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TFC Commodity Trading Forum

Wall Street's Monday Lunch Options

Chris Tyler, Optionetics.com
March 21, 2011

A kinder, gentler bear greets bulls Monday as March Madness’ stars turn into power forwards and receive decent backup from the corporate second team. As of 11:00 ET the SP-500 (SPY) is up 1.55% and challenging the bears’ defensive lines of 1300 and 50SMA resistance.

Developments over the weekend from across both ever-important ponds have proven a boon for last week’s bargain-hunting bulls which chose to stay the course despite a suspect-looking close Friday. In the spotlight, investors are breathing a bit easier regarding the disaster in Japan after officials announced some progress in cooling Fukushima’s reactors.

And across other bodies of water, UN-led military action in Libya has investors’ full faith and backing. While the same can’t be said for the US Dollar (UUP) which has managed to hit fresh lows this morning, bulls appear optimistic of a quick resolution despite a defiant Khadafy and higher oil prices (USO) suggestive of some supply concerns.

On the corporate side and backing up Monday’s power forward twosome, Dow component AT&T (T) announced plans to purchase Deutsche Telekom’s T-Mobile for $39.0B and in the process, create the largest wireless operator in the US. The deal is expected to be accretive to earnings three years after closing, will increase AT&T’s total wireless sales from $58.5B to $80.0B and increase the company’s infrastructure investment in the US in excess of $8.0B over a seven year period.

Intraday, shares of T are up 1.20% but reversing out-the-gate strength. In sympathy and acting as a solid source of support to the market, shares of Apple (AAPL), the second largest company in the SP-500 and 20% of the NASDAQ’s capitalization, is up a bit more than 2.50%.

Bulls see the AT&T deal as a plus for the “iGadget” giant as T-Mobile’s customer base represents new potential customers as they merge into the AT&T network. And reacting less than favorably to Monday’s merger, shares of wireless peer Sprint (S) are off nearly -16.0% due to the competitive threat and downgrade to “Underperform” at Sanford Bernstein.

Separately, bauble giant Tiffany (TIF) is up 6.25% after issuing its quarterly results and frustrating bears with today’s gap move back above the 50SMA from a flag pattern. For its fourth quarter the company beat by five cents on earnings of $1.44 per share while sales for the period matched estimates of $1.1B.

Looking forward, management did reduce guidance through 2012 but bulls are cheering as the company’s profit forecast remains above consensus views despite having significant exposure to the Japanese market.

And SAP, Europe’s largest software enterprise company, reaffirmed its FY11 business outlook in its 2010 annual report. Stateside bulls in the listed ADR are saying, “Das gut!” with shares up 1.25% and above its 50SMA. In sympathy, shares of US listed Naz’ constituent Oracle (ORCL) and the world’s largest software enterprise outfit, are up 2.80%.

In other news and being brushed under the carpet, February existing home sales dove to a nine year low and fell by a larger -9.6%. The intraday report saw an annualized rate of 4.88M units compared to estimates of 5.15M and a prior level of 5.36M for January.

Finally and embodying the focus on the latest and greatest, investors collective sigh of relief and re-loaded appetite for risk is quite evident in the CBOE Volatility Index ($VIX). The recently re-labeled Fear Gauge has deflated by about -15.0% in today’s session and roughly -33% from last Wednesday’s worrisome extremes above 30%.

With the VIX near 21%, price is about 9% below the 10SMA, filled a bullish price gap and showing a fractional breach of 200SMA support above the key 20% level. As much and with the SP-500 up nearly 4% since its “what were we thinking” lows, protection of one’s portfolio is in much better position once more make those decisions with help from the other guy focused optimistically elsewhere.

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