Bulls stampede lower to kick off the week based on a mindful or gloomy EU Summit forecast. As of 11:30 ET the SP-500 (SPY) is off 1.65% as an unexpected bout of June Gloom ruins a brief, sunnier forecast for bulls.
Not content to wait around and nary a fresh catalyst on the menu to cause Friday’s bargain-hunting bulls to roll over on themselves; Monday’s media outlets are busy proffering heavily-voiced doom and gloom with any economic / political inroads from the upcoming EU Summit as impossible and further deterioration in the Eurozone all but a forgone conclusion.
Much of today’s bearish foreplay is tied to Germany, the region’s largest economy and virtual standalone financial workhorse. Traders are concerned its policymakers are likely unwilling to budge regarding “requests for largesse” from its beleaguered cohorts, according to the likes of Miller Tabak’s well-regarded analyst Peter Boockvar via MarketWatch.
Incidentally, a request by Spain’s government for $100.0B EURO to recapitalize its banks isn’t helping matters. The move is particularly troublesome given it comes following bullish-sounding stress tests results out last week suggesting $51.8B - $62.0B would be sufficient.
On a lighter note and also on the radar over the course of the same two-day meeting, fans of sport will have another very closely-watched event out of the region, the Euro Cup. Ironically, the two key matches feature the same main cast of players as Germany tangles with Italy and Spain takes on fellow Debt PIIGS constituent Portugal. On that front, a couple winners will emerge before going head-to-head in Sunday’s championship.
Elsewhere and on the officially-sanctioned economic front, a better-than-forecast release of new home sales in the states has gone largely unnoticed this morning. The intraday announcement showed a stronger-than-expected sales increase for May with an annually-adjusted rate of 369,000. That compares to a milder Street forecast of 350,000 and a spike of 26,000 over April’s upwardly-revised level of 343,000.
In reaction to the report, after a brief stab at fresh intraday, but still underwater highs, the SPDR Homebuilders ETF (XHB) is off 1.25%. Displaying relative strength in front of its corporate confessional on Wednesday, shares of Lennar (LEN) are up 1.0%. However, a potentially menacing H & S pattern appears to be in the process of being built with a right shoulder forming against its 50SMA.
In those intertwined markets of notice, the VIX ($VIX) is up 12.50% and narrowly taking out last Thursday’s determined key pivot high which found resistance at the closely-watched 20% level and against its 10 and 50SMAs.
Following Friday’s bullish interpretation of the VIX as investors somewhat impressively sold premium in an effort to collect theta in front of the weekend while pressuring the sentiment gauge firmly back into more historically-normalized readings in the high teens; today’s action, is sufficient to invalidate that analysis and short-lived attempt at embracing the bull.
Economically-sensitive black gold as represented by the US Oil Fund (USO) is unsurprisingly under relative technical duress given investors date with Monday's bearish June Gloom conditions. Intraday, shares of USO are down 2.25% and testing last week’s lows which established an unconfirmed 8-month double bottom.
Another favored technical canary of late, silver (SLV), is surprisingly unchanged. The relative strength comes despite its own ties to global economies, as well as a safety bid in the Greenback (UUP) which makes the dollar-denominated commodity more expensive to foreign buyers. Technically and similar to USO, silver is attempting to establish a six month double bottom.
Finally and in those sometimes accurate heat-seeking option markets, RIM (RIMM) is atop the Naz' 100 for unusual volume in Monday's first half. Shares of RIM are off 7.0% and striking fresh multi-year lows of 9.15 in front of its earnings (or lack thereof) confessional on Thursday evening and traders are piling evenly into its calls and puts on heavy overall volume of 85,000 contracts.
Most active as an “earnings volatility rush” makes its influence known in the Weeklys June and July contracts is the out-of-the-money Weeklys June 10 call on mostly opening volume of 12,700. Implieds are currently near 142%, but given its positioning some 11% away from the stock price and lack of attention paid to the equally out-of-the-money 8 put; bets being placed and maybe discarded as well, aren’t likely tuned into implieds but rather the puny price tag of $0.23 and a naked long, roll of the dice on an upside reaction come Friday.
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.
