Chris Tyler, Optionetics.com
February 24, 2011
Still apparent but slightly less forceful spigot concerns and attached geopolitical turmoil continue to keep would-be bargain hunters at bay Thursday despite a fearful short-term extreme in the VIX. As of 11:05 ET the SP-500 (SPY) is off -0.10% and possibly hinting at a new "business as usual" for bulls.
The headline spotlight has dimmed slightly on Libya but the still intact threat of oil supplies being disrupted has traders remaining focused on inflation fears and the prospects of economic growth getting derailed rather than an extreme short-term oversold condition in the broader averages.
In those often intertwined markets of influence, the US Dollar (UUP) continues to suggest “it ain’t what it used to be” as far as safe havens go. Intraday, UUP is off -0.35% and establishing a bearish inverse cup-with-handle signal.
Metals such as silver (SLV) and gold (GLD) are mixed after sizable price runs. For its part, GLD is up 0.25% in an inside candle nestled below prior triple top resistance. Shares of SLV are seeing profit-taking of -1.25% following its more substantial percentage rally to fresh all-time-highs.
Following a jump of about 30% in the VIX ($VIX) from around 16.50% to a close of 22.13%; the quickly turned “fear gauge” has pulled in by about -4.00% to 21.25%. The price action isn’t entirely surprising as the past two sessions managed to generate a short-term overbought condition relative to its 10SMA which also tested 200SMA and November resistance levels.
On the economic front, in contrast to Wednesday’s better-than-expected existing home sales, January purchases for new homes fell by a much sharper-than-forecast -12.6% with an annualized rate of 284,000 compared to estimates of 310,000.
Analysts cited weakness in today’s data as the result of a drop in activity from potential home buyers on the West Coast. Bulls might take some solace in the fact the drop comes on the heels of last month’s surprisingly strong spike of 15.7%.
In the premarket, weekly claims dropped to a pleasant sounding 391,000 relative to estimates of 410,000 and representing a week-over-week decline of -22,000. Separately, some investors are trying to lament over a mixed report on durable goods.
Headline January orders matched Street views of 2.7% while the prior month’s reading was upwardly revised by 1.9% to reflect a smaller decline of -0.4%.
Axing the volatile transportation component, orders fell unexpectedly by -3.6% compared to forecasts calling for an increase of 0.6%. However, there too prior data saw an upward boost of 2.2% to 3.0% and which may dampen some of the pooh-poohing over headline fodder such as “Largest Decline in Two Years!”
The economic spigot also released weekly oil inventories data intraday. Today’s results reflected a slightly lesser build than economists polled by other analysts had come to expect. Consensus forecasts expectant of an increase of 1.10M barrels weren’t too far removed from an actual build of 822,000.
Intraday, an already bid US Oil Fund (USO) has shown minimal reaction to the data but with three day gains in excess of 10.00% and shares of USO near up-channel resistance; a well-oiled ticker looks technically poised for a breather.
On the earnings front, shares of General Motors (GM) are skidding lower by -4.50% and hitting post IPO lows after the company announced mixed results which have found investors deploying air bags. The on-the-mend auto manufacturer missed profit estimates by $0.15 on earnings of $0.31 per share for its fourth quarter.
At the same time, GM did top sales estimates of $33.0B with actual revenues of $36.9B. The company also saw its global deliveries increase 11.5% from the year ago period and expects to see the all-important China market produce sales growth of 10% - 15% next year.
Some high profile retail names are teaching novice bulls and bears a little something about the clearing and purchasing of merchandise versus headline results. Department store operators Kohl’s (KSS) and Target (TGT) issued less-than-spectacular looking results with the former announcing in-line earnings and mixed forecast and the latter simply disappointing relative to estimates.
Despite the reports, both KSS and TGT are up 1.25% to 2.50% as likely properly-discounted tickers has made “drop in order to shop” bargain-hunting a reality. At the same time and across the street, shares of Sears (SHLD) are off -5.00% and in the face of a top and bottom-line beat but one more closely aligned with the technically necessitated returning of merchandise for store credit.
Finally and in those sometimes accurate heat-seeking option markets, Priceline.com (PCLN) is seeing some unusually heavy activity following its earnings release. Shares of PCLN are up about 7% and helping hoist the tech-heavy NASDAQ into a position of relative strength this morning.
The online travel giant posted a top line beat of $0.17 on earnings of $3.26 per share. Sales of $731M narrowly missed views of $734.9M but still showed promising growth of 35.1%.
Management at Priceline also issued upside and above-views earnings and sales guidance for its first quarter which had the effect of influencing a cadre of brokers to lift price targets as high as $525 on shares of the company.
Technically speaking, bulls having already booked passage in PCLN may want to buckle up with some protection as shares reverse intraday off resistance from its upper channel line. Most popular with option traders, has been the option for ultra short-term passage.
Crushed but still well-bid premiums in the weekly February contract (set to expire tomorrow), have seen heavy and fairly equal call and put activity on the session in a bevy of surrounding money strikes well above existing open interest.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
