Showing posts with label CPI. Show all posts
Showing posts with label CPI. Show all posts

Saturday, October 13, 2007

HOTS Weekly Options Commentary

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Peter Stolcers

Last week a stable Employment Report was released and the market surged higher. Despite mixed earnings announcements and soft economic releases, the market was able to add to those gains throughout the week until Thursday afternoon. "Hawkish comments" from one of the Fed Officials spooked the market, creating an intraday reversal. Chinese stocks were hit hard along with other stocks that have recently posted big gains.

Friday morning, the “all clear” sign was given. Chinese stocks held firm overnight and the PPI and retail sales numbers came in better than expected. The market was able to bounce and it closed above the highs made a week ago.

The economic releases this week are: industrial production, CPI, housing starts, LEI and Philly Fed.

I believe the earnings guidance, not the economic news will drive prices during the next few weeks. They are forward looking as opposed to the hindsight provided by economic releases. If GE and MCD are any indication, the earnings should come in at or above expectations. Both posted solid results.

Next week we will get an onslaught of earnings releases. I expect most companies to meet estimates and the current projected growth rate year-over-year is flat (0%). I believe that threshold will be cleared easily. The wild card is the earnings guidance that corporations will provide. If future weakness becomes a theme, the market will decline. If the earnings and guidance are consistent with the market's expectations, the market will continue to push higher.
These are some of the companies that are announcing this week: C, ETN, DNA, JBHT, JNJ, USB, WFC, INTC, STX, YHOO, ABT, MO, CIT, KO, ITW, JPM, UTX, ALL, EBAY, ILMN, ME, SYK, BAC, BGG, NUE, PH, PFE, RS, STJ, UNH, AMD, CREE, GILD, GOOG, IBM, ISRG, SNDK, TPX, VFC, MMM, CAT, HOG, HON, SLB.

We are only two weeks away from a seasonally bullish period. The earnings releases have been decent, we have not had many earnings warnings and the economic releases have been positive. As long as Americans have jobs, they will continue to spend and pay their debts. Add the Fed's half point interest rate cut to that equation and you can see why I am bullish. As long as the SPY is above 150, we will trade from the long side.

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Monday, May 21, 2007

HOTS Weekly Options Commentary

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Pete Stolcers

Last week we had the choppy price action and the bullish bias that I forecasted for the week of option expiration. The economic numbers had little impact on the market. Tuesday was a classic example. The CPI came in lighter than expected and the initial rally was reversed by the end of the day. The real impetus for the week came from option related buy programs. Next week the economic numbers are fairly light and I don't believe the Durable Goods number or the GDP will have a big impact.

The earnings releases will also be fairly light. They are predominantly retail companies. Based on the recent retail sales numbers, the expectation for "light" numbers is already built-in. The overall guidance from these companies might indicate the strength of the consumer. Those companies that miss their number are likely to blame it on the weather and high gasoline prices. Here are some of the companies that will announce:


The interest rate and earnings front will be relatively quiet so let’s take a look at some of the other market influences. Energy is the hottest market sector. Unrest in Nigeria is driving oil prices higher. Currently that country is our third largest source of oil. The market is oblivious to higher commodity costs and the inflation indicators seem to be keeping a lid on those concerns. M&A continues to keep a strong bid in this market. The shorts are running scared and it has been almost impossible to make money on bearish trades. In the chart you can see that the SPY is close to an all-time high. The market has a parabolic feel to it and it has rallied 22% in less than a year. In the chart you can also see that interest rates contributed to a lengthier decline in 2006. During that period the market wanted the Fed to stop raising rates. That finally happened in August. This year, the rates are stable and the market recovered very quickly. The market is so strong that it erased the losses and made new multiyear highs in the course of a month. This type of setup can lead to a "melt up" and a sharp decline. If that happens there will be plenty of money to be made on the upside, but you'd better be quick to pull the trigger once the peak is established. I have a couple of stocks this week that I believe will rally with the market and hold up well if it declines.

Tuesday, May 15, 2007

Equity Index Update

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Brad Sullivan

The table above was all the excuse needed for the index markets to move sharply higher at 7:30:02 CST. Currently the SPM is trading higher by 1.80 at 1510.50…however, that does not tell the whole story as the contract was trading around 1504 before the CPI release. The question now becomes this for today’s trade…can the indices hold this pre-market turnaround bid?

On Friday I wrote that the odds were moving towards a trading range type of environment of roughly 2% in SPM…essentially 1519 to 1488ish. We have yet to test the downside of that target range and actually came within a whisper of challenging the high level of the upside range yesterday morning. However, the indices could not sustain any buying at higher pricing zones and the SPM failed to generate anything but SELLING interest in the key 1515 to 1518.50 resistance zone. That zone is becoming more powerful with each failed attempt to push above it. The subsequent selling yesterday took the SPM to a shade under 1503 where it challenged a 30 minute close below the KEY 1507-1504 support zone. HOWEVER, the contract could not generate any sustained selling underneath 1504 and it proved to be a solid entry point for a trade higher into settlement as the SPM contract finished at 1508.70.

