After minding Monday’s bearish gap, Thursday’s back-in-the-saddle bargain-hunters are seeing momentum buyers intervene. As of 11:55 ET the SP-500 (SPY) is up 1.05% and bulls get back to a weekly, anything-but-lazy, dog days of summer breakeven.
On the heels of ECB President Draghi’s bullish call-to-arms to preserve the Eurozone at any cost, investors are turning increasingly confident of another imminent round of global monetary stimulus waiting in the wings.
Shared dialogue from Germany’s Merkel and France’s Hollande stating the Europe’s largest economies are committed to keeping the Euro together and reports of the ECB readying to purchase debt have allowed more ambitious bulls, not minding Monday’s dizzying downside price gap; to optimistically intervene.
Stateside, reports on US economic growth and consumer sentiment have acted to further support Friday’s more confident, risk-chomping, ‘have their cake and eat it too’ mindset using technical momentum into the weekend to their advantage. Advance Q2 GDP data showed stronger-than-expected growth of 1.5% for the US economy compared to estimates of 1.3%. At the same time, the Q1 deflator matched views of 1.6%.
Separately, Michigan’s Consumer Sentiment Survey for July showed a modest uptick of 0.3 to 72.3 compared to forecasts calling for a flat reading of 72.0.
In those intertwined markets of notice, the EUR/USD has found a strong bid of 0.60% following Thursday’s initial reversal attempt of 1.30% Triggered by Friday’s continued and inspirational credit market drivers, the currency pair is being helped along by likely short-covering and bullish momentum through the key 1.232 level.
Similarly, country ETFs from across-the-pond such as Germany (EWG), Italy (EWI) and Spain (EWP) are showing relative strength gains of 2.5% to 5.0%. Elsewhere and at odds with Friday’s increased yen for risk, Comex Gold (GLD) is allowing some bulls to appreciate that a lower US Dollar (UUP) isn’t the only factor required for higher prices.
Intraday, the gold proxy is badly lagging the broader market with meager gains of just 0.25%. Merkel and Hollande’s pledge to safeguard the Euro has bulls on-the-fence about the less-than-precious safe haven in recent months rather than feeling enabled by a bullish technical symmetrical triangle breakout, more anticipated funny money flooding the markets and potential increased consumer and industrial demand.
Similarly and despite mostly pervasive reinforced stimulus hopes, a weaker Greenback and persistent but somewhat quieted Middle Eastern saber rattling, shares of the US Oil Fund (USO) are flashing relative weakness for a second straight session with gains of 0.6% totaling about half that of the broader market. Bulls pulling in their technical tails Friday were unavailable for comment.
Another commodity of sorts seeing relative weakness is the iShares Bull ETF (AAPL). Shares of AAPL are up about 0.40% though rebounding from negative territory out-the-gate. Technically, the stock is trading in a tight two-day consolidation pattern with its 50SMA acting as resistance after Wednesday’s bearish channel breakdown following its earnings miss.
On the corporate confessional side, another wave of heavyweights have reported more of the same very, varied results which continue to matter less and less for investors fixated on central bank action. Atop the Percent Leaders board on the NASDAQ 100, Amazon (AMZN) is up 7.0% and staging a 13-week flat base breakout despite mixed-to-weak results featuring a penny profit beat on $0.01 per share, a narrow sales miss on growth of 29.5% and issuing bearish-bracketing Q3 revenue guidance of $12.9B - $14.3B versus views of $14.11B.
Social networking giant and recent IPO Facebook (FB) is seeing another IPO of sorts as investors pull out to the tune of 11% but on the mend by several percent after hitting fresh lows of 22.28. A failure by the company to give forward guidance has trumped the outfit’s penny beat with earnings of $0.12 per share and narrow sales beat of $1.18B on revenue growth of 32.3% compared to views of $1.15B.
Finally and in those sometimes accurate heat-seeking option markets, Facebook premium bulls long Thursday’s well-traded Weeklys July 25 / 30 strangle enjoyed a bit more than a double in early trade. A low of 22.28 and shares off about 17% compensated the long gamma / long vega play priced for $1.30 with picture perfect gains of $1.42. The strategy and color commentary were detailed in yesterday’s Option Watch column currently on the Optionetics homepage.
On the other hand, more theoretical types got a lesson in the reality of non-continuous hedging opportunities. In the end, 275% IV leading into the event, which amounted to a 68% or 1SD likelihood of FB shares remaining within 17% of yesterday’s levels, got that part right. Unfortunately the likely inability to keep the short curve (gamma) position effectively flat deltas at opportunistic levels relative to the puny (in hindsight) premium sold; has made for an ineffectual position.
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.
