A stimulated bull crosses the 1400 level on continued central bank optimism. As of 11:55 ET the SP-500 (SPY) is up 0.80%, channeling higher and testing the perseverance of the other trader’s bear flag.
A slightly weaker than forecast dip of 2.5% for Italy’s GDP and word from inside Merkel’s camp Germany’s Chancellor will concede her hardline stance and back the ECB’s bond purchase program have raised the odds of additional stimulus or at least allowed bulls to grow increasingly convinced of imminent monetary action.
In those intertwined markets of influence, the “risk on” program remains in effect and increasingly, trickier business for investors. With the support of confident and nearly complacent sentiment in the VIX ($VIX) which continues to flirt with its YTD and multi-year lows, bulls are pushing the SP-500 narrowly through the hallowed 1400 level and about 1.5% from April’s multi-year highs. Net, net conditions are fertile for profit-taking and possibly a modest variation of the fabled double top pattern.
Country ETFs (EWG, GREK, EWI and EWP) are once again outperforming with gains of about 1.20% to 2.50%. And “risk off” maneuvers continue to haunt those more questionable safe havens the US Dollar (UUP) and 20-Yr (TLT). For its part, the UUP is off just marginally by 0.10% after slightly improving upon its bullish gap fill and one month lows. The 20-Year is under much stiffer pressure of 1.50% but technically putting in similar testing in a game of red catch-up.
The US Oil Fund (USO) is up about 1.50%. Factors driving a bid into the commodity proxy include the assumption of increased demand by businesses and consumers tied to stimulus hopes, tighter supply concerns due to a quickly approaching and potentially severe hurricane season, North Sea maintenance ops and the always easy to slip in support of growing Middle Eastern saber rattling and escalations.
Other sometimes precious commodities such as the iShares Bull ETF (AAPL) and Comex Gold (GLD) are underperforming and being held to inside candle gains. Bulls in both products declined to comment.
On the corporate confessional side, shares of fashion accessory outfit Fossil (FOSL) are up 33% after reporting mixed, but what appears to be, “better-than-feared” results. The company topped profit views by $0.13 on earnings of $0.92 per share and marginally stronger-than-forecast revenue growth of 14.3%.
Looking ahead, Fossil management issued slightly below views sales and earnings range for its third quarter and fiscal year. Technically, with Tuesday’s outsized gainer, shares of FOSL are challenging the highs from its Q1 earnings fallout of -37% and near a first test of 200SMA resistance as bulls try and mind the gap.
Growth cognoscenti are enjoying Vitamin Shoppe’s (VSI) report. Shares of the specialty health and well-being retailer and recent IPO are up 7.5% and hitting fresh all-time-highs after the outfit topped profit views by four cents, saw modestly better-than-expected revenue growth of 13.5% and reaffirmed its comparable stores outlook.
In passing and making a bullish impression as well, shares of Emerson (EMR), MGM (MGM), Pantry (PTRY), Chesapeake (CHK) and Aecom (ACM) are finding solid bids following their quarterly reports.
Finally and in those sometimes accurate heat-seeking option markets, one large trader is snacking on Kraft’s (KFT) longer shelf-life December contract. Block prints of 30,000 executed simultaneously in the near-the-money December 42 call and further out-of-the-money December 37 put for $0.84 and $0.54 respectively looks to be the work of a risk reversal spread.
The spread determination versus a long or short strangle position is based on implieds which despite the size of trade, largely failed to move. Typically, this type of unflinching reaction better fits the risk reversal which eliminates volatility or vega risk and instead focuses on increased delta risk by purchasing the put and selling the call (two thirds of the protective long stock, collar position) or taking the other side.
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.
