Buzz on the Street: Investors Prepare for Fed Announcement After Volatile Week
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
S&P e-mini Update
S&P e-mini holds the critical 1620.75 level so far. If that should break, we would get a quick run to confluence of the June 6 naked VPOC and weekly S1 at 1608 (see chart below). Bulls regain control on a close above 1639. Upper resistance is at 1645.50. For now, we are chopping around the grey zone between 1620.75 and 1639. Sentiment has finally gotten a bit negative, with equity put call jumping up to the highest level since April at 0.81. This could help bulls mount a rally at some point.
Click to enlarge
S&P 1624 breaks, and some sell-stops kick in; I've used this move to peel out of another 10% exposure, which reduces my SPDR S&P 500 ETF (NYSEARCA:SPY) short to 50% of a full position (I came in with 60%, added 10% on the opening lift, punted that overage into the dip, and now I'm 10% "out" on the session, which sounds about right given we're 20 handles lower than where risk was added yesterday, at S&P 1639).
Market breadth is 2.5:1 negative and the banks are (again) under-performing to the downside, so we'll see how the tape acts/reacts once the sell-stops clear. I still sense S&P 1600 as an intuitive first stop but I've been wrong before, hence the disciplined process of "trading around" a bias with a defined risk stop.
Yearning for Yen?
Keep an eye on USD/JPY as the strengthening continues in the Japanese currency, which currently attempting a breakout above resistance. Anecdotal reports target the unwinding of carry trades by hedge funds, most of which are thought to be European. After Europe closed today, the Japanese Yen surged once again, perhaps suggesting major money center treasury departments had been pressuring the currency on behalf of their clientele.
This trade was put on and added to in massive amounts over the previous weeks and will take some time to fully unwind should strengthening continue (which is likely due to near-record level speculative short positioning). A look at the chart says another nasty 2% - 3% move could be taking shape. I am short USD/JPY at 96 and looking to cover between 92-93. Keep in mind that USD/YEN has been trading eerily in tandem with both the S&P and Dow Jones Industrial Average (INDEXDJX:.DJI). Good luck out there!
Thursday, June 13, 2013
Quick Comments On Latest Short Interest Data
Short interest numbers for the NYSE have been reported for the period of settlement date May 31. They have decreased to 13,442,785,071 from 13,489,929,546 shares (revised) for a decrease of 47,144,475 shares. This is a drop of 1,528 advancers and 1,970 decliners, and we've seen more advancers than decliners in 44 of the last 87 initial reporting periods.
NYSE and Nasdaq (INDEXNASDAQ:.IXIC) had risen the last six of nine reporting periods but not across the board over the last three months.
During this period on a trade date basis (5/10 to 5/28) the S&P 500 rose by 1.61%. The conclusion is shorts held to their positions with some small covering in front of a pretty decent move to the upside. The next short interest collection covers from 5/28 through 6/11, which is yesterday and the S&P 500 fell by -2.04%. It will be interesting to see if shorts pressed the weakness.
Short interest numbers for NASDAQ are reported for the period of settlement date May 31. Short interest numbers have decreased to 7,488,661,708 from 7,573,777,549 shares for a decrease of 85,115,841 shares or -1.12%. There were 969 increases and 1,505 decreases. In the last 87 reporting periods, the Nasdaq has seen more advancers than decliners in 46 of the 87 last reporting periods.
What Honey Badgers Care About
For several months now, I have been calling this the honey badger stock market, which has completely ignored negative economic news and concerns over deflationary pressures, which have been building since the end of January. On Twitter last night, many were freaking out about Japan, but I continued warning that it is risky to get too bearish here. Why? Because what the honey badger cares about now is the oversold nature of emerging market stocks and Treasuries. We could be re-entering a period of rising bonds and rising stocks, given that both have been beaten down on QE tapering talk. Next week's Fed meeting could result in a reversal by Bernanke and a near-term end of its Confuse and Conquer strategy. There is no way they are willing to risk their precious wealth effect. That's good for stocks and bonds, as it calms concerns over the speed with which bond yields rise.
Options Trade: Cliffs Natural Resources
Please welcome Minyanville contributor Andrew Keene to the Buzz.
When taking a look at the charts for Cliffs Natural Resources Inc (NYSE:CLF), it is to be noted that the stock has been on a bearish trend for quite sometime now, since early April to be exact. With the current drops, CLF currently has a 9-day moving average of 18.26 and a 52-day moving average of 20.48; down from it's early of the year mark of 38.08.
Thus far in 2013, Cliffs Natural Resources has had a very rough year with share prices down nearly 55%. With these dropping commodity prices and their huge load of debt obtained through acquisitions, there has certainly been some weight put on the company.
With recent delays in Cliffs' huge chromite-mining project (costing $3.3 billion) in northwestern Ontario, it leaves many wondering why they wanted to start the project in the first place. It was far from understandable that Cliffs would be able to restart the project due to the low iron ore prices, pressuring its prices to go elsewhere. According to Daniel Rohr, a Morningstar analyst, he says, "It is hard to see why Cliffs would undertake a project of this magnitude when its core business, the source of all its cash flow, is withering."
Using the ATM Straddle, I can get a Measured Move Target, one to the Upside and one to the downside, Lets Check this out.
CLF is currently trading $18.30, I am Bearish, but not extremely Bearish. The June 18.5 Straddle is $1.30 implying the stock can move to:
Upside: $18.50 + $1.30= $19.80
Downside: $18.50 - $1.30= $17.20
My Trade: Buying the CLF June 18-17-16 Put Butterfly for $.20 debit - same as: Buying the June 18-17 Bear Put Spread and Selling Bull 17-16 Put Spread
Risk: $20 per 1 lot
Reward: $80 per 1 lot
Reward to Risk: 4-1
Breakeven: $16.20 and $17.80
Greeks of this Trade:
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