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TFC Commodity Trading Forum

Wall Street's Wednesday Lunch Options

Chris Tyler, Optionetics.com
February 23, 2011

Still intact spigot concerns and attached geopolitical turmoil keep would-be bargain hunters at bay Wednesday. As of 11:05 ET the SP-500 (SPY) is off -0.15% in a bit more business as unusual for bulls of late.

Once more, U.S. and global market’s man of the hour is none other than Khadafy; or maybe Quadaffy or Gaddafi, depending on which financial rag investors have pored over. With the dictator vowing not to step down and still threatening to suspend Libya’s oil supplies, the largest in the African continent, it’s also still about bulls not pressing their luck.

Given nearly two years and more than a double in the market from the March 2009 bottom and a technical run that’s capped itself off with a celebrated rally of nearly six months in duration; business as usual has seen its own spigot turned to the off position regarding Tuesday’s still to be determined buying opportunity.

In those often intertwined markets of influence, the US Oil Fund (USO) is tacking on nearly 3% on top of yesterday’s 5.86% gain on supply disruption concerns. Technically speaking, Wednesday’s bid has confirmed an “unorthodox” up-channel by breaking above prior highs set in January. Upper channel resistance and prior April 2010 highs are sandwiched from 41 – 42.

Uncle Sam’s Greenback (UUP) continues to suggest “it ain’t what it used to be” amongst traders seeking safer havens during troubled and uncertain times. Intraday, the UUP is off -0.65% and continuing to craft a handle within a bearish inverse cup formation.

On the other hand, metals such as silver (SLV) and gold (GLD) continue to be a bit more precious. The Yellow Metal is up 1.15% and nearing a test of key triple top or umm, pivot, resistance. And for its part, silver remains the new gilded age champion amongst bulls with its gains of nearly 2% and additional all-time-highs notched for market historians to crow over.

And following Tuesday’s substantial percentage surge of 26.60% from about 16.50% to 20.80%, the CBOE Volatility Index ($VIX) is displaying a rare of late, two day homage to fear in the marketplace. Intraday, the “complacency-turned-fear” gauge is up 3.70% to 21.50% and about 25% above its 10SMA.

Readings above 15% are typically indicative of short-term extremes for the mean-reverting instrument. Additionally, with a test of the 200SMA and November highs nearby at 22.65% - 23.75%; faster money bulls looking to buy a pullback rather than a full-blown correction, should keep one eye on the VIX for confirmation.

On the earnings front, global engineering outfit Fluor (FLR) is down a sharp -9.50% after easily gapping below that sometimes fickle uptrend and 50SMA support.

Causing FLR’s technical infrastructure breakdown, the company missed views by $0.10 on earnings of $0.65, fell short of revenue estimates by -6.8% on sales of $5.27B and reaffirmed its bracketing but weak FY11 EPS range of $3.00 - $3.40 versus estimates of $3.32 per share.

Dow component and computing giant Hewlett Packard (HPQ) has also failed to “add up” for bulls. Shares of HPQ are off a heady and technically-persuasive -10.00% after it issued below-views guidance for its second quarter.

By the numbers, HP beat by $0.07 on earnings of $1.36 per share and saw weaker-than-expected revenue growth of 3.6% on sales of $32.3B compared to forecasts of $32.95B for its first quarter. Looking forward, management expects Q2 EPS of $1.19 - $1.21 vs. Street views of $1.25 per share and sales of $31.4B - $31.6B versus consensus forecasts of $32.59B.

Wednesday’s price shellacking of shares has the stock breaking below up-channel and Golden Cross supports and looks to put the bears in control. Well, unless traders lean on Fibonacci and other evidence meant to keep the tea leaves opaque enough to afford an auction market.

In those sometimes accurate heat-seeking option markets, bulls and bears seem to agree on that point. With volume running about 900% above normal on more than 170,000 contracts; calls are outpacing put activity by a mild 1.24-to-1.00 and mostly in keeping with a typical day’s put/call reading of 0.76.

At the same time, a potential volatility crush to premium has been a less-than-confident affair as buyers of protective strategies still appear to willing to play an influential role in pricing. ATM March premium has dropped by about five points to 25% IV but remains above statistical range values of 15% - 21% of the past month and more immediate readings of 16.7% - 18.4% as of last night’s close.

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site