The devil is likely in the details as cautious behavior in front of the FOMC decision on rates and beyond, is all relative in Wednesday’s first half. As of 12:00 ET the SP-500 (SPY) is off marginally by 0.20% and the fear of missing out is still rather apparent by an all-too-confident investor still “Fed up.”
With credit market catalysts from across-the-pond seemingly on hold, the only question now for investors appears to be is “how big and for how long.” In the SP-500 it’s been about 7% and some two weeks and change off those fearful corrective lows.
Regarding this afternoon’s FOMC policy meeting and a priced-in / expected extension to the Fed’s treasury-based Operation Twist program, the devil is going to be in those still unknown details and whether monetary action will compensate investors’ current overly-aggressive, short-term confidence.
In those intertwined markets of influence, the VIX ($VIX) is up about 2.75% and showing only the slightest hint the FOMC is on tap and set to announce its most closely-watched plans or lack thereof, in more than a couple of meetings.
The still rather brash differential some 12.50% below the mean-reverting 10SMA and sub 20% pricing is a manifestation of investors fully confident they’ve got the Fed in position to yield with a fresh round of quant easing. Regardless, complacent or overly-convinced sentiment also typically dictates another viewing of that motion picture “Seems Like Old Times” and a very good time to hedge those bets affordably.
Elsewhere, a drop of 2.5% near lowly consolidation supports in the US Oil Fund (USO) doesn’t appear to be supporting the notion of Fed-induced demand entering the economically-sensitive commodity. Similarly, a dip of 1.80% in silver (SLV) is also failing to support the bulls thesis of central bankers being able to rekindle growth.
And the 20-Yr (TLT) is off about 0.70% and testing its 30SMA. With the price action marking a two day pullback to fresh June lows, the size of Operation Twist appears to already be under fire and showing hints of being a disappointment to investors.
On the corporate confessional side, shares of business software provider Adobe (ADBE) have cut opening losses in half but remain off by about 3.5%. Wednesday’s relative weakness follows its very modest penny beat, in-line revenue growth of 9.9% and bearishly-bracketing earnings and sales outlook for its third quarter.
Circuit board manufacturer Jabil (JBL) is up 6.0% and testing “Death Cross” resistance after issuing an apparent, overly-well priced in earnings miss. By the numbers, the company announced in-line profits of $0.64 per share, meager and just shy sales growth of 0.4% and downside, below views earnings and sales guidance for its fourth quarter.
And diversified machinery manufacturer Actuant (ATU) is off 5.75% and breaking Tuesday’s bullish technical-based “hydraulic lifting” as shares reverse a 50SMA and downtrend line breakout. Pressure follows its modest penny beat on earnings of $0.60, matching 9.3% sales growth and tightening of its still mostly in-line EPS and revenue range for FY12.
Finally and in those sometimes accurate heat-seeking option markets, Actuant is seeing some very heavy volume on more than 400% its normal trading. The problem is bulls and bears are still mostly left to their own devices without the use of calls or puts as an average day’s inaction of 12 contracts has exploded to a still very paltry 61.
The irony in Actuant is shares are fairly liquid with average volume nearing 700,000 and the company sports a small, but typically okay market cap approaching $2.0B and has been around the block for more than a few laps as it was founded in 1910. Short interest of 9% appears to play a part as markets are fairly wide between the bid and ask and the puts are skewed relative to the calls and indicating shares are potentially hard-to-borrow. That all said, if bulls and bears wish to have similar longevity; Actuant is one of those situations deserved of extra care or simply looking elsewhere for opportunities.
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.
