Bears are back at work Monday following another session of troublesome economic data. As of 11:45 ET the SP-500 (SPY) is off 0.45% near session lows and a critical base camp for bulls to refuel technically.
Core machinery orders for Japan tumbled unexpectedly by 14.8% in May compared to forecasts calling for a decline of 3.3%. On the heels of Friday’s disappointing jobs report with its meager increase of just 80K in nonfarm payrolls, Monday’s bearish tone is tied largely to increasing investor angst over the global economic growth and louder canary-like chirping of a recessionary environment.
On the corporate side, earnings season begins in earnest later today with Dow constituent Alcoa (AA). Analysts expect Alcoa to turn a profit of just $0.06 per share compared to it’s year-ago result of $0.32. That said, the proverbial bar is low for overall growth in the SP-500, with a dip of 1% in Q2 operating earnings according to Capital IQ consensus views.
In front of the Q2 earnings processional, Monday has ushered in a light round of corporate marriages. In the matrimonial spotlight, shares of managed healthcare provider Amerigroup (AGP) are up nearly 38% to 88.75 after larger rival Wellpoint (WLP) announced it reached a deal to buy the company for $92 a share in cash or approximately $4.9B.
Not fairing as well or you could say, not a “best buy”, shares of “Amazon’s Showroom” (BBY) are off 2.25% and pulling back for a fourth straight session after last week’s “takeover chowder” dish of the company’s ex-chair mulling a buyout of the company. News this morning has the big box consumer electronics outfit cutting its ranks by 2,400 as part of its restructuring plans.
Across-the-pond, a meeting of EU finance ministers is in the mix. Expectations are low for any fresh inroads at stemming the region’s credit crisis, though Spain is anticipated to receive a conditional one year extension on its deficit reduction targets.
In those intertwined markets of influence, Spain’s 10-Yr has yields pushing back above the closely-watched and troublesome 7.0% level. The EUR/USD is managing to eke out a narrow gain and confirm a lower low, one-month double bottom pattern. A failure to hold 1.226 sets up an increasingly likely test of its June 2010 lows of 1.187.
The US Oil Fund (USO) is up about 1.5% but without sympathy bids from the energy complex (XLE, OIH), today’s technical confirmation of a successful pullback into 38% and 30SMA support, isn’t benefitting equity markets. Driving shares of the oil proxy, traders are reacting to failed labor talks between Norway and its oil workers.
Also, with recent data out of China continuing to point at slower growth and an overnight report showing inflation dipped to a near 2-1/2 year low of 2.2% in June, bulls could be pricing in more aggressive monetary easing by the country’s central bank. Optimistically, such a move might work to jumpstart economic demand and in turn, establish increased need for oil.
The VIX ($VIX) is up 6.0% with Monday’s bid testing the 10SMA for a third straight session. The action appears rather neutral short and longer-term in the notorious sentiment gauge; though still looking more supportive for bulls and hedge hogs rather than bears in the market.
And the iShares Bull ETF (AAPL) are living up to their reputation with a gain of 0.90% and obviously assisting the broader market to more constructive technical hemming and hawing than otherwise. Possibly goading bulls into action, an upbeat analyst note from Piper Jaffray reiterated its “Overweight” rating and $910 price target based on the increased likelihood for a rollout of a new and smaller iPad before the end of the year.
Finally and in those sometimes accurate heat-seeking option markets, Apple’s Weeklys July ATM 610 call and the slightly crunchier 615 and 620 calls are seeing heavy volume with trading of 16,200, 11,600 and 10,000 contracts easily outstripping residing open interest and suggesting the opening of fresh positions.
In the strategy spotlight, the most active 610s currently fetch about $7.00 per contract. With shares at 610.75 and for a naked long call buyer, AAPL will need to gain a tad more than 1% by Friday’s expiration in order to breakeven. Of course, more immediate movement in that direction would yield better results for the call buyer as some time value would remain on top of the call’s intrinsic worth.
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.
