Chris Tyler, Optionetics.com
March 30, 2011
Technical support, M&A headlines, a pleasant enough jobs preview and quarterly window dressing result in an opening offensive tip-off and little else. As of 11:15 ET the SP-500 (SPY) is up 0.55% as bulls’ suit up in a “confirmed uptrend” within a now much less maddening game; which nonetheless is nearing the end of regulation play.
A steal by the bulls Tuesday, vastly reduced short-term overbought conditions after two days of price consolidation in the SP-500 and some optimistic back peddling from Investor’s Business Daily willing to declare a retroactive FTD i.e. follow-through day of sorts have been improved upon with a bit of help from fresh corporate and economic findings Wednesday.
In corporate news the big story and market support of the day is Canadian upstart Valeant Pharma’s (VRX) surprise unsolicited bid for US drug manufacturer Cephalon (CEPH). The premium deal worth roughly $5.7B values CEPH at about $73 a share and a premium of nearly 24% compared to Tuesday’s close.
For their part, investors in VRX are seeing value as its shares are reacting well to the proposed merger by tacking on nearly 10% and hitting its best levels in about eight years. And for bulls maybe sneaking into Tuesday’s 50SMA breakout in CEPH, it’s first in 2011; they’re obviously more than a bit pleased with gains of 28% and shares at 75.25; particularly if they partook in Tuesday’s unusually strong call activity.
In those sometimes accurate heat-seeking option markets, CEPH saw more than 700% its daily contract rake with calls outpacing put activity by a margin of 2.50-to-1.0 yesterday. Most active and definitely looking to be the work of a softer delta and maybe informed money bull stepping up to the plate; 3,800 well out-of-the money CEPH August 70 calls traded with a last sale of $0.60 per contact and compared to open interest of just 2,600. With shares at 75.35, the now rather wide and illiquid call market is nonetheless enjoying massive gains in excess of $6.50 or nearly 1,100%.
On the economic side, a pair of reports offering their typical “loose preview” of what’s on tap for Friday’s March BLS report has helped quell some fears on the American jobs front. March ADP data showed private payrolls came in mostly in-line with views in showing an increase of 201,000 versus forecasts of 210,000 while prior results for February were trimmed slightly from 217,000 to 208,000.
Separately, the Challenger Job Cuts survey showed a rather swift and bullish decline of planned layoffs at US firms despite additional downsizing in the public sector. For March, employers announced pink slips of 41,528. The figure is 18% less than February’s 50,700 and down 39% from the year ago period. For 2011’s first quarter, cuts totaling 130,749 mark the lowest downsizing rate since 1995 according to Reuters.
Elsewhere and instrumental to Wednesday’s bulls, an aggravating triple threat of sovereign debt risk, ongoing socio / economic fallout in Japan and continued strife within the Middle East and North Africa have seen their headline count drop markedly and allowed traders to focus a bit more optimistically on dressing up the end of quarter.
In other faraway lands, the now once again hibernating bear camp is still trying to gain turf at lower levels in recently hot and now very much “not”, graphic chips outfit NVIDIA (NVDA). Shares are atop the Percentage Losers board of the Naz’ 100 with losses of -3.50% as part of an unorthodox bearish consolidation wedged between the 50 and 200SMAs.
Today’s pressure in NVDA shares has been promoted by fresh word that Motorola Mobility Hldgs (MMI) awaited “Bionic” phone which uses NVIDIA’s Tegra 2 chipset platform, will be delayed.
Finally and in those often but not always intertwined markets of influence, the 20-Year (TLT), black gold (USO) and US Dollar (UUP) are all showing similar weak fractional gains within various consolidation patterns worthy of bullish and bearish spins heavily dependent on the day in question.
Per this technician’s sometimes skewed look at the tea leaves, TLT and USO look poised for higher prices. However, being an option strategist first and foremost and seeing how both products enjoy strong liquidity and single point strike listings; tailor-made and softer delta positioning with the likes of verticals, diagonals, condors or calendars, make much more “sense and cents” to pay attention too than often fickle charts.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
