September is up to its old tricks as bulls fail to find ‘the energy’ to follow-through technically. As of 11:05 ET the SP-500 (SPY) is shedding 0.60%, narrowly below the key 1400 level, prior pattern support and off to an ominous start to a historically sketchy September.
Across-the-pond, catalysts this morning are mixed this morning but finding investors opting to lighten up and position more cautiously. For Tuesday's quieted and now technically troubled bulls, trader talk in front of Thursday’s ECB rate decision is suggesting President Draghi may look to purchase bonds with maturities up to three years in an effort to further stabilize Europe's credit markets.
For the bears, credit ratings agency Moody’s cut its outlook on the EU to “Negative” from “Stable.” The reduction looks to put pressure on the region’s influential AAA constituents Germany, France, the UK and Netherlands. And for the hedge hogs, revised PMI data was varied with both Spain and the UK topping views, while the Eurozone’s largest economies, Germany and France, fell short of estimates, as did Italy.
Stateside, the ISM Index for August came in shy of forecasts and remained in contraction territory with a reading of 49.6 compared to July’s 49.8 and estimates calling for a modest lift to the key 50 level. Separately, construction spending also sported a weaker-than-expected result. For July, spending dipped 0.9% from June and well below Street estimates of an increase of 0.5%.
In those intertwined markets of influence, action is as varied as today's reports. The EUR/USD is off 0.45% and reversing Monday’s fresh closing high within its existing uptrend of several weeks. Eurozone ETFs Spain (EWP), Italy (EWI) and Greece (GREK) are up 0.50% to 1.35%. At the same time, both Germany (EWG) and France (EWQ) are showing modest pressure of 0.25% to 0.50%.
The US Oil Fund (USO) is off 1.25%. Bulls polled by CNBC cite Tuesday’s weak economic reports and easing production concerns tied to Isaac with facilities slowly going back on-line and no signs of major damage announced. Technically, shares of USO remain caught below key daily and weekly chart moving average resistance and prior price support near a 50% retracement from its March highs to June Lows.
And the VIX ($VIX) is up 6.5% to 18.6%. Intraday highs of nearly 19% put the sentiment gauge in a testing position of one-month highs with a 10SMA differential of 14% and within one point of its 200SMA and the well-watched 20% level.
On the corporate front, energy stocks (XLE), with special attention paid to the coal complex are leading to the downside following cuts from “Buy” to “Hold” by boutique Dahlman Rose on Walter Energy (WLT), Peabody (BTU) and Alpha Natural (ANR). For its part, the MV Coal ETF (KOL) is off 3% and striking its lowest levels since the summer of 2009.
Intraday, shares of WLT, BTU and ANR are off 3.5% to 6%. In sympathy, Arch Coal (ACI) and CONSOL Energy (CNX) are off about 5% apiece with the latter also announcing plans to cut production at one of its Virginia sites.
“Merger Tuesday” headlines are of the second or third tier variety. Natural gas fracking play Heckmann (HEK) is up 18.5% to 3.18 after announcing a merger agreement with privately-held ND-based Power Fuels in a cash/stock and debt assumption deal expected to be “highly accretive” to Heckmann’s bottom-line and should close in the fourth quarter.
Also, thinly-traded micro capper NTS Reality Holdings (NTR) is up 52% at 4.80 after its CEO announced his plans for taking the company private for $5.25.
Finally and in those sometimes accurate heat-seeking option markets, Netflix (NFLX) is seeing a six-fold increase in its options and has the name atop the unusual volume ranking for SP-500 constituents. Volume of 77,000 compares to its daily average of 11,000 with puts favored by a 1.35-to-1.0 margin over calls.
With premiums firming but still in the lower quartile of their yearly range, today’s action appears to be driven by traders seeking protection as shares trade off by about 7.0% after testing its critical August lows. The potentially bearish action comes on the heels of Amazon’s (AMZN) latest move to cut into the online streaming video entertainment market with an agreement with EPIX.
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.
