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TFC Commodity Trading Forum

Wall Street's Tuesday Lunch Options

Chris Tyler, Optionetics.com
February 8, 2011

A possibly less surprising rate hike by China’s central bank finds bulls mostly digesting their “Happy Meal” of late. As of 11:10 ET the SP-500 (SPY) is up 0.10% as a still uncorrected 21-week cycle finds bulls ordering from the value menu to keep market prices delicious-looking.

For bulls unwilling or hesitant to improve upon gains of 3.33% over the past six sessions, China’s 25 bps rate hike is Tuesday’s top story. The country’s central bank raised rates for a second time in just over a month’s time in order to combat inflation.

The latest in a series of monetary moves by officials to contain inflation has impacted select commodity and green shoots related groups but continues to lose its authority over bulls in the broader market. With each passing upward nudge, investors more confidently discount the tightening of money flows within the global economy’s most influential growth story.

In those often intertwined markets of influence, trader reaction to today’s news has been varied. The US Oil Fund (USO) is showing some less-than-surprising strength in the face of the news. Intraday gains of 0.50% come on the heels of a back-to-back, hard-hitting loss of -3.75% within its now slightly more suspect uptrend.

Separately, the US Dollar (UUP) has come under a bit of pressure with its loss of -0.40% and suggesting risk appetite in the overall market is still confident of itself. Technically, the action follows three sessions of gains from what bulls hope is a higher-low double bottom; while bears root for an inverse cup-with-handle.

And for its part, COMEX Gold (GLD) is up 1.25%. Combined forces of a weaker Greenback and gold’s store of value or inflation hedge characteristics, are likely at work today as bulls break slightly above a pattern bear flag which had been set against angular price resistance of the last 3.5 months.

On the corporate side and in earnings news, ADR and Netherlands-based steel giant Arcelor Mittal (MT) is up nearly 4% within a loose and gap-filled base after enticing investors with its outlook. For its fourth quarter the company issued a slight profit beat, and mostly in-line sales growth of 18.7%.

Looking forward though, management at Arcelor doled out a firm outlook for 2011 by announcing an approximate 10% increase in iron ore production and its intentions to boost its mining business CapEx spending to $1.4B.

Finally, Dow component McDonald’s (MCD) is serving up a McBear Filet with strong come-from-behind gains of 3.00% as bulls look to nibble on the technically downtrodden of late. News on the day and prompting strong demand from the value menu, the fast food goliath produced global sales of 5.3% which easily bested expectations due to on-the-mend European demand which saw a jump of 7.0%.

Technically speaking, Tuesday’s gain has shares testing its 50SMA from below. However, the potential resistance does follow a nice-sized 11% correction of eight weeks in length as shares reverse higher within its existing weekly uptrend after finding support from the 200SMA.

In those sometimes accurate heat-seeking option markets and most active by a fairly decent margin, both the soon-to-expire now ATM February 75 and March 75 calls are seeing similar nibbling of about 3,800 contracts apiece. Personally, for any of those investors that might be rolling out the call after a nice-sized or umm, super-sized gain; I can’t blame some adjusting of that “Happy Meal.”

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