Midday Action: May 6


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Midday Action: May 6

Posted By: USCoralSea
Date: Wednesday, 7 May 2008, at 4:54 a.m.

Chris Tyler, Optionetics.com
May 6, 2008
An early slap on the “Fannie” no longer hurts, but investors continue to find other financial anchors and record crude prices a drag. As of 10:45 ET the SPYder” (SPY) and “Cubes” (QQQQ) are off .35% to .52% on average volume.
Fannie Mae (FNM), Tuesday’s top headline slap to the collective fannies of bulls has recovered intraday, up .42 at 28.73. The nation’s largest government-sponsored mortgage facilitator missed a prepped for loss of 81 cents with an actual loss of $2.57 per share or $2.2B in its first quarter. The company did announce a ten cent cut in its quarterly dividend to $.25, as well as its plans to raise $6B in capital through various capital market offerings. While the combined news sent shares reeling and headline writers scrambling early on this morning, increased optimism over the meaning of it all and a “buy the news” response seems to best describe what Wall & Main are up to after getting slapped in the Fannie.
Elsewhere, financials (XLF) are still underwater courtesy of a couple of not-so-fresh and fresh stories and weighing on the broader market. Fed Chief Bernanke spoke last night. The speech mostly reiterated concerns related to the housing market with emphasis on increased foreclosures. That being said, with Fannie’s report out this morning, the testimony has garnered a bit more attention than would otherwise be the case.
A bit more fresh and actually remaining as financial anchors, reports out of Legg Mason (LM) and UBS (UBS) are still firmly in the red. Shares of LM are off nearly 5% after the company posted its first-ever quarterly loss since going public. Separately, European banker UBS is off 1.75% after a wider-than-expected loss related to $19B in credit-related writedowns. The company did announce that it is getting a handle on the situation. The banker managed to reduce its subprime exposure by 50% since the third quarter of last year. Unfortunately, the maneuver hasn’t been so timely as to prevent the layoff of approximately 5,500.
Black gold and the US Oil fund (USO) have raced higher yet again for a third-straight session for further fresh all-time-highs. Aside from ‘da patch profiting and some strength in the energy complex (XLE, OIH), the existing theme of concern over prices at the pump remain a bearish albatross for the broader market. Nigerian supply concerns remain one prop to support prices. Additionally, fresh comments by Goldman of a “Super Spike” to the $150 - $200 range over the next six months to two years apparently has a few bulls looking to jumpstart that potential longer-term reality with a well-overbought short-term situation. Intraday, the USO is up nearly 2% and bringing its three day total gains to 9%.
Related but for the equity bulls, within still-constructive behavior for the broader market, alternative energy solar plays are finding a uniform bid in Tuesday’s session. Spearheaded by current growth standout First Solar (FSLR) and recent IPO Renesola (SOL), names such as JA Solar (JASO), LDK Solar (LDK), SunPower (SPWR), Suntech Power (STP) and Yingli Green Energy (YGE) are finding relative strength from extended pullback patterns courtesy of our daily chart tea leaves.
And finally, in options news the May 26 calls in Cisco (CSCO) are seeing some action in front of the network communications giant’s earnings report this evening. A block print of 8,600 contracts, more than 20,600 changing hands and premiums “through the roof”, well near 50% IV versus roughly 30% SV, suggest more than a few anxious bulls preparing for a happy outcome. For their part, analysts seem a bit more tempered. Consensus views are for earnings of .36 per share according to Reuters. Analysts at UBS though note they actually expect a penny beat based on its Service Provider and SFA set top box products. However, due to macro concerns they also expect management to guide slightly below views for its July quarter and offer out 7.3% yearly growth.
Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum

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