Chris Tyler, Optionetics.com
April 18, 2011
Another round of tightening, a big downgrade and tied-at-the-hip earnings and growth jitters send the bulls packing technically Monday. As of 11:05 ET the SP-500 (SPY) is off -1.70% and turning last week’s impressive bull, bearishly against itself.
It turns out a valiant refusal by bulls last week to allow the market to technically buckle; and in fact, serve up a decent-looking reversal in the face of some heavy corporate drags was in vain after all. Following Friday’s less-than-stellar reports from the likes of Google (GOOG), BofA (BAC) and Infosys (INFY), investors are retracting that confidence in a big sort of way.
In the spotlight, with the SP-500 seeing a gap and crap through 50SMA and hammer low pivot support; a more cautious bull has quickly emerged and bears reawakened in Monday’s session. The most blatant tell of risk aversion on the part of investors is the CBOE Volatility Index ($VIX).
The sentiment gauge is jumping nearly 22% to 18.50% from a fresh 52-week low and Friday’s short-term, albeit not fully complacent stretch of about -10% relative to its 10SMA.
Headlines putting bulls under duress Monday have been plentiful and forceful enough. Over the weekend China’s central bank announced its fourth reserve increase on member institutions since October in a continued effort to guard against stubbornly high inflation.
The latest move has officials raising the required reserve ratio by 50bps to a record 20.5% and which in turn will prevent roughly $53.6B of cash from being available for loans according to Reuters.
Far from a surprise given hot inflation and rapid growth data out of China last week, the tightening does mark the seventh in a string of monetary measures aimed at both bank reserves and benchmark interest rates. As much, seven doesn’t appear to be the charm for bulls today as traders grow increasingly wary of how those actions might stymie global economic growth and with China’s central bank emphasizing more tightening to come.
Monday’s non-too-terrific market pressure also has credit ratings agency S&P to thank. Analysts there issued a negative outlook on US debt; though retaining the country’s AAA status.
Separately but intertwined, after a several weeks of relative quiet, there’s been increased speculation a Greek debt restructuring is unavoidable despite the country’s insistence otherwise—and of course, which has found traders looking at other Debt PIIGS with risk averse eyewear.
In those often intertwined markets of notice and influence, shares of the US Oil Fund (USO) are off nearly -2.50% but still holding last week’s trend pivot, support low as bulls recalibrate weaker demand statistics into their fair value calculators.
Dow component Caterpillar (CAT) is getting bulldozed as perceived dampened commodity demand spells a potentially weaker profit harvest for the machinery giant. Intraday, shares of CAT are off a doggish -4.0% and breaking below 50SMA uptrend support.
Also seeing attached at-the-hip heady losses and technical damage intraday are Joy Global (JOYG), Chesapeake Energy (CHK) and Silver Wheaton (SLW) with declines ranging from -3.0% to -4.25%.
COMEX Gold (GLD) is up slightly by 0.45% to fresh all-time-highs as traders rush towards certain but not all safe havens and despite a rare of late, bid for the US Dollar (UUP) which is tacking on 1.20%.
Treasuries (TLT), which might normally see a flight-to-safety bid under conditions where global growth concerns are so prevalent, are currently off -0.40% but rebounding off lows above a test of 50SMA support. Weakness on the session can be attributed to the S&P’s warning on US credit.
On the corporate side, a bit more than 20% of the SP-500 will report this week. So far, a very light schedule has offered slightly better results than last week but is playing a secondary role and unworthy of retooling trader worry over weakened corporate outlooks due to increasingly popular inflation and slowing growth threats.
Topping the headline count this morning, Citigroup (C) is up 1.5% after it announced a penny beat on profits of $0.10 a share while coming in shy of revenue estimates of $20.55B with sales of $19.73B and year-over-year growth of 7.4%.
Fellow money center banker KeyBank (KEY) is off -3.50% in volatile trade and despite the outfit swinging to a better-than-expected profit of $0.21 per share and the company emphasizing its continued improvement in asset quality. Technically, today’s pressure in KEY sets up neckline and 200SMA test from a bearish H&S top developed against prior highs set a year ago.
And shares of Halliburton (HAL) are up 1.60% and reclaiming the 50SMA as support following a pullback within its existing uptrend. The oil and gas giant posted a three cent profit beat on earnings of $0.61 per share on better-than-expected sales growth of 40.4% while management chimed in with qualitative but mostly optimistic sound bites regarding its outlook.
Finally and in those sometimes accurate heat-seeking option markets, it appears both bull, bears and maybe hedge hogs are busy in Texas Instrument’s (TXN) in front of tonight’s earnings release. Near equal volume approaching 2,000 contracts apiece in the ATM May 35 straddle market has been spied.
Implied volatility of about 26% suggests option pros anticipate an approximate two-thirds or 1SD chance shares of TXN will remain within about 8% of current levels near 34.80 until expiration.
Separately and giving themselves (possibly) a bit more time to allow their bet to play out, the July 37 call and July 33 put have seen near equal volume of 800 contracts and represents either a centered strangle, a collar or risk reversal being put up—and whose bets are widely varied despite the use of the same underlying contracts.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
