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TFC Commodity Trading Forum

Wall Street's Tuesday Lunch Options

Chris Tyler, Optionetics.com
March 22, 2011

Following Monday’s offensive jump shot to strong gains, bulls are playing a contained game of March Madness. As of 11:05 ET the SP-500 (SPY) is off -0.25% in a second but less rousing day of tight inside trade as the bears enjoy home field advantage below 1300 and 50SMA resistance.

With nary a merger, quiet out of Japan but not exactly yet a “no news is good news” situation and no fresh developments following yesterday’s “fight and flight” response by investors to the UN’s military operations in Libya; bulls are showing a bit of constructive resolve Tuesday.

Until reports from across either pond catalyze investors, it’s all about an aged stateside bull having undergone some corrective surgery and looking to reclaim its turf above 1300 and 50SMA resistance. For growth traders, all eyes will be focused on that type move occuring on a high-powered price thrust known as a follow-through day sometime in the next couple sessions.

In those often intertwined markets of influence, total gains of about 3.50% in the SP-500 from its extremely oversold rally attempt lows and Tuesday’s price stabilization have effectively imbued investors to all but shake off last week’s fearful panic in the CBOE Volatility Index ($VIX).

Intraday, the sentiment gauge is off about -3.00% and testing the fairly neutral 20% level. The latest pressure amounts to a four session drop of -35% from its historically extreme highs of 31% hit Wednesday and puts the cash about -12.50% below its 10SMA.

Differentials in the VIX relative to its 10SMA of 15% or more are typically strong signals of investor sentiment reaching a short-term extreme and market prices prone to reversing. While today’s 12.50% falls a bit shy of that signal, given the technical setup in the broader market; protective long premium strategies on one’s own terms of while the crowd looks optimistically the other way, is very much apparent.

Elsewhere, COMEX Gold (GLD), the 20-Year (TLT) and US Dollar (UUP) are quiet in sympathy with the broader market’s technical pause. However, Black Gold and the US Oil Fund (USO) are displaying relative strength. Shares of USO are up 1.40% as it reasserts its bullish trend by re-crossing its up-channel line on an engulfing candle. Recent lows formed with the 50SMA acting as support following a corrective move from a first breach of the angular resistance line.

In earnings news, drugstore giant Walgreen’s (WAG) is giving shareholders a headache with losses of nearly -6.0% while breaking technically both lateral and moving average price supports. The company matched both top and bottom-line views with 8.9% sales growth on revenues of $18.5B, profits of $0.80 per share for its second quarter and remained mostly closed mouth about Q3.

Separately, shares of high seas pleasure outfitter Carnival (CCL) are sailing back into bear territory this morning after it issued below views Q2 and FY11 profit guidance of $0.20 - $0.24 per share versus estimates of $0.33 and $2.55 - $2.65 vs. $2.77. Intraday, CCL is off -4.0% and breaking marginally below the bullish lifesaver of 200SMA support.

Finally and in those sometimes accurate heat-seeking option markets, bulls appear to be busy shoppers in sympathy with a move of about 4.50% in consumer wholesaler BJ’s (BJ). Volume on the session is running about six times normal with nearly 10,000 calls changing hands compared to put activity of about 3,000.

Driving investors is word Leonard Green & Partners entered into a confidentiality agreement with the company, which back in early February announced it was “exploring its strategic options.” Most active, the slightly out-of-the money 50 call across the front three calendar months accounts for roughly 75% of today’s “strategic options” with limited risk bulls looking for further confirmation in the days and weeks ahead.

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