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TFC Commodity Trading Forum

Wall Street's Tuesday Lunch Options

Chris Tyler, Optionetics.com
March 15, 2011

Growing fallout concerns in Japan forces Monday’s technical-based Code Red signal to scorch directional bulls. As of 10:40 ET the SP-500 (SPY) is off -1.80% but rebounding as March Madness goes full swing this week.

A closing break of last week’s lows and failure to hold 50SMA and 1300 support on heavier volume was enough for some bulls to likely throw in the towel Monday. For the many others left holding on, Tuesday’s vicious opening gap of nearly -3.00% in the SP-500 saw recent YTD gains of 7.00% vanish completely.

Tuesday’s financial tsunami which saw the Nikkei plunge more than -10% on the heels of yesterday’s -6% route, has been triggered by investors collective move out of “more abundant”, riskier assets due to the ever-growing threat of nuclear contamination impacting the world’s third largest economy and its people.

In those intertwined markets of notice, nuclear-related companies (CCJ, USU, URRE, UEC) and indices (URA) are all lower on the session with losses ranging from a hefty -7% to even more volatile -17%.

Bulls have apparently found a bit of value in a couple related names. Monday’s lows have contained Tuesday’s secondary fallout in both the MV Nuclear Energy ETF (NLR) and energy heavy construction outfit Shaw Group (SHAW). Intraday, shares of NLR are off -5.50%, while SHAW has been more well-contained with its losses of just -3.33%.

The historic safe haven of gold (GLD) has proven much less precious during Tuesday’s panic. The raised specter of less demand stemming from Japan has trumped any potential support the commodity may have garnered due to continued civil strife / political unrest in the Middle East. Intraday, shares of GLD are off -1.90%.

Separately, the sometimes new global currency of black gold (USO) is also under pressure by -2.30% on similar demand concerns outstripping the possibility of supply shortages. With today’s losses, USO has undermined a simple five-day pullback pattern and established a much more complex type of bull.

In officially-sanctioned economic news and largely dismissed by investors focused with eyes across both ponds, the Empire Survey beat estimates of 17.0 with a reading of 17.5 and improving upon the prior month’s 15.4. And February import prices rose by 1.4% following January’s increase of 1.3% but axing oil saw an increase of just 0.3% versus the prior month’s 0.8% gainer.

In sector news, solar energy (TAN, FSLR, SPWRA, LDK and TSL) continues to find investor fancy (or fantasy) on the belief the nuclear option will come under increased scrutiny and regulation, while “clean”, non-hazardous types of power will gain traction as more than just an alternative energy.

Finally and in those sometimes accurate heat-seeking option markets, investor panic is self evident in the CBOE Volatility Index ($VIX). The “on again” fear gauge is up 11% at 23.50% with session highs of 25.72% establishing a six month high.

Highs in the VIX have yet to reach the well-watched 30% level associated with past bouts of excessive fear. However, an intraday differential of nearly 25% between the cash and 10SMA is the type which historically; proves pleasing for fast money bulls looking to play a potential bounce.

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