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TFC Commodity Trading Forum

Wall Street's Thursday Lunch Options

Chris Tyler, Optionetics.com
March 24, 2011

On a second day of mostly worrisome sounding reports and unresolved problems from across both ponds, bulls continue their optimistic and forward press while chipping away at the bear’s defense. As of 11:05 ET the SP-500 (SPY) is up 0.65% with 1300 reclaimed and confidence brimming around 50SMA resistance as bulls look for a victory in Day 6 of “the count.”

In Thursday’s first half, bulls have continued to successfully challenge the bears, who despite the home court technical and headline advantage, appear to be willing to give up the game. Two major wild cards for investors are the CBOE Volatility Index ($VIX) and confirmation for the market’s rally off recent lows.

The VIX is a major concern presently as the “fear gauge” is anything but with the cash stretched 19% below its 10SMA and strongly suggestive of too much short-term complacency. Many intermediate investors will also be watching for whether a full-fledged and high-powered, follow through day or FTD can confirm today’s bull is of the more lasting, longer-term variety.

Failing to leave an impression on bulls donning their climbing gear; the day’s top story is bailout speculation for Debt PIIGS constituent Portugal. The EU may be forced to intervene after the country’s parliament failed to put together an austerity package.

Investors are also shaking off a credit downgrade of 30 Spanish banks from ratings agency Moody’s, but one which many feel was well telegraphed and discounted.

In those often intertwined markets of influence, Thursday’s bulls continue to turn a blind eye to rising oil prices. The commodity remains bid on persistent supply concerns tied to the war-torn Middle East region. Intraday, the US Oil Fund (USO) is up 0.75% and challenging its early March highs.

On the officially-sanctioned economic front, the news of the day isn’t really any better either. February durable goods saw an unexpected drop of -0.9% compared to consensus forecasts calling for an increase of 1.1%.

Separately, weekly claims data came in just shy of estimates of 384,000 with a reading of 382,000. And across-the-pond, a not-too-jolly Bank of England trimmed its growth forecast for the country from 2.1% to 1.7%.

In corporate news and atop the Percentage Leaders board, shares of Red Hat (RHT) are up 17.50% and scoring victory for bulls residing above 200SMA support. The application software outfit posted a top and bottom-line beat for its fourth quarter.

Management at Red Hat further impressed investors with its above views profit and sales forecast for both Q1 and its FY12, as well as having help from analysts at Baird who apparently like what they heard as well. The broker raised shares to “Outperform” from “Neutral” and slapped a $50 target price on the stock.

Consumer big box electronics giant Best Buy (BBY) is looking like less of a good one to Thursday’s appreciative out-the-gate bulls. Shares have reversed hard from an opening bid and down nearly -3.00% as investors re-evaluate a mixed report which included below-views FY12 guidance and an apparent less-than-favorable intraday conference call.

Shares of flash memory manufacturer Micron (MU) are up 7.00% after it issued an earnings beat of four cents on profits of $0.07 per share, bested sales forecasts with growth of 15.1% and won some slight analyst favor from outfits Nomura and Macquarie with their reluctant “Neutral” raises.

Elsewhere, Dow components BofA (BAC) and Wal-Mart are moving bulls and bears in very different ways today. The former is off -1.60% and breaching yesterday’s hammer / double bottom decision off 200SMA support.

Following Wednesday’s bullish attempt to brush off disappointing dividend news, shares of BAC are under pressure courtesy of FBR Capital. The firm cut shares to “Market Perform” and lowered its price target to $15.

Analysts expect BofA will require additional capital reserves to remain compliant with Basel III and also see potential lawsuit issues and still unclear liability concerns. For its part, Wal-Mart (WMT) is seeing investors shop it up in shares and right through key 200SMA resistance.

The world’s largest discount retailer actually received a downgrade this morning to “Market Perform” from Blair Co. However, with bulls playing well above the 200SMA in the broader market and around 50SMA resistance, it appears investors have collectively decided “market perform” means there’s some catching up to do in the stock. Intraday, WMT is up 2.25% and kissing its 200SMA from below.

And finally, the bull is alive and well in the rare earth mineral complex, led by Molycorp (MCP). Shares of MCP are up 8.50% and triggering a “W” mid pivot breakout within the 2.5 month long base despite a report this morning suggesting China plans to tax the group.

In sympathy, Rare Elements (REE), a dynamic collar candidate of this strategist’s weekly Market Barometer report is also displaying relative and technical strength on the session. Intraday, shares are up nearly 5.00% and look to be confirming Tuesday’s high-powered downtrend line breakout as shares push through 50SMA resistance.

In those sometimes accurate heat-seeking option markets, both MCP and REE are seeing well-above normal participation from bulls and bears. Implieds are also jumping near two month highs in both products as players recognize the possibility for momentum based on past incidences of ultra high volatility. Of the two, REE maintains the healthier across-the-board liquidity for traders willing to give the bull a chance; while keeping a “collar” on it, at the same time.

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