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TFC Commodity Trading Forum

Wall Street's Tuesday Lunch Options

Chris Tyler, Optionetics.com
April 19, 2011

Varied but more pleasant economic and corporate reports find bulls trying, but largely failing to support “Mr. Market.” As of 11:15 ET the SP-500 (SPY) is mostly flat, removed from out-the-gate celebrations and continuing to look a bit more taxing than Friday.

“It’s a trader’s market” as those intimately familiar with Mr. Market a.k.a. Goldman Sachs (GS) might realize following its easy top and bottom-line beat. Earnings forecasts of $0.82 per share on revenues of $10.22B woefully underestimated actual profits of $1.56 per share and revenues of $11.89B which were largely the result of better-than-average trading with a focus on the fixed income markets.

Intraday and after much premarket ballyhoo over Mr. Market saving that other broader Mr. Market from Monday’s bout of technical shrapnel, shares of GS have reversed early gains in excess of 1.50% and into harder-to-handle losses of about -1.25%. Technically, shares of GS are in bear territory and continue to make good on a bearish H&S topping pattern worthy of the pages of Edwards & McGee.

Other bankers offering stronger-than-expected results with equally varied investor reaction include US Bancorp (USB) which is off -1.75% and nearing 200SMA support, a mostly flat to slightly pressured daily at Regions (RF) whose shares are cracking the long-term moving average and some deposits by investors at State Street (STT) with shares up 3.0%.

Elsewhere, shares of Texas Instruments (TXN) are off a rather mild -0.75% following a pooh-poohed disappointment over its Q1 results and weaker but mixed Q2 outlook tied to an adverse impact from Japan on its operations.

By the numbers, Texas posted a slight but quite devilish increase in profits with earnings of $666.0M or $0.55 per share compared to the year ago period’s take of $658.0M which missed Street views by three cents. Revenues rose by 5.8% year-over-year and matched forecasts.

Looking forward, Texas sees profits of $0.52 - $0.60 for its second quarter which includes a $0.05 charge related to Japan versus Street, but possible non-comparable estimates of $0.63. Sales are estimated to come in between $3.41B - $3.69B versus consensus views of $3.53B.

On the options side, a heavily-traded ATM May 35 straddle market is seeing some continued action today. The spread has pulled in from about 26% IV to roughly 22% and resulting in a slightly under pressure spread worth about $1.80 versus last night’s $2.15.

In other earnings news, we can’t say that there’s “no more tears” altogether, but J&J (JNJ) shareholders are smiling for the first time in a long while this morning. Shares are atop the leader board for the Dow with gains of 2.80% and breaking above a longstanding downtrend line punctuated by 200SMA resistance and a recent Death Cross.

By the numbers, J&J topped profit views by $0.09 on stronger than expected sales of $16.2B while management augmented the solid report by issuing an equally, if not more pleasing, above-views outlook.

In economic news, data from across-the-pond has proved to be mostly background noise but supportive for stateside traders. European bourses finished with gains on the session following a modest improvement in a flurry of manufacturing data and more varied PMI Services readings.

Stateside and “Made in America” this morning; stronger-than-expected housing starts and building permits for March have pleased analysts and maybe a few bulls wishing to double their pleasure with weekly and daily chart cup-with-handle bases in the SPDRs Homebuilders ETF (XHB).

Intraday, XHB is up 0.40% and trading within both handle consolidations following starts of 549,000 which improved upon February’s 512,000 and exceeded forecasts of 520,000. Building permits which are used to measure future intentions also came in strong with a reading of 594,000 compared to estimates of 540,000 and a nice-sized lift from the prior month’s 534,000 permits.

In those often intertwined markets of notice, shares of the US Oil Fund (USO) are up 0.40% and continuing to hold critical trend support from last week. Bulls appear to have the upper hand today as mixed but pleasant enough data and weaker US Dollar (UUP) try to counteract Monday’s global economic doom and gloom storyboard.

Separately, the 20-Year (TLT) is improving upon Monday’s intraday bullish reversal designed in the face of the S&P’s credit warning to “Negative” for US debt. Tuesday’s build of 0.35% is also managing to shake off a message today from China’s Foreign Ministry which declared the US must take “responsible” measures to protect US debt investors’ vested interests.

Finally and in those sometimes accurate heat-seeking option markets, what goes up must come down apparently. Following Monday’s intraday jump of 25% in the CBOE Volatility Index ($VIX) from 52-week and multi-year lows, bulls are attempting to fill the price gap with a somewhat confident but non-stretched (non-complacent) reading of 16.50%.

What will tomorrow hold? Only Mr. Market knows for sure, but I suspect we’re closer to a bottom in that instrument versus other venues where tops appear just underway.

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