Chris Tyler, Optionetics.com
April 15, 2011

A slug of strong economic reports combat a couple corporate “heavyweights” as bulls look to make the case for a technical low in Friday’s first half. As of 11:05 ET the SP-500 (SPY) is up 0.20% and vying for the technical affections of a bull already caught confidently bargain-hunting beneath the surface.

In the week’s largest pool of polarized economic and corporate reports and battling for bulls and bears attention, the SP-500 has found its home in narrow trade near the unchanged mark. That said though and technically speaking, the bulls are doing a fair job of confirming a hammer low while trying to reclaim 50SMA support.

Over in the corporate pool and making a bearish splash with investors, internet search giant Google (GOOG) is under pressure by a very hefty -6.50%. The company issued disappointing Q1 results while offering little in the way of an outlook on prospects for Q2 and beyond.

By the numbers, Google announced profits of $8.08 which fell just shy of the Street’s $8.10 but still growing by 19.5% from the year ago period. Revenues topped estimates with growth of 29.1% on sales of $6.54B versus forecasts of $6.32B.

Year-over-Year “Paid Clicks” grew by 18%, operating margins matched estimates of 38% and the company said it expects “to continue to make significant capital expenditures.”

Today’s price action in Google is challenging shareholders but also gnawing or scratching short premium sellers positioned for earnings based on historical expectations. Last night’s ATM April 575 straddle priced around 115% IV and costing a hefty $27.30 is now trading for $33.60.

Google’s bearish gap to earnings topped historical tendencies by a couple percentage points, as well as last night’s pricing. Premiums based on SD implied calculations estimated a two-thirds chance of shares remaining within 6% of last night’s closing price near 578.50....and not to mention, slightly tighter and key longer-term supports of little help in hindsight.

Another important earnings report garnering a bit more attention due to its share price shellacking is IT Services giant Infosys (INFY). Bulls have failed to “handle” the company’s disappointing outlook as shares trade off -13.50% after gapping precariously below key technical support of its prior cup-shaped base.

By the numbers, Infosys matched earnings estimates with profits of $0.70 per share while coming in just shy on revenues with growth of 23.6% on sales of $1.6B versus forecasts of $1.63B. Looking forward, the issued below views earnings and mostly in-line revenues for Q1, a below range profit range and slightly below to matching revenue forecast for FY12.

Elsewhere and a bit less disruptive for market bulls are shares of BofA (BAC) and maybe its mixed report. The gargantuan banker and Dow constituent is off a mild -1.15% or $0.15 at 12.98 intraday but continuing to show pattern weakness below its 200SMA.

This morning the company announced a profit miss of $0.10 on earnings of $0.28 per share for its first quarter but did manage to top, albeit slightly, revenue estimates of $26.69B with actual sales of $26.88B.

Management at BofA also announced it reached an agreement with Assured Guaranty (AGO) regarding a brouhaha over mortgage repurchase claims and one whose closure appears to be vying for bulls collective attention....somewhat.

On other fronts, stateside economic news this morning has been overall pleasing much to the delight of bulls. March CPI data matched estimates with an increase of 0.5% while showing a gain of just 0.1% versus estimates of 0.2% for core prices.

Regional manufacturing in New York State came in well above forecasts with today’s Empire Survey showing 21.7 versus forecasts of 15.0 and March’s 17.5. Separately, industrial production grew by 0.8% compared to forecasts of 0.6%.

And intraday a preliminary, or umm “apt to change” reading of consumer sentiment for April improved and bested views with a level of 69.6 versus estimates calling for a drop to 66.5 from March’s 67.5.

Across-the-pond in Asia, the Shanghai Composite managed to close up 0.3% despite a pair of reports on China’s GDP and CPI suggesting more rate hikes are in the cards. Q1 GDP jumped by 9.7%, while March CPI and PPI data rose by 5.4% and 7.3% respectively.

In those sometimes intertwined markets of influence, today’s universally strong economic reports appear to be driving shares of the US Oil Fund (USO) higher. Intraday the USO is up another 0.95% for a third day of gains from a hammer low developed off loose support of prior highs wedged between its properly-aligned 10 and 30SMAs.

Finally and as we noted yesterday, the admittedly odd behavior in the CBOE Volatility Index ($VIX) which, of late, has paid little, if any, attention to fear continues to be played as a “second derivative (of sorts) contrarian tool” and one confidently but not complacently, pointing at higher prices.

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