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TFC Commodity Trading Forum

Wall Street's Friday Lunch Options

Chris Tyler, Optionetics.com
March 25, 2011

Sympathetic economic and corporate headlines, as well as some now supportive technicals allow excessively confident bulls to continue their offensive press of recent first-half, March Madness game playing. As of 11:05 ET the SP-500 (SPY) is up 0.65% on more of the same lighter volume but less confounding gains in Friday’s session.

Things are a bit less confusing as the “why’s” behind Friday’s bid as investors close upon the final chapter of March’s sometimes maddening market action. For one, more than a few former bears have likely, albeit grudgingly, had to cover positions with key resistance levels such as 1300 and 50SMA in the SP-500 falling to the wayside.

Additionally and fueling Friday’s move, unlike Wednesday and Thursday’s impressive wall of worry climbing act on a slew of bearish headline overtures, the bulls actually have some fresh supportive ammo with which to work a bid into the broader averages. Also helping, the business of time healing all wounds, even the still infected variety; has found investors willing to shrug off sovereign debt, nuclear and economic, as well as geopolitical / oil concerns.

As for those fresh and tasty morsels being enjoyed by Friday's bulls, on the economic side Q4 GDP rose by a stronger-than-expected 3.1%. The data bested views of 2.9%, a prior second stab by Wall Street’s soothsayers of 2.8%, while also bettering the third quarter’s 2.6% growth.

Attached, a deflator reading matched estimates of 0.4% while staying on par with Q3’s increase. And intraday, bulls went out for a bathroom break during a mostly in-line and rather flat reading of 67.5 in sentiment data from the U of Michigan.

In earnings news, “two out of three” beats with extra icing on the cake by market heavyweights has been sufficient support for bulls playing the odds. In the spotlight, Oracle (ORCL), the world’s largest enterprise software concern, is up 3.25% after striking fresh intermediate highs following its all-around strong report.

By the numbers, Oracle managed a top and bottom-line beat on better than expected sales growth of 36.9% and profits of $0.54 per share versus estimates of $0.50. Additionally and instrumental, management beefed up its Q4 outlook above consensus forecasts while also raising its quarterly dividend by 20%.

Separately, IT consulting /services giant Accenture (ACN) is displaying a similar and pleasing technical picture on even stronger gains of nearly 6.00%. The company beat the Street, also raised its outlook above views and surprised shareholders with its own semi-annual dividend of $0.45 per share.

And for the bears, well maybe, perennial runner-up smart phone manufacturer RIM (RIMM) is off but maybe not altogether out of the picture, with its broker assisted (Deutsche, Caris downgrades) loss of -11.25%.

RIM issued a mixed report for its fourth quarter and reduced its outlook below Street estimates but insisted it’s “in excellent position to benefit from the continuing convergence within the mobile communications and computing markets.”

“Convergence, anyone?” Technically, RIMM is testing a key support zone comprised of its 200SMA, a prior Golden Cross inflection point and its 50% retracement level from its September lows. In those sometimes accurate heat-seeking option markets, the battle is a heated one too as bears and bulls taking sides with either worried brokers and weak outlooks or more optimistically-expressed technicals; are evenly-matched on equal and elevated call and put volume of 135,000 apiece.

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