Midday Action: February 2
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February 2, 2010
Following a "manufactured" rally, a few more bulls are at it again in Tuesday's first half. As of 11:00 SP-500 (SPY) is up 0.69% in a bit more counter-trend and still-volatile conditions on slightly more hopeful buying.
Monday's joyful bid, according to market pundits, was all about stronger-than-expected manufacturing data. The data was good in fact, but the excuse does overlook the fact the market was already up in front of the intraday report. Couldn't the bulls have manufactured a better story than using a simple vacuum-like story to pick up the pieces of the market correction of the past two weeks?
In Tuesday's slightly more festive buying, the excuse to buy ever-closer to technical resistance is largely tied to (drum roll, please) a trend started yesterday-a newfound respect for better-than-expected earnings surprises and even those that are slightly less so. What began in earnest with ExxonMobil (XOM) has extrapolated into bids for heavyweights such as economic bellwether UPS (UPS), homebuilder DR Horton (DHI) and commercial engineering conglomerate Emerson.
For its part, UPS delivered a not-so-spectacular run of the mill package of a penny beat with reaffirmed and in-line guidance for FY10. DR Horton on the other hand, did surprise with its substantial profit surprise of $0.56 per share versus estimates calling for a loss of -$0.13 and seeing revenue top views with growth of 23%. Intraday, shares of UPS are up 0.85%, while DHI tacks on a solid 10.50%.
Separately, Emerson (EMR) has delighted by topping earnings forecasts and issuing a beefier outlook above Street views. Intraday, is up about 7.85% and testing recent intermediate highs near 45.75 following a bit of "sell-e-bratory" discounting of the past couple weeks.
On the economic front, similar confirmation of catalysts being used to support the bulls' optimistic attitude adjustment more than anything else is Tuesday's pending home sales data. The latest report on housing showed a 1% increase for December according to the NAR. The result was in-line with estimates but is a vast improvement upon November's -16.4% sales dive.
The reversal suggests some stabilization for the housing market is back, at least when the government is subsidizing buyer interest with its reinstated and expanded homebuyers tax credit program, now set to expire at the end of March.
Elsewhere and in those often intertwined markets of notice, a second session of non-existent bearish economic drivers, such as recent tightening woes out of China, has parlayed itself into some additional bargain-hunting in the commodity-based carry trade.
Highlighting the relationship, the US Dollar (UUP) is aiding with its profit-taking of 0.30% back below the 200-SMA. And leadership for more optimistic bulls coming out of the woodwork from their temporary digs in the barn, COMEX Gold (GLD) is up 1.00%, while Black Gold (USO) is gushing higher by 2.50.
Finally and in the sometimes accurate heat-seeking land of options, CVS (CVS) is seeing some very unusual activity. Nearly 65,000 options have traded, but virtually all the action is the result of the August 36 call and August 30 put with a bit more than 30,000 contracts on each having changed hands on an opening basis.
With implieds mostly unchanged in CVS and current levels of about 29% within their range of the past month, the volume appears linked to either a risk reversal or collar. Further analysis of the two vega neutral / directional strategies will be highlighted later today in the weekly Hot Shots column at Optionetics.
Chris Tyler
Senior Staff Writer & Options Strategist
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