Chris Tyler, Optionetics.com
April 12, 2011

Earnings and Japan related fallout put bulls under pressure and trying to handle a double top. As of 11:15 ET the SP-500 (SPY) is off about -1.0% and making the technical case for a bull having already put its best leg forward.

Typically well paid optimism heading into and through the first days of earnings season is off to a precarious start courtesy of Alcoa (AA). The Dow component and aluminum giant is off nearly -6.0% and causing unwanted technical rumblings below the 50SMA after the company posted light sales for its first quarter.

Not helping matters, Alcoa execs spoke cautiously but in non-quantitative terms regarding the company’s outlook due to the impact of Japan on the global economy. The message appears to have traders battening down the hatches for an unwanted wave of similar threatening forecasts in store for the Q1 earnings season.

In those often intertwined markets of influence, investor aversion to risk emanating from Japan has led to a flight into treasuries. The liquidly-traded 20-Year (TLT) is up 1.15% after gapping higher from a test of its early March pivot lows. On the flipside, the US Oil Fund (USO) is suffering a second session of stiff profit-taking as shares get drilled by nearly -3.0%.

Technically and against the current headline current, two days of pressure for the USO within a steepened uptrend channel of the last two months, has put shares in testing position of its prior early March closing highs and wedged between its 10 and 30SMA.

Today’s pressure is largely a result of traders worrying about the global economic toll stemming from further fallout in Japan. News on Monday of another quake and its government’s unwanted upgrade of sorts from 5 to 7 regarding Fukushima’s environmental threat and one now on par with 1986’s Chernobyl disaster, have been a source of grave consternation amongst bulls.

Not helping matters, the venerable Goldman Sachs chimed in this morning with an analyst note to lock in trading profits before oil and other commodity markets reverse according to Reuters.

Related, oil service (OIH), energy (XLE) and mining stocks (GDX, XLB) are also seeing sympathetic nods towards a previously bullish fan base now looking to pile through the technical emergency exits all at once.

Leading to the downside amongst widely-held issues are shares of natural gas play Chesapeake (CHK) with losses approaching 5% and trend break of 50SMA support.

Copper miner Freeport McMoran (FCX) and infrastructure engineering outfit Fluor (FLR) are both off about -3.25%, while oil and gas giants Chevron (CVX) and Exxon Mobil (XOM) are showing “drops in-the-bucket” of about -2.50% to -3.0%.

In economic news, reports have been largely secondary but in keeping with Tuesday’s ode to profit-taking. Germany’s ZEW Economic Sentiment Survey, which measures expectations for the next six months, took a steeper than expected plunge to 7.6 for April compared to March’s 14.1 and forecasts of 11.3.

Stateside, the US’ trade deficit matched estimates with a figure of -$45.7B and slightly below the prior month’s -$47.0B. Separately, export prices for March rose by 1.3% when axing agriculture. And import prices sans oil, increased by a more manageable than otherwise 0.6%.

Finally and in those sometimes accurate heat-seeking option markets, JP Morgan Chase (JPM) is seeing a second session of heavy trading with puts favored by investors and speculators; if there’s a difference between the two. Yesterday’s put/call of 2.0 saw a concentration of about 30,000 April 46 puts change hands with a closing price of $0.42 per contract.

Once again, a still high 1.5 put/call reading finds traders honed in on the same put with volume approaching 10,000 contracts. Implieds are slightly higher at 43% and share prices a bit weaker by about 0.15% but bears haven’t yet plundered any profits. With the put still out of the money by about -1.70% and the contract nearing expiration, “handling” that type protection has cost exactly; a not-so-pretty penny with a going market price of $0.41.

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