Bulls attempt to follow-through on a key technical test on lighter and mixed ‘she said, he said’ drivers and M&A news. As of 10:55 ET the SP-500 (SPY) is off modestly by 0.08% after narrowly confirming Friday’s never-too-simple four-day pullback.
From across-the-pond, after a disappointing Greek roadshow concluded on Friday with Germany’s Merkel nixing time concessions for the Debt PIIGS constituent to narrow its “fiscal deficit and the deficit in confidence”; over the weekend ‘she said’ party members should temper any talks of an exit from the Euro by Greece. At the same time, ‘he said’ talk from Bundesbank President Jens Weidmann warned the ECB’s intentions to purchase government debt could be illegal and yield unintended costs.
Stateside, “Merger Monday” headlines have received confirmation from a couple diverse deals. Dow constituent IBM (IBM) announced its acquiring HR software outfit Kenexa (KNXA) for $46 per share at a premium of 42% over Friday’s close and valued at $1.3B. Intraday, shares of KNXA are up 41.43% at 45.81 and IBM is off 0.55% after opening modestly higher to confirm its own not-so-simple five-day pullback off 200SMA support.
M&T Bank (MTB) is trading higher by 4.5% after announcing its agreement to purchase Hudson City Bancorp (HCBK) for $3.7B. And Hertz (HTZ) is driving gains of 11.35% for its shareholders after announcing its $2.3B, 8% premium bid for rival car service operator Dollar Thrifty (DTG).
Elsewhere, officially-sanctioned drivers have been limited Monday to a pair of reports out of Germany. August’s IFO business climate index which surveys 7,000 businesses about current conditions and expectations for the next six months, fell for a fourth straight month from 103.2 to 102.3 while narrowly missing forecasts of 102.6.
Separately, the German Import Price Index reversed June’s decline of 1.5% by rising 0.7% in July but fell shy of estimates of 0.9%.
In those intertwined markets of notice and sometimes influence, the EUR/USD is digesting Monday’s ‘she said, he said’ reports by trading mostly flat in tight doji action for a second session and third day of technical consolidation off Thursday’s fresh highs set within its established up-channel.
Eurozone country ETF’s Germany (EWG), Spain (EWP) and Italy (EWI) are bid with gains of 0.60% to 1.1%. The Global X FTSE Greece 20 ETF (GREK) is off 0.6% but still positioned in a tight multiday consolidation near the highs of its two month lateral base.
On the commodity front, activity is mixed with metals (GLD, SLV) mostly flat in narrow trade for a second session. The US Oil Fund (USO) is off 0.85% and confirming a potential top. After failing at 200SMA resistance and between its 50% - 62% retracement levels, shares of the oil proxy are breaking 10SMA support.
The retreat in USO comes despite early strength in crude futures tied to potential supply threats from Tropical Storm Isaac and apparently, short-lived stimulus hopes of fresh monetary action by the Fed. Policymakers 'meet-and-retreat' later this week at the annual Jackson Hole Economic Symposium.
One commodity of sorts looking more precious than ever is Apple (AAPL). The world’s largest market cap company is growing shareholder value to the iTune of 2.0% and hitting record highs after winning its patent case against rival handheld device manufacturer Samsung.
In sympathy, shares of Google (GOOG) whose Android O/S will be required to design “workarounds of the violated software patents” is off 1.75%, while shares of erstwhile growth and in more recent times, embattled handheld device outfits RIM (RIMM) and Nokia (NOK) are higher by about 4% to 8.5%.
Finally and in those sometimes accurate heat-seeking option markets, one large trader in Tiffany (TIF) appears to be adorning his or her treasure trove with short premium. Shares are higher by 6.5% this morning despite the bauble giant’s two cent profit and revenue miss and issuing bearish-bracketing earnings guidance for 2013.
On the option side, the largest activity on the session is a block print of more than 12,700 out-of-the-money February calls for $2.73 which could be part of a legged buy-write strategy. Given today’s weak results, shares nearing its 200SMA after running about 22% from its June lows and a post-earnings dip of about 7% in longer-term implieds, a bull already long shares could reduce a bit of their downside exposure by about 4% on an expiration basis, while still keeping the potential for unadjusted gains of roughly 13% on the upside.
Conversely and for bears who think Christmas has come early in TIF shares, a naked call sale would allow the strategist to effectively say “Bah, humbug!” to the report with an approximate 13% of room with which to still breakeven at expiration. Of course if continued Christmas gifts come early or even late for bulls for that matter, the naked call seller may be faced with a sizable loss if premiums are able to build over the sale price due to risks tied to short delta, gamma and vega.
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.
