Chris Tyler, Optionetics.com
April 4, 2011

Favorable but fragile sentiment, until it’s not, and a quiet Monday on most fronts finds bulls maintaining their offensive position. As of 11:10 ET the SP-500 (SPY) is showing fractional inside gains of 0.10% as bulls’ press the boards for a game winning slam dunk against bears defending a double top.

All is quiet on the western front but a bit of M&A news involving two of investors’ favorite themes, China and metals, is helping support the influential commodities / materials (XLB, FCX, GDX, COPX, SLW) arena. In the spotlight, China’s Minmetals Resources announced a $6.5B bid for Equinox Minerals. In sympathy, XLB is up 0.80% and showing intraday relative strength in a now very familiar V-shaped base nearing a retest of its February intermediate highs.

Separately, Colorado-based rare earth minerals and momentum flavor ticker Molycorp (MCP) is up nearly 11%. Shares are breaking out above a well-constructed “W” or double bottom base and hitting fresh highs on word of its majority stake in Europe-based rare-earth processing outfit AS Silmet for $89.0M.

In sympathy, the Market Vectors Rare Earth Strategic Metals ETF (REMX) is up 2.50% and scoring similar daily chart applause, while peers Rare Elements (REE) and Qiao Xing Universal Resources (XING) are up 5% and 10% respectively but showing a bit more disdain on the price charts from bulls.

Deal news from across the other pond is also assisting bulls in deferring any would be profit-taking in favor of reconnecting with February’s prior highs. French-based Vivendi announced a 44% stake in French telecom play SFR which it acquired from Vodafone (VOD) for roughly $11.3B.

On the economic front, a no hitter stateside has a few eyeballs focused on mixed data from overseas. Britain’s PMI Construction data showed a matching 56.4 for March compared to February’s 56.5 and Eurozone producer prices climbed 0.8% for February following January’s 1.3% increase.

China’s PMI registered a reading of 60.2 for March. Up sharply from February’s 44.1, the data stands to be a double edged sword for bulls trying to weigh the benefits of growth versus continued monetary tightening by China’s central bank and chirping of late from the US and Europe of imminent hikes to guard against inflation.

In sector news, the semis (SMH) are once again, mostly under divergent technical pressure. Shares of NVIDIA (NVDA) are showing the steepest declines on the day amongst large cap issues with losses of -3.25%.

Investors are reacting sympathetically (and then some) to a “Neutral” reiteration from UBS and price target cut from $22 to $20. The broker cited “near-term weakness in European PC retail and a slower than expected Intel Sandy Bridge ramp” according to Briefing.com.

“Apple” semi-play Cirrus Logic (CRUS) is off -3.65% and testing its lows in a bearish flag pattern set beneath 50SMA resistance. The mother ship of “i-Gadgets” (AAPL) and the market’s second largest heavyweight is off -1.25% and continuing to confirm a slanted and bearish triple top back below its 50SMA.

And the world’s largest semi, Intel (INTC), is off a fairly stiff -1.50% and continuing to follow-through on Friday’s flag breakdown beneath 200SMA resistance in deeper into bear territory and possibly related to its Sandy Bridge ramp for bulls and bears in need of written permission to act out.

Finally and also for the underdog bears, atop the Percentage Losers board on the Naz’ 100, shares of networking / cloud play Netapp (NTAP) are off -3.85% near 45.40 on no fresh news catalysts of notice.

Technically, the very recent growth favorite has improved upon its still in progress base building (for bears) by breaking below flag support which formed beneath the 200SMA after a quick counter-trend bounce from lows of 44.50. In those sometimes accurate heat-seeking option markets, trading is active with 20,000 contracts up more than 250% its daily average and worthy of vaulting the name into the No. 4 spot for unusual option volume in the SP-500.

Order flow in NTAP options is mixed but uniformly bid in the first couple contract months. In April, traders are concentrating their efforts on the put side and in keeping with the immediate technical deterioration.

In the calls, efforts are centered on the May and June near-the-money 47 call with volume of 3,200 and 2,000 respectively. Open interest in both months has been exceeded so some fresh opening does appear to be involved but I’d gander a good portion of the volume, without sniffing out prints, could represent bulls rolling out and giving themselves more time for greener pastures to play out.

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