A rotation of financial anchors, still-dampened sentiment and further crude realities are keeping the bulls in check. As of 11:05 ET, the “SPYder” (SPY) and “Cubes” (QQQQ) are fractionally mixed from a rather flat .19% gainer to a still-cautious decliner of .30% on lighter volume.
What’s a day without America’s Anchor Bankers or Black Gold dominating the headlines like? In Wednesday’s market those shoes are filled somewhat unfortunately, with mixed warnings from the likes of United Health (UNH) and Starbucks (SBUX) and a downgrade of yesterday’s late session savior, General Motors (GM). United Health cut its 2008 outlook to a range of $2.95 - $3.05 a share and well-below analyst views of $3.52. At the same time though, the company also announced the settlement of a class action lawsuit with CALPERS for $895 million.
Similarly, Starbucks announced mixed news of its plans for more aggressive store closures at underperforming venues, which could total 600 and affect up to 12,000 jobs. Management also said it will be more judicious in serving up further around-the-corner hotspots which have become ever-familiar to the American landscape. For their part, investors have been cautiously appreciative of both United Health’s and Starbucks warnings as some anticipated bracing may have been a bit too overzealous in its prescient abilities. Shares of UNH are up .40 near 26, while SBUX is tacking on .15 at 15.78.
On the other hand, a downgrade of General Motors (GM) and Tuesday’s ‘market motor’ has clearly put the brakes on some bulls’ ambitions to drive forward. After besting “better-than-feared” sales figures with a decliner of 8.3%, broker Merrill cut on shares to “Underperform” from “Buy.” Shares are trading down 1.25 at 10.50 and to fresh multi-decade lows as cited concerns over a necessitated $15B capital injection are being heeded by investors.
Related, traders seeking protection in GM’s options are paying ever-higher premiums to do so as the possibility of catastrophe gap risk permeates shares. ATM and slightly OTM puts in both July and August are tacking on an increase of more than 10% in implieds to record levels in excess of 110% from last nights levels situated near 100%. Additionally, prices being paid are rich in relation to the underlying stock movement as premiums reflect pricing risk of 35% to 100% in excess of historical short and long-term readings.
Not helping matters for bulls looking to nibble for a second day with the wind at their back, recent highfliers in industrial metals and alternative energy plays are getting slammed. In the former, names like US Steel (X), Schnitzer (SCHN) and Reliant Steel (RS) are amongst the top heavily-weighted point losers on the session. Fresh catalysts appear to have taken a backseat to aggressive profit-taking taking its cue from downside momentum linked to Tuesday’s, apparently, not good enough beat by Schnitzer.
Similarly, alternative energy and recent growth stock flavors of the month, names like Patriot Coal (PCX), Massey (MEE), Consol Energy (CNX) and First Solar (FSLR) are finding their technical leadership of late quickly unraveling. Trader talk per Briefing.com notes worries over weakening demand in Europe, hedge fund selling and South Africa physical coal and swap prices plunging in excess of $20 today.
In officially-slated news, the ADP private jobs data surprised analysts with its much weaker data. Expectations calling for an increase of 28,000 received instead a drop of 79,000 for the June period. While the report is typically not an overly-accurate harbinger of the upcoming government jobs data this Thursday, some consideration given the size of the miss was found in the premarket as an enthusiastic bid was reduced slightly.
And finally, those crude realities continue to be a driver for the broader market and in Wednesday’s session, a negative one at this juncture. The oil contract has lifted to a retest of its all-time-highs following weekly inventory news which showed a steeper-than-expected drawdown of 2.0M barrels. After a slightly pressured start to the session, shares of the US Oil Fund (USO) are up 1 point at 115.60. At the same time, fear and loathing is perking up once more in the VIX as the instrument tacks on 3.50% to 24.50%. And for it’s part, the SPY, which put in a most worthy triple bottom for 2008 in yesterday’s trade, has gone on to give back half of it’s subsequent bargain-hunting and likely has traders asking whether that mischievous June Gloom will ever give way to a hotter third quarter.
Chris Tyler
Staff Writer & Options Strategist
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