One confirmed massive bailout followed by a surprise and unwanted request finds bulls taking profits into the weekend. As of 10:50 ET the SP-500 (SPY) is off 0.75% and giving back half of its three day take and a bull still worthy of the benefit of the doubt, but maybe in need of a tight collar.
After shaking off or being stimulated by a quadruple dose of weaker-than-expected economic nuggets on Thursday and making the count 3 – 0 in favor of bulls, investors are taking a profit-taking detour within the broader market’s uptrend.
Weighing in and following some relative quiet from across-the-pond this week, formal confirmation EU officials have agreed to a EUR100.0B bailout for Spain’s banks and fresh reports the country’s Valencia region is requesting government aid to meet its debt obligations are primary catalysts behind Friday’s market pressure.
In those intertwined markets of influence, the EUR/USD is responding to today’s reawakened credit market concerns by sliding 0.75% and testing congestion lows of the past two weeks. A technical failure to hold support sets up potential bearish momentum with nary a level to cheer between 1.216 and a test of 2010’s key 1.187 – 1.20 weekly lows.
Similar technical disrepair is playing out in the Spain’s debt which has seen its 10-Yr yield spike higher through the critical 7.0% threshold to a record 7.3%. Equity counterparts are also under pressure in the likes of the iShares MSCI Spain (EWP) and Italy (EWI) ETFs. The country proxies are off 6.85% and 5.50% respectively as each narrowly breaks below their June consolidation low.
On the corporate confessional side, large cap tech is doing a less terrific job for bulls Friday than the session prior despite a strong showing in the likes of Google (GOOG) and SanDisk (SNDK) with solid, market-defying gains of 2.5% and 14%. Behind the bids, Google announced a three cent profit beat on earnings of $10.12 per share and much stronger-than-forecast sales growth of 39%.
SanDisk appears to be benefitting from an analyst upgrade to “Above Average” from “Average” by Caris. The move follows the company's two cent profit beat, in-line revenue decline of 24.9% and a better-than-feared sales forecast for its upcoming third quarter which is only modestly below consensus forecasts.
Elsewhere on the earnings front, an intraday about-face in shares of Microsoft (MSFT) from a gainer of more than 1.0% to a loss of about 1.15% is one unexpected obstacle for bulls Friday. For its fourth quarter Microsoft topped bottom-line views by $0.11 on earnings of $0.73 per share and stronger-than-expected non-GAAP sales growth of 7%.
Looking out into Q1 and beyond, Microsoft’s management promised many new services and products to drive its business forward and in turn, providing “unprecedented opportunity to its customers and partners.” Hmm, maybe bulls are miffed they left out shareholders?
On the other hand, shares of General Electric (GE) are trying to bring good things to the life for bulls as it tacks on about 1.10% after a quick opening swoon of 2% to test its 50SMA which was quick met by enthusiastic buyers. The all-encompassing outfit announced a penny beat and mostly in-line and modest sales growth of 2.5%.
A good quarter and lots of dollars for oil and gas service giants Schlumberger (SLB) and Baker Hughes (BHI) is allowing shares to gush higher and the sector (OIH) to remain firmly bid. Bulls are striking gold in BHI with the stock up 9.5%, though capped at its 200SMA intraday, after the outfit posted a $0.22 profit beat and topped sales forecasts with growth of 12.3%.
And in passing, growth “flavorite” Chipotle Grill (CMG) is scorching bulls Friday with its 23% technical burn made all the harsher as shares gapped well-below its 50 and 200SMAs after multiple downgrades from the likes of Goldman, Deutsche and Janney.
The popular healthy TexMex eatery chain and until now, popular with brokers, posted a $0.26 profit beat, but fell short of Street revenue forecasts and drew further scorn in estimating mid-single digit comp restaurant sales growth for FY12 and warning of increased costs in the second half.
Finally and in those sometimes accurate heat-seeking option markets, bulls in Google (GOOG) may be looking technically stronger and in healthier position but premium buyers aren’t fairing nearly as well on whole. Last night’s ATM July 590 and 595 straddles priced for roughly $30 apiece required upside break-evens of 620 and 625 on a simple expiration basis.
A more theoretical “expected move” calculation using implieds of 120% and which takes into account dynamic delta hedging, amounts to traders estimating a 1SD or 68% chance GOOG would remain within 7.5% of last night’s close. Either way you slice it and compared to a much lesser gain of just 3%; yesterday's premium sellers are taking home some nice beefy fat today.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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