Chris Tyler, Optionetics.com
April 14, 2011

Raised inflation fears, some jitters in front of a pair of corporate heavy’s reports and a doubt-filled doji lead to lower prices for Mr. Market Thursday. As of 11:05 ET the SP-500 (SPY) is off -0.30% but far from out according to at least one sentiment poll of notice.

In economic news, reports have been mixed but generally unsupportive to bulls looking for a foothold. Weekly claims rose by a much stiffer 27,000 to 412,000 compared to forecasts of 3,000 and a count of 388,000 applicants seeking first time benefits.

Separately, producer prices from the PPI for March came in mixed and have given some reason for inflation hawks to do a bit of squawking.

Total prices for increased by 0.7% and below estimates of 1.1% and well below February’s 1.6% gain. However, core prices which factor out the little and more costly things in life these days i.e. food and energy, climbed by 0.3% following last month’s 0.2% rise and above Street views of 0.2%.

On the corporate side, internet search giant Google (GOOG) reports after the closing bell, while banker BofA (BAC) announces its results in front of Friday’s open. Shares of each are fractionally mixed and far from telling of any decisiveness on the part of investors; other than mild jitters being present.

Rolling up the sleeves slightly, analysts expect Google to turn a profit of $8.13 per share compared to the year ago’s take of $6.76, while forecasts for BofA call for a flat year-over-year bottom-line of $0.28 per share.

Option traders are busy in both names today. For its part, Google has seen more than 62,000 contracts change hands with calls favored by a slight 1.30-to-1.00 margin.

The April contract which will expire tomorrow evening isessentially a pure play for earnings with those ATM implieds jumping above 115% but not really expanding, where it counts most and as we’ll discuss in greater detail in today’s Outside the Box column later this afternoon.

In those often intertwined markets of influence and leading (still) the way for bulls, shares of the US Oil Fund (USO) are up 1.25% and confirming yesterday’s hammer low which developed off loose support defined by prior highs wedged between its properly-aligned 10 and 30SMAs.

Separately, some of today’s raised awareness for inflation has put a slight bit of pressure on the 20-Year’s (TLT) bullish daily double bottom formed above a weekly double / triple bottom. Intraday, shares of TLT are off -0.15%.

Finally and in those sometimes accurate heat-seeking option markets, bucking the market’s wobbly ways is a somewhat baffling, still confident CBOE Volatility Index ($VIX). A current sub 17% reading continues to show no evidence of apparent fear by investors on either a short-term basis relative to its 10SMA or in historically nominal terms.

The anomalism of little fear is at odds with the SP-500 dropping below 50SMA support, traders increasingly vocal of a double top having formed and a decline of about -2.00% from recent highs.

As noted in Wednesday’s Market Barometer, this strategist is on the fence as to whether bulls are going to regret being stubbornly confident or whether the real message is that we need to treat this notorious contrarian sentiment indicator as a second derivative contrarian tool of sorts; and one voting for higher prices.

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