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TFC Commodity Trading Forum

Wall Street's Friday Lunch Options

Chris Tyler, Optionetics.com
January 7, 2011

Mixed and suspect jobs data and prepared but sobering economic testimony from Bernanke find bulls employing modest profit-taking Friday. As of 11:05 ET the SP-500 (SPY) is off -0.25% in more of the same difficult to handle tickers but continued less “VIX’ing” behavior.

In yet another confirmation of at-odds ADP and government head hunters, Friday’s LBS nonfarm payrolls data was wildly off-the-mark with its below forecast gains when compared to Wednesday’s surprise record-breaking jobs data by the former private agency.

By the numbers, December nonfarm payrolls rose by 103,000 compared to estimates of 150,000, though November’s figure was upwardly revised from 39,000 to 71,000.

Similarly, private job creation of 113,000 fell short of views of 162,000 while November delivered a partial save with its improved count of 29,000 to 79,000. On the other hand but being held at arm’s length, the unemployment rate saw a surprise drop of -0.3% from 9.7% to 9.4% and its lowest levels in more than a year.

Wall Street has been rather quick to take the data with a lump of salt as expiring unemployment benefits, seasonality and some dour BernankeSpeak stating more normalized unemployment levels aren't likely for four to five more years based on the current pace of the US economic recovery.

In sector news, the broad-based financial (XLF) sector is seeing intraday profit-taking leadership following a Supreme Court decision to uphold a ruling against money center bankers Wells Fargo (WFC) and US Bancorp (USB) vis-à-vis the treatment of mortgage securitization.

The ruling by the Massachusetts’ Supreme Judicial Court voided foreclosures on two homes, which could tip the scales of justice in favor of some former homeowners whose properties have been foreclosed on.

In sympathy, Dow components JP Morgan (JPM) and BofA (BAC) are leading that market average lower with losses of -2.20% and -3.15% respectively. For its part, shares of BAC are reversing at key weekly chart resistance and back below 200SMA resistance after a swift one month run of more than 30%.

For the bulls, shares of homebuilder KB Homes (KBH) are up nearly 3.50% after it posted a surprise profit of $0.23 per share compared to estimates of ($0.17). Higher average selling prices helped this morning’s improved results despite a decline in the number of delivered homes for the quarter.

For the bears, steel outfit Schnitzer (SCHN) is off a slightly heavy -7.50% after falling short of forecasts and shares having helped themselves to an outsized 50% price jump in the final quarter of 2010.

Transcribed in the ledger for its first quarter, Schnitzer saw actual profits of $0.64 per share compared to Street views of $0.71 on mostly in-line sales growth of 71.2% on revenues of $675.1M.

In those often intertwined markets of influence, the FTSE/Xinhua China 25 Index (FXI) is off -1.00% and looking to confirm Thursday’s bearish signal against 50SMA resistance.

Continued pressure for the likes of the FXI comes despite a severe corrective move during the final two months of 2010 and counter to the untiring trader talk of China leading the global economy out of its doldrums.

The EUR/USD is off -0.40% and striking fresh marginal four month lows from a tight weekly consolidation which has failed to hold its 200SMA. At the same time, a bit of safer haven buying has filtered into the sometimes risk averse US Dollar (UUP) as trader talk of its demise due to deficits, inflation and the likes have been all but muted.

And for a second straight day COMEX Gold (GLD) and silver (SLV) are squarely caught in the middle between safe haven buying and the prospects of a more closely-held dollar. Intraday, GLD and SLV are for all intents and purposes trading flat with mixed fractional performances of 0.15% and -0.30% respectively.

Finally and in those sometimes accurate heat-seeking option markets, bears are shopping for some not-so-super value in grocer SuperValu (SVU). Concentrated put activity in the January 7.5 and February 8.0 and 7.0 puts is largely responsible for a lopsided 8.75 Put/Call reading on put volume of more than 40,000.

Shares of SVU are off about -4.50% to 8.80 and looking to confirm a gap below its 50SMA from a bear flag pattern on the daily. Implied volatility is jumping across-the-board to three plus month highs and strongly suggests bears making a move in the name.

Most active is the January 7.5 put with volume surpassing 22,000 contracts. However, with shares still some 14% above the strike and priced at $0.23; with existing open interest of 27,000 its likely some bears are dropping January inventory in order to give themselves more time to be smart shoppers.

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