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TFC Commodity Trading Forum

Wall Street's Monday Lunch Options

Chris Tyler, Optionetics.com
March 28, 2011

Still important but somewhat deadened crises from across both ponds and light, supportive corporate reports distract bulls from the business of profit-taking in overbought conditions. As of 10:45 ET the SP-500 (SPY) is up 0.45% on more of the same lighter volume, overbought but “under pressure” conditions in continued March Madness action.

The business of time healing all wounds, even the still infected variety, continues to find investors confidently shrugging off potential risks from across-both-ponds. Those well-treaded threats of course amount to last week’s menacing sovereign debt fears with Debt PIIGS constituent Portugal in focus, Japan and it’s still fragile social and economic state, as well as increased but improving geopolitical and UN led, rebel-in-tow military escalations in Libya and Middle Eastern hot spots.

Monday’s bulls are also enjoying the benefit of some fresh corporate headline support and intermediate technical positioning, albeit stretched and of the complacent variety; to further the SP-500’s overbought gains of nearly 5% over the past several sessions. In what amounts to a slightly dimmed spotlight, “in play” specialized semi outfit Verigy (VRGY) announced it reached a definitive agreement with overseas-based and thinly-traded ADR Advantest (ATE) for $15 a share or roughly $1.1B.

Shares of VRGY closed Friday at $14.18 after gapping up about 10% on related and improved board room sound bites rumors last week and further improving upon an early December 40% plus jump in shares tied to Advantest’s initial marriage proposal.

Other “Merger Monday” reports include thinly-traded small capper Rural/Metro (RURL). Shares of the ambulatory / medical response outfit are up a healthy, heart-pounding 36% at $17.10 after PE group Warburg Pincus announced its offer of $17.25 in cash for the company.

And some sympathy M&A chatter of a fresh competing bid for NYSE Euronext (NYX) has helped shares of NYX reclaim the 50SMA but in mostly unimpressive fashion with tight gains of 1.8%. The exchange operator has been a regular fixture in the rumor mill (NDAQ, ICE, CME) in recent weeks following merger plans with Deutsche Boerse back in mid February.

Elsewhere on the corporate side, brokers are doing their part Monday to feed the bull. A raise to “Outperform” by boutique broker Baird & Co. for a slug of telecom names including influential Dow heavyweights AT&T (T) and Verizon (VZ) is acting as a market support.

For its part, shares of AT&T are up 1.65% and breaking above two-months of “W” mid-pivot resistance in the right side of a weekly base. Analysts from Baird are positive on shares, as well as the group, following its acquisition last week of T-Mobile and a merger which they feel will “stabilize the hyper-competitive industry” according to Reuters.

Other broker raises of notice this morning include Goldman’s upgrade to “Buy” for Finnish-based mobile phone outfit Nokia (NOK) on its growth prospects. Shares are up 5.25% and looking to confirm a deep weekly double bottom shaped base.

Separately, copper and gold mining giant Freeport McMoran (FCX) is up 1.40% after Morgan Stanley beefed up its rating on shares to “Overweight” from “Equal Weight.” Technically, today’s highs are attempting to improve upon a slight two day price consolidation above 50SMA support which was secured during last week’s downtrend line breakout.

And finally, the Mad Money’s James Cramer hit the “Buy, Buy, Buy!!” button on yoga-centric retailer Lululemon (LULU) in Friday’s after hours citing the company as a “junior and secular growth story immune to economic pressures” and having more room to run higher due to light and currently flat-footed analyst coverage.

Intraday, shares of LULU are up 5.25% and looking to confirm a month’s stretch of rolling above the 50SMA floor and a prior base which acted as support. If shares take out recent all-time-highs roughly 3.5% from current levels of $82.50, Investor’s Business Daily will likely point to a successful base-on-base, square box pattern breakout as the reason for bulls rising to the occasion.

In those sometimes accurate heat-seeking or maybe just hot-and-sweaty option markets, bulls suiting up today for today’s session of stretch exercises have joined hands to trade more than 6,500 contracts compared to an average day’s workout of 3,600.

Most active, are the now deep in-the-money April 75 calls with a bit more 1,700 contracts trading compared to open interest of 3,100. My guess is those bulls have taken the initiative to do something other than just “Buy, Buy, Buy!” with the likes of a fresh buy-write or are already breathing easier with a roll "up" or some other strategic option such as a partial exit; while other bulls are breathing hot and heavy and still anxious for more.

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