When looking at yesterday’s trade in the SPM it is becoming more evident that the contract is biding time between the 2 key zones 1515-18.50 and 1504-1507…whichever zone breaks first should produce “follow” price action. In “follow” I simply mean a momentum based push higher or lower. Once again, I will be using a 30 minute close for these zones to initiate any follow positioning.

On the resistance side today…1510.50 to 1512.20 should be a difficult zone to get above for SPM…if it moves higher in here the contract should once again challenge the key 1515 to 1518.50 zone. I suspect that any probing of this zone will take TIME as the long side will quietly use a supporting bid at/underneath trading levels to exhaust the sellers. Once/if the index gets into this zone, all bets are off as it should provide a choppy 2-way trade that gets a little bit higher than yesterday’s 1516ish trade. Look for a probe into 1517.50 and some short sales to push the index back down. If we get the holy grail 30 minute close above 1518.50 I still will not chase ‘em up. Rather wait for a pullback into the key zone to establish longs for a late session push higher. If this pullback does not materialize, wait for the final 30 minutes to establish a run higher into the bell position.

On the support side…look for the 1509 to 1507.50 zone to be the first support zone. This zone was the first level at which the market traded after CPI was released. Underneath 07.50 we have the critical zone of 1507 to 1504. Again, a 30 minute close above this zone should lead to a push towards 1496. Along the way, 1501 to 1499.50 is support and minor levels are found at 1498 and 1497.20.


Trade Sanctions & Commodities

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Sally Limantour

This morning we have a slew of more buy out news but so far the market is ignoring this and yesterday’s action was telling as we quickly gave up the previous day’s (Friday) value area which indicated a trend day down. Has anything changed other than Richard Russell who has been bearish for years has now turned bullish?

One thing bothering me in the background is potential protectionist measures. We need to watch the upcoming Chinese delegation on May 22nd to see if there is any rhetoric in this direction. Morgan Stanley’s Stephen Roach believes the US Congress has bipartisan support for trade sanctions against China and possibly Japan. In front of a tripartite Congressional hearing on trade issues last Wednesday he said, “My worst fears were realized. At the end of three hours of grueling give and take, I left capital hill more convinced than ever that the protectionist train has left the station.”

Today in FT there is an article titled Globalization’s losers need support which also hints at protectionist measures:

Commodities were bashed across the board yesterday after their recent rally and this has a feel of across the board liquidation. Gold has the upcoming rollover from June to August which typically sees selling pressure. Physical demand is strong and any trade back to $655-660 should be supported. If not, this will be telling. Keep in mind that gold was nailed last year during this time frame and bottomed in mid June.

Saturday, May 12, 2007

HOTS Weekly Options Commentary

HOTS Weekly Options CommentarySocialTwist Tell-a-Friend
Peter Stolcers

The market is seeking a catalyst. 10 days ago the S&P 500 was at this same level. In that time we have seen a decent round of earnings and they have exceeded expectations. With most of the numbers "in", the earnings growth rate is over 6%. That should be enough to sustain the uptrend. As I mentioned last week, I expected choppy trading and a negative reaction to the Fed’s unchanged rhetoric. The initial bullish reaction was reversed Thursday and the market also took issue with the weak retail sales numbers. Over 80% of the retailers missed their sales numbers. Friday, we got a bit of inflation relief from the PPI. The core inflation rate increased a modest .7%. In the grand scheme of things, the market is just chopping around looking for a piece of news that it can sink its teeth into. One day the economic releases show strength; the next day they show weakness. Another day the releases show rising inflation and the next day they show a decline. Now that the earnings season has ended, the market will place greater weight on the week to week economic releases. These knee-jerk reactions will mean little and the market will zigzag until it has something substantial to digest.

Per normal there is a chance that we will wake up Monday morning and read about a new merger. M&A will kick start the week and given the recent rally, the path of least resistance is up. The market is also likely to benefit from bullish option expiration activity. It's easy at this juncture to get lulled into thinking that the market can only go higher.

This is a time to be cautious. The market is "sleepwalking" its way higher. Thursday we saw the dramatic affect that one negative piece of information can have on prices. It will take two or three consecutive pieces of information to topple this market. We will use a series of lower closes and a technical breakdown as our guide. In today's chart you can see that minor support held Friday. The uptrend from March is also still intact. The steeper and shorter term the trend line, the easier it is to violate. I don't give this trend line as much credence as I do the horizontal support levels at SPY 148 and SPY 146. This week I have a very unique stock to add. I went fishing and once I reeled in the catch, I liked what I saw.

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