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TFC Commodity Trading Forum

Wall Street's Tuesday Lunch Options

Chris Tyler, Optionetics.com
January 11, 2011

It’s all about “Earnings, Earnings, Earnings!!” in more than one way; actually, three to be exact for Tuesday's market bulls. As of 11:05 ET the SP-500 (SPY) is up 0.50% in day six of celebrating and sometimes “sell-e-brating” the New Year.

With Monday’s opening sovereign debt woes seemingly nipped in the bud or at least tucked away out of headline view, bulls in need of a fresh and more motivating storyline awoke to the likes of “Wall Street Higher after Solid Start to Earnings Season.” With ‘only’ 497 or so SP-500 stocks remaining, 29 of 30 Dow components and a thousand plus other tickers with four and five letters still on tap; “Yes” earnings are favoring of the bull in more than one way.

In the spotlight, aluminum giant and Dow component Alcoa (AA) heavyweight unofficially kicked off the Q4 earnings season on the right foot with its two cent profit beat on earnings of $0.21 per share, modest revenue growth of 4.0% and a bit less so with management’s rather mixed and ho-hum outlook, all things considered.

As much, Bulls in Alcoa shares have left the cheerleading to some analysts such as UBS’ target lift to $18 and instead focused on modest profit-taking more in tune with RBC’s downgrade to “Underperform.” Intraday, shares of AA are off -1.15% but still nestled within a short six day high level base some 60% removed from its late August / September lows.

On other idyllic fronts of interest, homebuilder Lennar (LEN) constructed a $0.14 cent profit beat on earnings of $0.17 per share largely due to administrative and manufacturing cost cutting. Profits were off from the year ago’s $0.19 and revenues declined by -5.9% but the outfit managed to easily beat sales $759.8M with its actual rake of $860.1M in a continued very difficult housing market that’s still tripping up the industry.

Against the current backdrop, Lennar’s management went on to optimistically state it expects 2011 will be another profitable year for the company. Intraday, bulls in LEN shares appear appreciative with the stock up 7.75% and hitting its best levels in eight months.

Finally and also aiding and abetting Tuesday’s optimistic headline writers, Naz’ 100 constituent and “For Profit Educator” (ain’t we all?) Apollo Group (APOL) managed to give bulls more than just a big sigh of relief last night with its earnings results.

Apollo announced profits of $1.63 per share compared to estimates of $1.35, slightly better-than-expected revenues and no unwanted surprises from management on the heels of Monday’s painful “wrist slapping” by peer Strayer Education (STRA) and its dire sales warning. Intraday, shares of APOL are up 10.50% and right back in the pack with bulls and bears of the past month after being sent packing.

In those sometimes intertwined markets of influence, the US Dollar (UUP) is flat on the session and consolidating gains for a second session in a potential handle in-the-making within its bullish “W” base.

Silver (SLV) is attracting a relative strength bid on the session as it trades higher by nearly 2%. Technically, bulls look to be confirming a low to its multiday pullback which found support above the 50SMA. On the other and less optimistic hand, COMEX Gold (GLD) is barely up with its lagging gain of 0.25%.

Shares of GLD are up against 50SMA consolidation resistance after establishing a bevy of distribution days within a potentially bearish-looking triple topping pattern. Lastly and as to complicate matters even more, the 20-Yr (TLT) is off -1.05% and the US Oil Fund (USO) is up 1.55%; both of which appear to hint at better days ahead, inflation or maybe both.

Finally and in those sometimes accurate heat-seeking option markets, traders have been active in up-and-comer niche cloud computing play Rackspace (RAX) this morning. Shares are up 5.50% and about 3% past its ideal breakout pivot from a five-week long flat base pattern on strong volume.

On the day, RAX options have traded a bit more than 6,000 contracts versus its daily take of about 4,000 on rather evenly matched call and put volume. Implieds are slightly bid up front but well within existing trading range values but looking slightly rich compared to statistical movements of the past two plus months.

In lieu of the pricing and despite decent activity still not indicative of great liquidity, bulls looking to participate will probably need to stick to outrights or verticals but be willing to give up a little edge getting in and possibly in exiting as well.

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