A motley foursome of reports find bulls motivated by seven days of higher highs as Tuesday's early bid turns into a bit of profit-taking. As of 10:45 ET the S&P500 (SPY) is scratching its way higher by 0.05% on renegotiated fair trade agreements between bulls and bears.
In corporate news, Best Buy (BBY) turned out not to be a less than good purchase for technically motivated and hopeful bulls. The consumer electronics giant posted disappointing results this morning which missed views by a nickel on profits of $0.37.
Coupled with mixed guidance which raised bottom-end fiscal ESP estimates but management still emphasizing its concerns with a strapped consumer; investors have opted to break neckline support from a recent inverse H & S breakout.
Intraday, with shares off roughly 3.50% at 39, the poor but not strong enough reaction has pinched front month premium bulls in BBY. The at-the-money straddle(s) have shrunk from $3.00 - $3.20 per spread to about $1.70 on both the 39 and 40 strikes.
A combination of richly-priced 90% IV succumbing to a "volatility crush" of about 40% into the mid 50s and all told, a light price reaction in shares; have put together a double whammy of sorts in Tuesday's first half.
The other big company confessional of the day is a sort of Catch-22 for bulls. According to the WSJ, Citigroup (C) is considering an additional secondary offering to reduce the government's substantial 34% stake.
On the one hand while bulls might praise the company for taking the initiative to remove Uncle Sam's once-necessitated talons, the move would also further dilute existing shareholder value. With shares of Citigroup getting a bit cruddier by about 5.00% to 4.30 and hitting three week lows-it appears the latter is the more influential for Tuesday's bulls.
On the economic docket, it's been a busy morning with mixed data being served. Regional manufacturing via the Empire and retail sales for August both bested views. A reading of 18.9 was the sixth straight month of improvement for the Empire, while an increase of 2.7% trumped retail sales estimates of 1.9%. Axing out the "Cash for Clunkers" assisted autos component and sales still managed to beat views by two-tenths with an increase of 1.1%.
A bit more problematic depending on whether deflation or inflation is the concern du jour, producer prices increased above Street views. August prices rose by 1.7% and well-above estimates of 0.8%, while core levels pressed higher by 0.2% versus forecasts of 0.1%. Wednesday will find traders grappling with the more important CPI and determine where the buck is stopping or being passed on to.
And finally in that sometimes heat-seeking and en fuego option action, Qualcomm (QCOM) has hit the radar with some highly-concentrated call activity on above-normal volume. The volume looks tied to a likely roll of 20,000 out-of-money January 50 calls into April 50s for an estimated $1.00 debit on flat implieds near 30%.
What's the motivation? Time decay wouldn't be a major concern with this type adjustment. However, if some profits were unrealized and the trader still held a bullish view on shares but felt a bit less sure on the market and perhaps QCOM's near-term prospects-the roll could be viewed as a stronger position for that type of bull.
Chris Tyler
Senior Staff Writer & Options Strategist
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