Midday Action: July 3
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July 3, 2008
The bulls have taken to the Patriot Act in extra-volatile conditions on mixed catalysts in front of the holiday weekend. As of 10:55 ET, the “SPYder” (SPY) and “Cubes” (QQQQ) are up .43% to .60% on sharply higher call-to-arms style action.
An expected but first rate hike in five years by the ECB (up .25 to 4.25%) and a better-than-feared jobs report had investors sending out buy orders to kick off Thursday’s market fireworks. Neither report was particularly a great reason to celebrate on the surface. However, words to the effect of the ECB being neutral on future rate policy and a slight miss of just 2,000 stateside jobs (-62K) versus the more ominous harbinger of Wednesday’s ADP report, did prompt an appreciative Patriot Act style response for a badly-wounded market.
Patriot Games anyone? The still bid market does belie still-existing volatility and sufficient enough in today’s early going to crack the weekly lows in all three of the major indices. Inducing the lapse back into the July gloom, traders had and likely have, if they so chose, a handful of reasons with which to strike the sell button.
In large cap tech, graphic chips designer NVIDIA (NVDA) is off nearly 30% after reducing its Q2 sales and margin estimates well-below prior forecasts. Management cited delays, end-market weakness and price competition as key factors behind its warning. With NVDA at 12.70, the pin action has shares approaching two year lows and rumor mills of both takeovers and key acquisitions far removed from Thursday’s reality.
Taking a quick glance at the options board and that same reality has clearly sunk in with those traders as well. Implieds have jumped by roughly 35% from 58% to 80% in July and a bit more than 20% to 74% in mid-dated August and September expirations. In a bevy of above-normal and obviously demand-driven order flow, the still OTM August 10 Puts are the session’s most active. Nearly 11,000 have changed hands for the newly-minted option. Current pricing is around .30 on implieds of 74% which are nearing two year highs and well-above recent short and longer-term gyrations found in the underlying.
Elsewhere, further ambulatory care has been needed at many of the nation’s HMO’s. Following a very recent shellacking courtesy of Coventry (CVH) and yesterday’s warning by United Health (UNH), analysts at Goldman cut peer Aetna (AET) to “Sell.” Shares of AET are off 6.65% and scoring fresh lows for 2008. Sympathy reactions can be found in names like Cigna (CI), WellPoint (WLP) and Humana (HUM).
Other bear fodder worthy of prodding at a moment’s notice is the combination of poor existing sentiment and those sometimes escalating worries over a global slowdown and its impact on materials-related names. First hour technical infrastructure teardowns were seen as continued works in progress for recent momentum hotties like Potash (POT), US Steel (X), Patriot Coal (PCX) and filtering into less-mad money sanctuaries like McDermott (MDR) and Foster Wheeler (FWLT). “BOOyah indeed.”
And finally, in other crude realities and bearing in mind the above sometimes mad money mentality, a price schnitzel for oil may not translate into a patriotic reaction by equity investors. Intraday, black gold and the US Oil Fund (USO) are fractionally lower on no meaningful fresh nuggets of information. However, should crude and its derivatives finally fall victim to profit-taking, potential relief found at the pump or at least the headlines may take a backseat to traders sensing less demand prompted by a weakening economic climate. And if that mindset does becomes the latest fad, that’s obviously not the kind of “Monbacky!” equity bulls will be looking to fill their portfolios up with. Have a great holiday!
Chris Tyler
Staff Writer & Options Strategist
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