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TFC Commodity Trading Forum

Wall Street's Thursday Lunch Options

Chris Tyler, Optionetics.com
January 6, 2011

Quickly re-worked worries of an “at risk” consumer, solid gains to kick off 2011 and a looming payrolls report establish a bit of profit-taking Thursday. As of 11:05 ET the SP-500 (SPY) is off -0.35% in more of the same difficult to handle tickers but less “VIX’ing” behavior.

In Thursday’s headline spotlight, muddled and mostly disappointing same-store sales data for December and a slightly higher-than-expected increase in first time jobless claims has bulls indulging in an easy-to-manufacture excuse to take profits.

Retailers (RTH) seeing traders return pricier merchandise for a partial refund (RUE, SHLD, M and JCP) is spearheaded by department store operator Target (TGT) and its decline of -5.75%.

Pressure in Target follows the company’s failure to meet Street views of 3.9% with sales coming in with an increase of just 0.9%. Despite the miss, management continues to see 2% - 4% same-store sales growth for its fourth quarter.

Technically, today’s “price break” in TGT isn’t your garden variety profit-taking type as shares gapped handily below prior April and “high handle” breakout levels, as well as its 50SMA.

Weekly claims data hasn’t helped bullish sentiment either. For the week ended January 1, first time filings for benefits grew to 409,000 compared to estimates of 405,000 and up from the prior week’s two plus year low of 391,000.

Maybe not helping matters, from across-the-pond the FTSE/Xinhua China 25 Index (FXI) is off -1.25% after a nice size run of 5% into its 50SMA which acted as overhead resistance. The reaction comes despite or maybe cautiously because of word China is increasing its Eurozone debt holdings.

As Thursday’s price action in the FXI comes on the heels of a multi-week pullback which began in early November, bulls may want to consider its potential canary in-the-coalmine possibilities for the US equities market, which has run aggressively higher over the same period.

In those often intertwined markets of notice, the US Dollar (UUP) is showing strong confirmation that Wednesday’s somewhat surprising technical revival, is for real. Shares of UUP are up 0.70% and nearing a key mid pivot within its six-week long bullish “W” pattern that’s developed off a lower-low weekly double bottom pattern.

Shares of the US Oil Fund (USO) are getting drilled by -1.85% and testing range supports, nestled above the 50SMA, of the past five weeks. Trader reaction could be in retaliation to possible safe haven strength in the Greenback, slightly weak economic data that’s put the kibosh on Wednesday’s cheerful batch of optimism and happy go-lucky, larger-than-expected weekly inventories drawdown.

At the same time, COMEX Gold (GLD) and silver (SLV) are squarely caught in the middle between safe haven buying and the prospects of a stiffer dollar. Intraday and following a quick two day pullback, both GLD and SLV are for all intents and purposes trading flat and likely causing a few bulls to go buggy.

In other news, shares of Motorola Mobility Hldgs (MMI), one part of the former Motorola, are up 2.45% and hitting fresh and easy-to-manufacture all-time-highs. Word from the Vegas Consumer Electronics Show or “CES” is its Atrix 4G Android smartphone and XOOM table has delighted the early adaptor audience with its product innovation.

In sympathy and for a second straight session displaying relative strength gumption, shares of NASDAQ 100 component NVIDIA (NVDA) are shooting higher by 7.50%. NVDA shares are hitting their best levels since last January within its quickly developed cup-shaped weekly base. The semi outfit’s Tegra 2 dual-core processor is part of the XOOM tablet’s guts.

Likewise, shares of ADR, growth flavor of the day and semiconductor constituent, ARM Holdings PLC (ARMH) are up 2.50% but some 4% - 5% removed from session and fresh decade highs in profit-taking or “sell the news” considerations.

Late Wednesday Microsoft (MSFT) announced ARM would “figure prominently” in its forthcoming mobile computing devices according to Investor’s Business Daily.

Finally and in those sometimes accurate heat-seeking option markets, Time Warner (TWX) is seeing some unusually heavy opening call side interest in its near-the-money February 34 call. Volume of more than 40,000 compared to open interest of just 263 contracts is the likely work of an initiating buyer.

Priced at $0.61 per contract, a buyer would need shares of TWX to rally about 6% over the next 42 calendar days in order to double in price. Theoretically, implieds of 21% are within typical range values, slightly rich theoretically but looking mostly pliable for buyers in the real world.

Technically speaking, shares of TWX look poised to follow-through on its back-to-back breakout accumulation bid from the 32.50 – 33 area within a seven-month long symmetrical “Tyangle” pattern triggered during Tuesday and Wednesday’s session. Intraday, TWX is creeping higher by a very modest 0.25% on above-average volume to 33.25.

Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site