Chris Tyler, Optionetics.com
March 23, 2011

Some modest and unwanted “trend persistence” and a not needed distribution of sorts at BofA put bulls on the defensive Wednesday. As of 11:15 ET the SP-500 (SPY) is off -0.45% in a third even less rousing session of March Madness still dominated by the bears defensive line of 1300 and 50SMA resistance.

“Trend persistence”, the kind not appreciated by bulls unwilling to climb walls of worry has re-emerged Wednesday. Working against reinvigorated investor optimism which helped the broader market rebound about 3.50% from last Wednesday’s lows; weak new home sales data, continued violence in the Middle East and Libya, Japan’s still unstable nuclear situation, a bit of rekindled sovereign debt concerns and a “motion denied” from the Fed regarding a dividend increase allowance for BofA (BAC).

On the economic side, intraday data for February new home sales hit a record low while prices dropped to their weakest levels since 2003. By the numbers, today’s data saw a figure of 250,000 annualized units compared to estimates of 288,000 and well-below January’s upwardly-revised 301,000.

Across-both-ponds, the situation involving the Fukushima nuclear facility has traders growing more concerned yet again as the quick fix is still M.I.A. Continued civil unrest and attached military operations in Libya and other lands harboring black gold supplies hasn't helped matters either; well at least for those scrounging for headline assistance. A few grumbles have also been heard this morning regarding the ability of Debt PIIGS to repay following an amended austerity package by constituent Portugal and its parliament.

On the corporate side, BofA’s (BAC) proposal to give shareholders a little extra something in the form of an increased dividend come 2011’s second half has backfired. Fed officials still refereeing such perks denied the company its request and told BofA’s top brass to revise its proposal. Intraday, BAC is off -2.50% while testing key double bottom and 200SMA support.

In those often intertwined markets of influence, bulls have continued to develop the US Oil Fund’s (USO) uptrend into a more persistent one. Shares of USO are up 0.85% and continuing to build upon a potentially steeper up-channel which found recent support off the 50SMA. Today’s bid which finds prices encroaching upon recent highs comes despite a larger-than-expected build in weekly inventories as traders continue to favor supply issues tied to the our oil rich friends and enemies.

Elsewhere, business software outfit Adobe (ADBE) is providing bears some relative leadership. Shares of the Naz’ 100 component are off -4.55% after the company a penny beat and in-line sales but issued below views Q2 guidance due to its ties to Japan which represent its second largest market.

In those sometimes accurate heat-seeking option markets, ADBE puts are trading heavily with concentrated efforts in the slightly out-of-the-money 30 strike across a couple different calendar months. With shares near 31, implieds having pulled in towards fair value and ADBE stock looking technically prone to lower prices but still wedged between 50 and 200SMA support; spread traders could be using long multi-month calendars as a way to position with softer deltas and looking to make time work in their favor in case shares do that more common zig and zag pattern rather than the straight line, homerun thingamajiggy.

And in the CBOE Volatility Index ($VIX) the often called fear gauge has made a somewhat surprising push into extreme complacency on the part of investors. The index is off -5.00% intraday and striking 19%. Wednesday’s pressure in the VIX has put the differential relative to its 10SMA in excess of -17% while also marking a fast and severe 40% drop in five sessions from panic six month and historically extreme highs of 31%. As a mean-reverting instrument, “stretches” beyond 15% are prone to investors quickly rethinking their commitments; which given the market's own rebound, finds protection looking quite attractively-priced.

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