Chris Tyler, Optionetics.com
April 5, 2011
Two out of three headlines favor the bears’ out-the-gate but bulls are quick to steal the game ball intraday Tuesday. As of 11:10 ET the SP-500 (SPY) is showing a second session of inside candle gains of 0.15% as bulls continue to press the boards for a chance at February’s intermediate highs.
In the quickly dimming spotlight Tuesday is an unexpected but maybe not entirely surprising rate hike of 25bps to China’s 1-Yr. lending and borrowing rate. The fourth such move at tightening by the country’s central bank follows Monday’s much stronger-than-expected PMI data and comes in front of next week’s inflation reports.
Attached fears in the premarket which now appear to be already discounted, found bulls weary that investors favorite growth engine is still overheating and continued tightening measures might derail other globally dependent economies.
Separately and as quickly nipped in the bud, some technical “lower low” bites taken out of an underperforming of late Apple (AAPL) proved fruitful but a bit less so intraday. The second largest capitalization company in the US is seeing a rebalancing of its shares within the Naz’ 100 where the “i-Everything” gadget goliath has held a weighting of just more than 20%.
The new percentage jockeying of shares to a percentage of 12.33% which becomes effective on May 2, will have index types and sponsors of ETFs which track the Naz’100 reducing their exposure to the company by “selling a lil’ something.”
ISI notes the rebalancing should involve 80.0M AAPL shares, which amounts to about 9% of its outstanding shares and 4.4 days of trading volume. Intraday, shares of AAPL are off -0.65% near $339, further confirming a bearish triple top or maybe caught in the middle of a down channel with technical support near $320.
Related but conversely, Dell (DELL) will see an increase of 60bps in Naz’100 weighting which implies investors will need to purchase 140.0M shares or 6.5 days of average volume, while Microsoft (MSFT) will climb to the No. 2 spot and require the purchasing of about 630.0M shares or 11 days of volume. Intraday, shares of DELL are up 2.75% and MSFT is tacking on 1.60%.
In other corporate news and maybe gaining a bit more intraday traction and attraction by bulls, is a slightly more rare and influential Tuesday surprise on the M&A front. Shares of National Semi (NSM) are up 71% to $24 following Texas Instrument’s (TXN) proposed $6.5B acquisition, $25 a share offer.
In sympathy, the Semi HLDRs (SMH) is up 3.15% and testing 50SMA overhead resistance. Separately, shares of INTC (INTC) are up 1.60% from a technically-lagging bear flag breakdown this past week which developed below longer-term resistance of the 200SMA.
Elsewhere, a light economic junket offering the ISM Services Index has been slightly less-than-tasty to analysts. Forecasts of 59.5 proved a bit too optimistic compared to an actual reading of 57.3. The data also marked a drop from the prior month’s level of 59.7, while the prices paid component declined from 73.3 to 72.1 according to Briefing.com.
Intraday and in the immediate aftermath, traders saw fit to use the ISM data as a reason to send the broader market back to session, but well-contained lows and then quickly followed by a bargain-hunting regiment into green but still equally contained levels of confidence.
Later today at 2:00 ET, traders will look to acquire additional insight into the minds of FOMC policymakers via the minutes from the most recent meeting. Atop the list of concerns, are whether or not further signs of dissent amongst the rank and file are evident regarding a looming hike to the fed funds.
On other fronts of interest which also enjoy equal enthusiasm amongst option traders, shares of Google (GOOG) are in the No. 2 position behind Edwards Life Sciences (EW) on the SP-500’s Percentage Decliners list with a loss of -2.65%.
Word through the Barron’s via Bloomberg grapevine reveals Google could become the object of a US FTC anti-trust investigation. The internet search giant also announced it lost a long-standing exec on the heels of Monday’s CEO baton pass from Eric Schmidt to Larry Page.
Technically, Tuesday’s pressure has shares of GOOG confirming development of a right weekly chart shoulder whose H&S pattern has developed after challenging intermediate highs set in January 2010.
In those sometimes accurate heat-seeking option markets, volume has just eclipsed Google’s daily average just north of 50,000 with both calls and puts seeing fairly even activity. Finding concentrated levels of interest, similar volume levels near 2,000 contracts in both the Weekly April 580 call and weekly April 560 put have helped establish a “crowd proxy” strangle.
Premiums or implieds are bid in the low 30s but are priced about 30% or so below the regular April contract’s ATM levels in the low 40s.
The April skew reflects next week’s earnings event which comes immediately in front of the regular contract’s expiration. Both sets of April premium are expensive in relation to statistical volatility near 18% but could be attracting the likes of double calendar strategists looking for pre-earnings long volatility plays.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
