Some "sweet" M & A news and optimistic overseas action has bulls continuing to follow-through on Friday's rally and noshing on reinvigorated green shoots. As of 11:00 ET, the S&P500 (SPY) is up 0.92% and near session highs on not-so-surprisingly, stronger participation from an investor class back in session.
A substantial sweet nugget unearthed in the land of M & A has investors in a buying mood Monday morning. This weekend Kraft (KFT) announced a yummy premium bid of $16.7B for candy maker Cadbury's (CBY).
Despite or possibly helped along by Cadbury's "No thanks" to the offer and rumors of Hershey's (HSY) as a potential suitor; bulls have plenty to feed their collective sweet tooth as the idea of other value plays likely to be sampled by private equity firms gets bandied about. Intraday, shares of CBY are up 38% at 51.80.
Monday's other top and sweet-tasting story for bulls is an overnight bid in global markets. The catalyst prompting the optimistic behavior is a circular feeding pattern of hopeful anticipation regarding the global economic recovery following the IMF's "me too and very familiar" call the recession could end in 2010.
Not-too-surprisingly, commodities (GSG, MOO) and associated picks and shovels (GDX, XLB) are helping to spearhead today's rally. Fears of being left behind as the market drives forward are certainly being seen in Black Gold this morning.
Shares of US Oil Fund (USO) are up 5.25% at 37 within a loose daily chart trading range. With green shoots efforts sprouting, Monday's easy-to-digest fodder is focused on the prospects for "future demand" as economies (hopefully) get back to business of expansion.
Intertwined in Monday's commodity strength and propping up the broader market, the US Dollar (UUP) has hit fresh year-to-date lows, while treasury prices (TLT) have hit two week lows. The perception of better economic times ahead has resulted in monies flowing into riskier currencies/markets. In turn, that action/rotation makes dollar-denominated physical assets such as oil and gold (GLD) more attractive, at the expense of the Greenback. Intraday, shares of UUP are off 1.45% at 22.90.
On the corporate front, an analyst call out of JP Morgan is bringing good things to life for bulls. Shares of Dow component and once-beleaguered/bloodied General Electric (GE) are up 4.50% at 14.50 following a raise to "Overweight" from "Neutral" and boost of its price target by five bucks to $17 per share.
Technically, Monday's action puts shares of GE within a six-week basing pattern known optimistically to a few bulls as a "W" or high-level double bottom. Today's price action has signaled above the mid pivot high of 14.50 from August 24 on heavier and above-average volume. Many bulls see this as confirmation for higher prices as being in-place and possibly prompting some type of bullish positioning.
On the option side in GE and by a fairly wide margin, the September 14 and 15 calls are seeing strong interest on volume either side of 25,000 contracts each. Priced in the 40s, implieds are in the very familiar "cheap relative to the past year, but slightly high theoretical" category.
Those same calls priced at $0.66 and $0.18 per contract may look "dollar cheap" to many traders. However, other factors might be worth considering before deciding to nosh on that premium. It may not feel like it but it is that time of the expiration cycle when softer delta options are at increased risk of time decay.
Related, during the last couple weeks of an option's life, a small setback in shares can ultimately wipeout any chance of that premium recouping its value, let alone put together an attractive gain. Net, net and coupled with bulls recapturing more than two-thirds of their recent "Oh, woe is me" losses in Mr. Market, those sometimes nasty months of September and October upon us and class back in session for investors: some higher learning and perhaps a calendar spread make more sense and possibly "cents" to the market strategist in this corner.
Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
