Some of Wednesday’s optimistic bid by bulls is likely a continuation nod of approval for yesterday afternoon’s closely-watched FOMC announcement. Policymakers appear to have made all the right moves in Wall Street’s eyes by issuing a somewhat surprising and unwavering “foreseeable future” directive.
Coupled with no other punches thrown within the framework of the hotly-contested meeting, other than the $70B qualitative support being removed from the mortgage market, but one which traders appear content with accepting—bulls have managed to put to rest any grizzly thoughts of a double top rudely interrupting a still climbing percentage sprint from corrective lows.
Fresh catalysts have also been abundant and generally supportive of investors craving more upside. The first of two reports on inflation conditions showed prices at the producer level fell by a much larger 0.6% versus forecasts calling for a decline of 0.2%. The drop was the largest since July of last year. Axing the necessities of food and energy, core levels rose 0.1% but in-line with estimates.
On the corporate side, coal producer Massey Energy (MEE) disappointed with its Q1 outlook but has won over bulls by keeping the M & A arena a fertile playing ground. The company announced plans to buy privately-held peer Cumberland in a deal valued for $960M. The merger will involve $640M in cash and $320M in shares of Massey to Cumberland.
Intraday, shares of MEE are up by nearly 7.00% at 53.65. Technically, today’s verdict by investors finds shares making good on its cup-shaped base of two months and breaking out to its best levels since early fall 2008.
Hartford Financial (HIG) is another name helping bulls with their decision to act a bit more optimistically. The insurance giant announced after the close that it plans to return its Uncle Sam’s necessitated handout, or umm, Treasury investment.
Following fellow ensnared financial General Electric’s (GE) good news of the worst being and providing technical leadership Tuesday, Hartford’s announcement has presented bulls a fresh ticker in the spotlight with which to hoist the sometimes motley group higher. For its part, shares of HIG have broken out of a weekly handle and are currently testing its mid pivot within a five-month long “W” shaped base.
In that sometimes accurate heat-seeking option action, the VIX cash and its “Sell, Sell, Sell!” implications, more than any particular “Buy, Buy, Buy!” actions, are worth noting. With the “complacency” gauge down off 5.25% or about one point to 16.75%, the sometimes feared instrument is testing year-to-date lows and its weakest or most confident levels since May 2008.
A short-term stretch in the VIX suggesting excessive behavior on the part of bulls isn’t part of the equation with a current 10-SMA to cash differential of about 7.00%. However, a move of less than a point would establish a stretch of 10%, which has been sufficient in days gone by, in taming the bull for at least a few days and sometimes more.
Finally, in passing or in one ear and out the other, the EU warned members Germany, France, Spain, Italy and the Netherlands policymakers are relying too strongly on a “smooth economic recovery” to meet debt reduction targets and maintaining “rather optimistic growth forecasts” in cutting budget deficits. Hmm, I suppose bulls can consider themselves “lucky”, Ireland wasn’t mentioned?
Chris Tyler
Senior Staff Writer & Options Strategist
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