featured an additional $10.0B stock buyback and marginally stronger, record sales of $11.0B versus the Street’s $10.88B as revenue climbed by a narrow 1.0%.
And for its part, freight giant FedEx reported a five cent beat on profits of $1.99 per share on slightly shy sales of $11.0B and revenue growth of 4%. Looking ahead, the company issued a below-views Q1 and FY13 EPS forecast, but apparently the potentially stormy outlook has been priced-in judging by Tuesday’s confident two month and 50SMA breakout.
Finally and in those sometimes accurate heat-seeking option markets, the VIX ($VIX) is off another 3.50% near 17.75% and nearly 19% below its mean-reverting 10SMA as confident behavior grows increasingly sketchy short-term. Tuesday’s continuation move follows a surprisingly strong display of confidence by bulls as they knocked premiums down more than 13% and easily below key 20% support to “stretched” seven week lows.
What will tomorrow bring? Well, other than the FOMC Decision and a very likely extension of Operation Twist, a “sell the news” reaction is gaining favor in the view of this strategist. The good news is for those bulls still yearning for higher prices yet, the ability to buy cheap protection is as close to a win-win situation you’re going to find on a Street that doesn't believe in handing out free lunches.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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