An unwanted delivery from FedEx helps keep bulls grounded in a second session of modest profit-taking. As of 11:55 ET the SP-500 (SPY) is off 0.15% as a tail-wagging index removes a bit more excessive bull from the market.
Following Monday’s non-surprising but mild market pressure from technically overbought conditions, below views guidance from economic bellwether and air and freight specialist FedEx (FDX) is in the spotlight and acting as a primary drag for investors. By the numbers, FedEx topped Q1 profit and sales forecasts with earnings of $1.45 vs. $1.40 Street views and revenue growth of 2.6% on sales of $10.79B vs. $10.68B. Looking ahead and FedEx’s forecast is a bit gloomier.
For Q2 management at FedEx issued an earnings range of $1.30 - $1.45 compared to estimates of $1.68, while it expects profits of $6.20 - $6.60 vs. $7.06 consensus forecasts for fiscal year 2013. Intraday, FDX is off 2.25% after gapping below Monday’s inside candle test of its 50 and 200SMA for support. In sympathy, chief competitor UPS (UPS) is off 1.0%.
Reports from the Far East continue to promote a bit of investor caution. A territory dispute between Japan and China has forced the temporary closing of some factories due to concerns of potentially violent protests. Separately, minutes from the Reserve Bank of Australia revealed policymakers concern over weakening growth with its key trading partner. And Chinese housing data showed nearly 80% of its cities saw year-over-year price declines.
Stateside, Tuesday’s standalone economic report on builder confidence beat forecasts but failed to produce any real market support. The NAHB for September came in at 40.0 compared to estimates of 38.0. Intraday and unsympathetic to today’s data, the SPDR S&P Homebuilders ETF (XHB) is being deconstructed by 1.25%, but barely noticeable on the weekly view as shares set YTD gains in excess of 50% just this past Friday.
Across the other pond, Spain’s 10-Yr has seen its yields work their way back towards 6% as traders cautiously mull the Debt PIIGS constituent’s hesitancy to request a full bailout from authorities. And Germany’s ZEW survey served up varied evidence with a loss of economic momentum expected by polled businesses, while at the same time, an embedded sentiment component managed to top forecasts.
In those intertwined markets of influence, the EUR/USD is seeing some profit-taking of 0.40% following its technically overbought run. Germany (EWG), Spain (EWP) and Italy (EWI) are under similar, unsurprising pressure as well with losses of 1.0% to 3.0%. On the other hand, the Global X FTSE Greece 20 ETF (GREK) is up 3.0% as bulls look to confirm a technically-leading, three-day pullback pattern.
The US Oil Fund (USO) is mostly flat on the session but comes after Monday’s second half price drilling of 3% on unconfirmed, but well-heeded rumors of officials reaching into the country’s strategic petroleum reserves.
Technically, the price action in USO sets up a weekly bear flag pivot high back below its briefly eclipsed 200SMA. As for Tuesday’s storyline, continued Middle East tensions are being countered by investor worry of weakening global growth which prompted last week’s QE3 initiative, rather than the potential benefits of the program.
The iShares Bull ETF (AAPL) is continuing to support the broader market as it trades on par and flat with the broad-based SP-500 after striking all-time-highs intraday. Assisting in the bid, is Jeffries analyst Peter Misek who holds a $900 price target on shares. This morning on CNBC’s Squawk on the Street Mr. Misek stated he anticipates big numbers this week as the company releases its iPhone 5 sales figures and estimates the company’s still-unannounced iPad Mini will be a “blockbuster.”
The 20-Yr (TLT) is narrowly higher by 0.20% but testing critical prior weekly uptrend resistance and its 200SMA. And the VIX ($VIX) is putting together a second session of minor, mean-reverting price action with the Fear Gauge near 14.5% compared to Friday’s overly-complacent lows near 13.5%.
Finally and in those sometimes accurate heat-seeking option markets, Gilead Sciences (GILD) is topping the most unusual activity list for SP-500 constituents. The biotech is up about 1.80% to record highs and up about 12% over the past three sessions. Contract volume of 16,500 is roughly 225% above normal. Implieds are trading near 52-week lows to about the bottom quartile of the period's range.
Gildead calls are finding favor over puts by about 2.5-to-1.0 with the most concentrated activity in the deep September 62.5 call and October 70 call. One large print of 2,300 accounting for virtually all of the volume in-the-money contract lines up with a smaller print of 1,209. Combined, the activity could represent a roll 'out and up' and an effective means to locking in profits while maintaining upside exposure.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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