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TFC Commodity Trading Forum

Wall Street's Wednesday Lunch Options

Chris Tyler, Optionetics.com
April 6, 2011

Bulls try to enjoy a “Wait a minute(s)” bit of headline help and bounce back in Wednesday’s first half. As of 11:05 ET the SP-500 (SPY) is up 0.25% but succumbing to something other than profit-taking from marginally higher highs while racking up another day of mostly indecisive behavior from bulls and bears.

Following Tuesday afternoon’s little price schnitzel in the SP-500 and action widely blamed by trader concern regarding QE2 and inflation dialogue within the FOMC minutes; bulls are attempting to continue their rebound back from the March corrective lows and into a full-fledged test of February’s intermediate highs.

Assisting bulls out-the-gate, a successful debt offering from Debt PIIGS constituent Portugal has been fingered as putting a bid into European bourses and enjoying a bit of sympathetic follow-through here in the States.

Separately, a second stab at calculating Eurozone’s Q4 GDP came in unchanged at 0.3% growth versus the preliminary reading. Across the other pond, China’s PMI Services Index showed a modest retreat to 51.7 in March versus February’s 51.9 reading.

On the corporate side, Monsanto (MON) is in the spotlight and much to the apparent chagrin of bulls. Shares are off -4.50% and put into the role of the SP-500’s poster child for profit-taking, while taking an axe to the right side of its previously well-constructed weekly base.

As for the particulars getting under the skin of Monsanto’s shareholders, the agricultural chemicals giant issued a mixed report which included a three cent profit beat, matching sales growth of 6.1% and reaffirmed its FY11 outlook, but one which still falls slightly below Street views.

On the heels of Texas Instrument’s (TXN) surprise $6.5B bid for National Semi (NSM), Broadcom (BRCM) is helping bulls sample a bit more technical-based “green catch-up” in the semis (SMH). Shares of Broadcom are benefitting this morning from a pair of upgrades from Oppenheimer and DA Davidson.

Oppenheimer raised Broadcom to “Outperform” while slapping a price tag of $55 a share on its stock. Analysts cited the recent price weakness as a strong opportunity for investors to get on board one of the “few remaining large-cap growth stories.”

Separately, boutique regional broker DA Davidson upped Broadcom to “Buy” with its analysts stating the company is well positioned for 2011 and shares have been hit due to overzealous supply chain concerns related to the fallout in Japan.

Intraday, BRCM is sharing the top spot for Percentage Leaders for the SP-500 with gains of 3.75%. Technically, shares have also reclaimed the now obvious, none-too-impressive 200SMA via a bullish price gap.

While resistance from the “bear territory” moving average in BRCM won’t be worthy of Edwards & McGee’s next printing, the stock is still entrenched within a downtrend; well, depending on the tea leaves traders decide to gnaw on.

And sharing the SP-500’s top spot with Broadcom this morning are shares of Cisco (CSCO) which are also flickering some solid green centered on either side of 3.75%. Much to the dismay of those seeking support from freshly engineered headlines of great value, there really aren’t any of particular notice.

On the other hand and technically speaking, after having endured a very long path down into the lower right hand corner of trader’s charting screens, a long-standing weekly downtrend in CSCO looks to have maybe, just maybe, run its course.

In those sometimes accurate heat-seeking option markets, Cisco bulls seem to looking up at the possibilities. Average contract volume of 142,000 has been trampled thus far on trading of 315,000 with calls in the lead by a comfortable four-to-one margin. Most active in likely mixed opening and closing of positions due to heavy open interest are the April 18s and May 20s on combined volume of 75,000.

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