Disappointing global PMI data manufactures a bit more profit-taking Thursday. As of 12:45 ET the SP-500 (SPY) is off 0.25% as a prior program of asset purchases continues to be digested for a fourth straight session.
Mixed contraction readings and incidentally, concerned trader reaction to PMI reports from China, France and Eurozone have served as a technical reason for a ‘less’ simple three-day pullback to manufacture itself into a four-day pattern which thus far has successfully tested and held the 10SMA in the SP-500.
By the numbers, China’s HSBC Flash PMI moved higher by just two-tenths of a point in September to 47.8 for an eleventh straight month of contraction. The latest reading underscores both broader economic weakness and shrinking demand in China and its global trading partners.
Across the other pond, Germany managed to beat PMI forecasts, but with two out of three surveyed in the broader Eurozone region seeing further economic deterioration, traders have reacted defensively rather than optimistically approach the ‘monetary stimulus well’ for anticipated support.
In focus this morning, the Eurozone Services PMI saw a weak contraction reading of 45.9. Month-over-month, the figure amounts to a minor dip from July’s 46.3; however, it also marks a three year low and missed estimates of 47.4.
The region’s number two economy, France, fared even worse. The country saw its services component fall to 46.1 versus forecasts of 49.4. At the same time, manufacturing slumped to 42.6 versus consensus views of 46.4.
Stateside, weekly claims also proved a beast of burden for bulls as a headcount for unemployment filings came in at 382,000 compared to forecasts of 375,000. Separately, leading indicators narrowly missed views with a drop of 0.1% for August versus estimates calling for a flat reading.
One report showing stronger results, albeit still representative of tightening conditions, was the Philly Fed Survey. The regional manufacturing data rose to -1.9 in September from -7.1 in August and topped estimates of -4.0.
In those intertwined markets of influence, the EUR/USD is off 0.40% and turned a potentially simple four-day pullback backed by 10SMA support into a more menacing and unconfirmed five-day’er that’s broken the key short-term tend-line.
On the Eurozone ETF side, Spain (EWP) and Italy (EWI) are equally misbehaving with losses of about 1.75% to 2.75% and a forfeiture of their respective 10SMAs. Germany (EWG) is off 0.80% and testing its 10SMA. Greece (GREK) is off a similar amount but enjoying ‘relative strength’ trader mythology as it establishes a tight, lateral six-day consolidation above its 10SMA.
Despite Thursday’s rekindled economic doom and gloom and yesterday’s supply pledge by Saudi Arabia, the US Oil Fund (USO) is up 0.20%. However, with shares drilled lower by about 9% in the prior three sessions and a major failure to hold both its 200 and 50SMAs, the bid looks tied to profit-taking by bears and less-than-convincing technical bargain-hunting by bulls.
Elsewhere, the iShares Bull ETF (AAPL) is off a leading 0.60% while losing its $700 price tag. Today’s relative pressure is largely unsurprising given Wednesday marked an all-time-closing high and failure in recent days to move in ‘iTune’ with the broader averages.
The 20-Yr (TLT) is up narrowly by 0.25% but breaking further above its 200SMA in an increasingly less simple, light volume counter-trend rally per the bear camp. And the VIX ($VIX) is up about 3.5% near 14.35%.
Following Wednesday’s testing of its August and five year lows and still positioned below its 10SMA, the Fear Gauge continues to stress a committed bull. Given the bearish seasonality and market prices just off four year highs, were less dyed-in-the-wool about that tenacity and more inclined to whip out our hedgehog membership card which stresses not looking a gift horse in the mouth.
On the corporate confessional side, shares of Bed Bath & Beyond (BBBY) are off 8.15% after the home-wares retailer reported a profit miss of $0.04, in-line sales growth of 12.1% and issued bearish-bracketing Q3 EPS guidance of $0.99 - $1.04 versus forecasts of $1.03 per share.
Intraday BBBY is trading near its expected move pricing based on yesterday’s surrounding money option implieds. A more detailed look at that phenomenon can be read in Wednesday’s “The Expected Move” column, currently on the Optionetics homepage.
Specialty communications chip manufacturer Skyworks (SWKS) is finding some bearish turnover with shares off 17% intraday. With deep ties to Apple products, this morning’s pre-announced upside guidance of Q4 EPS per share of $0.52 compared to a prior forecast of $0.50 - $0.51 and Street views of $0.51, has been priced as a disappointing gift to say the least.
In sympathy, other suppliers such as Qualcomm (QCOM), Broadcom (BRM), Triquint (TQNT) and Cirrus Logic (CRUS) are under relative pressure with losses of about 1.2% to 3.5%.
And in those sometimes accurate heat-seeking option markets, Oracle (ORCL) is trading about six times its daily average on 200,000 contracts split rather evenly between its calls and puts in front of tonight’s earnings release.
With shares at 32.44 and squarely at the 32.50 strike, the expected move using the pure-play September contract which expires tomorrow night, estimates a 68% chance ORCL will stay within roughly 4.75% of current levels through expiration. That said, we’ll soon have the opportunity to see just how prescient ‘some’ traders are, as it takes two to consummate a trade and even more ways to trade the same position.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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