Chris Tyler, Optionetics.com
February 22, 2011

A well-oiled bull meets up with some long absent profit-taking on escalating unrest in the Middle East where it hurts most. As of 11:15 ET the SP-500 (SPY) is off -1.00% on a bit of business as unusual—and a tenacious trend finally showing a technical crack or two.

As US traders tried to enjoy a quiet stateside holiday, growing and violent protests in the Middle East spearheaded by Libya, Africa’s largest oil supplier threatening to turn off its spigots, has resulted in a bout of broad-based but still mild profit-taking.

In those often intertwined markets of influence, the US Oil Fund (USO) has surged higher by nearly 6% on the possibility of Libya’s Quadaffy actually moving forward and disrupting the black gold supply chain; and one so integral to the functioning of global and still economically-fragile markets.

Technically, session highs of 39.05 challenged levels reached a couple weeks ago when turmoil in the Middle East centered on initial protests in Egypt, which eventually saw that country’s leader resign.

Oil Bulls, a group not presently aligned with the interests of broader market bulls will be looking to see if the unorthodox daily chart up-channel can maintain support above the 50SMA and break through key resistance to fresh highs.

Flight-to-safety action in physical metals on increased respect for potential inflation and geopolitical concerns continues to be in play during Tuesday’s first half. COMEX Gold (GLD) is up 0.95% but still contained by its prior topping pattern. The metal also remains less precious than silver (SLV) which leads with its 1.25% gainer to fresh all-time-highs.

The iShares 20-Year (TLT) is up 1.30% as traders seek asylum in safer risk-free Uncle Sammy backed instruments. At the same time though, the US Dollar (UUP) is finding a bit less respect as it trades marginally higher by just 0.22% and continues to shape a bearish inverse cup-with-handle pattern.

In other sanctioned economic news, an intraday release on US consumer confidence which came in above estimates and hit a three year high, managed to draw in the “buy the dip” crowd. February data improved to 70.4 compared to the prior reading of 64.8 and above estimates calling for a level of 67.0.

On the corporate side, Wal-Mart (WMT), the world’s largest discount retailer, is off -3.25% after it issued its profit beat but what amounted to as an overall mixed to disappointing report. For its fourth quarter the company beat by three cents with earnings of $1.34 per share on a narrow sales miss of 2.4% growth and revenues of $116.36B versus estimates of $117.0B.

Looking forward, Wal-Mart issued a below views Q1 EPS range of $0.91 - $0.96 versus forecasts of $0.96 and bracketing full year 2012 guidance of $4.35 - $4.50 compared to consensus estimates of $4.43. Technically, shares have found intraday support off the 200SMA and have rallied to form a bullish hammer reversal candle.

Fellow Dow constituent Home Depot (HD) began the session constructively for bulls after delivering all-around strong results but trader reaction has subsequently caved to profit-taking. Intraday, shares of HD are off -0.75% from fresh intermediate highs and roughly 3% above a weekly cup breakout from 37.13. 




By the numbers, Home Depot announced a five cent profit beat on earnings of $0.36 per share for its fourth quarter, managed a slight 3.8% sales beat of $15.13B versus estimates of $14.81B, beefed up its FY12 EPS views and raised its quarterly dividend by 6% to $0.25. 




Finally, in those sometimes accurate heat-seeking option markets, the VIX ($VIX) “complacency gauge” is showing some rare signs of fear in the market place. Following Friday’s “We’re on vacation Monday!” show of confidence in the CBOE Volatility Index, bulls are finally paying some respect for global market risks which increasingly don’t wait for US traders to come back from the likes of Presidents Day shopping sprees before making trouble.

Intraday, the VIX is up 19% at 19.55% and technically stretched in a short-term overbought condition in relation to its 10SMA, which stands more than 15% below current levels. For bulls inclined to buy Tuesday’s high level market pullback; the VIX reading does act as some confirmation for buying the dip. However, in order to not look like a dip, it’s likely best to use an ultra-tight exit strategy given the magnitude of the rally and a tenacious trend’s still unfelt but typically more hostile repercussions.

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