Midday Action: July 2
July 2, 2009
Follow-through weakness and one more big reason to see "red chutes" instead of green shoots finds bulls under pressure. As of 11:05 ET the S&P500 (SPY) is discarding some patriotic fund raising efforts from Wednesday by 2.10%.
It turns out the ADP and Challenger reports were on the right track. Unfortunately for market bulls feeding too heavily on green shoots, today's worse and still very weak monthly jobs data has forced investors to schnitzel more than a little in closing out the holiday-abbreviated week.
Spearheading for a less optimistic bull, an upward revision to last month's pleasant but still weak nonfarm payrolls data and June's large and woeful miss of 467K layoffs (est. 365K) have grounded any potential market fireworks in Thursday's first half.
Net, net the monthly job losses for the second quarter registered a hefty 431K. As well, unemployment came in at 9.50%. While the figure bested views by one-tenth of a percent, it remains at 28 year highs.
Separately and emphasizing a very weak labor market, weekly claims matched views but remain elevated at 614K. Not helping matters, last week's data was also bumped up.
Continuing claims fell ever slightly to 6.70M, however the prior reading was raised to 6.76M. Further, levels are still just removed from a recent record breaking figure of 6.83M. Hence, the unfortunate situation of those unemployed unable to find work persists.
One patch in the market growing some green shoots are the Aggies (MOO), with particular emphasis on potash producers. Led by market heavyweight Potash (POT), names such as Intrepid (IPI), Mosaic (MOS) and Agrium (AGU) are sporting percentage gains in Friday's first half following a Bloomberg report of Russia's two largest potash miners looking to increase prices by as much as 20%.
Technically, today's leadership from POT finds shares up about 5% near 95.50. For the bovine-inclined, the action is attempting to confirm a support entry within its "loose" seven month long uptrend. With both the 50 and 200-Day MA's properly aligned and recent lows testing the 50% retracement level of the existing trend-some food for thought might be considered.
On the option front, bulls appear to be feeding most heavily on POT's OTM July 100 Call. Nearly 6,000 contracts on "bid" but mostly fair theoretically priced premium have traded. Versus shares near 95.50, a price of $2.75 has implieds clocking in around 59%.
In order to see a benchmark double before a likely fleetingly fast two week life span, the POT July 100 Call will require an additional 11% from the underlying. With a finger on the pulse of the market, the observation is a spread such as vertical, remains a better-suited vehicle for positioning in an environment that remains unforgiving to both overly aggressive bulls and bears.
Finally, it turns out yesterday's discussed allowance for a slight technical breach in the SPY's now well-developed and bearish left shoulder-was a good call. "Now" of course, many of Tuesday's and Wednesday's bull are likely willing to view the still existing uptrend in a more bearish capacity and recognize the existence of the previously described Head & Shoulders top.
In saying that, it's that same group that was screaming loudly for 850 in the S&P500 less than two weeks ago and right before we rallied a handful of percentage points. Net, net and with the market also testing that sometimes key 900 level, I'm more inclined to sell a put spread than feed into today's bearish bull within a "Wild Bore" of a market. Have a great holiday.
Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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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.
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