Chris Tyler, Optionetics.com
March 17, 2011
Some containing of threats from Japan and vastly oversold conditions assist bulls in a bit of gap-based bargain-hunting. As of 11:10 ET the SP-500 (SPY) is up 1.60% near session highs as the underdogs take the ball from the bears in today’s game of March Madness.
Thursday’s primary driver is finally some good news out of Japan. This morning Tokyo Electric Power Co. was able to connect a power cable to its crippled Fukushima nuclear plant. The action sets up the possibility of workers now being able to cool the cores of the facility’s reactors.
In conjunction with technical threats to investors comprised of elevated levels of fear mongering and extreme historic and short-term panic levels in the CBOE Volatility Index ($VIX); bulls have been allowed to go about their business of bargain-hunting some -7.00%, or umm, -5.50% from recent non-corrected highs.
Assisting bulls to secure an even stronger out-the-gate expression of optimism, some second fiddle, of late, stateside reports have also come to the rescue. On the corporate side, shares of economic bellwether FedEx (FDX) are up nearly 5% and jumping back above its 200SMA after issuing a surprisingly strong above-views profit outlook of $1.66 - $1.83 vs. $1.65 for its fourth quarter.
An upgrade to Apple (AAPL), the SP-500’s second largest constituent, is certainly helping boost the bulls’ morale as well. Shares are up 2.50% after Credit Suisse slapped an “Outperform” rating on the stock following its tumble Wednesday of nearly -4.50% on systemic investor risk aversion and a downgrade by JMP.
On the economic front, weekly claims matched estimates of 385,000 and were down from the week ago’s unwanted shocker of 410,000. Total CPI data for February came in slightly hotter with an increase of 0.5% compared to estimates of 0.4%. Core prices increased by a more modest 0.2% but above views of 0.1% and overall the report has enjoyed some cooling down from Wednesday’s more elevated PPI warning.
A report on industrial production which saw a decline of -0.1% disappointed compared to forecasts of 0.6% and leading indicators for February came in shy of estimates with an increase of 0.8% versus views of 1.0%. On the other more pleasant hand, bulls were pleased to learn and show their respect intraday for the Philly Fed Index.
The regional manufacturing gauge showed a surprise surge to 43.4 and its best levels in 25 years and blowing past estimates of 28.1 and the prior month’s 35.9 reading.
In those often intertwined markets of notice, the price action is how one might expect. The strongest beneficiary of this week’s risk aversion, the treasury market with an eye on the liquid 20-Year (TLT), is off -0.85%. Uncle Rodney’s “No Respect” Greenback (UUP) is off a similar -0.85% but hitting fresh three year lows by a marginal amount from an inverse cup-with-handle pattern.
COMEX Gold (GLD) is up by a very narrow and underperforming 0.35% and trader’s global currency of choice, black gold (USO), is up an outperforming 2.65%. The US Oil Fund’s bid is two-fold with support from today’s broader Japan-backed market relief, while also enjoying the supply driver of continued and ever-escalating civil strife in Bahrain and Libya.
Finally and in those sometimes accurate heat-seeking option markets, miner Freeport McMoran (FCX) is up 4.25% and seeing above average call side option interest of about 2.5-to-1.0 compared to its neutral put/call daily average near 1.0. We strongly suspect some of today's on-the-surface enthusiasm is dampened by the process of traders simply rolling out contracts. Friday is expiration for the well-traded March 52.5 call which by itself has seen volume of nearly 15,000 contracts vs. open interest of 20,000.
Looking closer at the stock and FCX has established a rare feat (these days) of testing its highest levels in two week highs on what appears to be an overly sympathetic market reaction with no direct catalysts to speak of. In taking the technical view of shares challenging downtrend and lateral price resistance lines below its 50SMA, I’m not sure today’s wave of rolling bulls has a leg to stand on; well, unless they’re less obvious sellers and helping themselves to that other protective and lesser traded contract known as a put.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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