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Market Wrap

Weaker, yet stronger-than-expected...

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After opening flat, the major indexes darted lower at 10:00 AM EDT on a weaker-than-forecasted February new home sales report, but by 11:00 AM, the major indexes began reversing losses to finish mixed with technology and miners offsetting weakness in homebuilders and transports.

The broader S&P Depository Receipts (AMEX:SPY) $143.20 -0.13% traded as low as $142.09 after the Commerce Department reported that sales of new single-family homes dropped 3.9% in February to a seasonally adjusted annual rate of 848,000 units, the slowest pace in nearly seven years. Consensus among economists was for sales to be at a steadier 990,000 annual rate.

Sales were notably weak in the Northeast and Midwest, to areas that were hit by snowstorms last months. The Commerce Department said sales fell 26.8% in the Northeast and were down 20.0% in the Midwest.

After plunging 25.8% in January, sales rebounded 24.6% in the West. February new home sales were down 7% in the South.

The decline in new home sales followed a sharper 15.8% decline in January, the biggest one-month decline in 13 years.

Meanwhile, the Commerce Department said the number of unsold homes jumped to 546,000 and that it would take 8.1 months to eliminate that backlog of unsold homes at February's sales pace. The 8.1 months supply is the longest period for this measurement in 16 years.

In today's Market Monitor at OptionInvestor.com, I showed the various months CME Housing futures contracts (May'07, Aug'07, Nov'07 and Feb'08). I thing/thought that the Nov'07 contract, which would encompass this spring/summer/fall season, which is also about 8 months of time, looks to be the benchmarking contract that "matches" today's revelation.

On Friday, the CME's Nov'07 housing futures had the Composite (Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York Metro, San Diego, San Francisco and Washington DC) closing at contract lows of 212.00.

CME's Nov'07 Housing Futures - Dated Close Benchmarks

Due to limited width the above table is "squished," but a more readable version is displayed in the OptionInvestor.com Market Monitor today.

On 02/08/07 and then on 02/21/07 I benchmarked those dates to the news out of subprime lenders New Century Financial (trading on the "pink sheets"), as well as Novastar Financial (NYSE:NFI) $5.34 -8.08%. On 02/27/07, the S&P 500 (SPX.X) plunged 3.5% to close at 1,399.04.

I think one commentator was speaking tongue-in-cheek today when saying he was "shocked" by today's figures. Shock could really set in should the Nov'07 CME Housing futures Composite break above the 217.80 level and 02/13/07 benchmark.

Certainly some eyebrows are rising with the S&P 500 Index (SPX.X) 1,437.50 +0.09% now up just more than 38 points from its 02/27/07 close.

My eyebrows rose late this afternoon as the SPX/SPY got back in the green.

U.S. Market Watch - 03/26/07 Close

In last Monday's Market Wrap, I spotlighted crude oil, thinking oil traders might start getting bullish.

The U.S. Oil Fund (AMEX:USO) $51.17 +1.18% does depict that scenario playing out to an energy bull's liking. In today's OptionInvestor.com Market Monitor, I suggested that bulls long 1/2 positions, raise their stops to $49.74 to try and protect gains.

Undoubtedly exacerbating the rise in oil prices is heightened tensions between Iran and the West. Today, Iran said that the 15 U.K. naval personnel seized four days ago are well, but added that they could face legal proceedings and that it had no intention of using the naval personnel in any type of prisoner swap deal.

On Sunday, British Prime Minister Tony Blair called the seizure of the 15 sailors and marines "unjustified and wrong," saying that London saw their situation as "very serious."

SS&P Depository Receipts (SPY) - Daily Intervals

Equities have been volatile and some tionInvestor.com subscriber's observations regarding recent option action suggest call sellers were active late last week.

April "Max Pain" theory values have been quite volatile, seemingly changing on a daily basis, which makes some sense to this options trader. April's "Max Pain" theory has risen from $139 to $141 (at tonight's close) and with premiums having been "high" (VIX of 21 "high" relative to 12.5 readings), institutions that tend to be SELLERS of option premiums, may have the CALL side of their selling on the "wrong side" of the trade.

OOn 03/14/07, I had set up a March sell COVERED PUT trade just below the $137 level in the SPY, thinking the higher VIX and "jacked" premiums a good risk/reward trade for selling some premium, with just two (2) days of RISK. We just missed getting filled by about $0.10/contract, and boy has the SPY ramped higher since.

TThat "missed opportunity," but strong move higher in the SPY, has me thinking some institutional traders were also looking to sell premiums.


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There was a notable IX and SPY correlation that took place today. Just when it looked like bulls got their horns trimmed on the new home sales data, the jump in the VIX hit a key institutional level where we'd monitor for put option SELLING/call option BUYING at its MONTHLY Pivot of 14.71 (see above U.S. Market Watch and VIX's intra-day high of 14.70). Then at important near-term VIX support and the institutionally monitored WEEKLY Pivot (13.33), the VIX did move below that level.

Here's an intra-day chart of the S&P Depository Receipts (AMEX:SPY), but instead of the conventional use of fibonacci retracement show above, I'll match it up with the VIX and tie together its MONTHLY Pivot, WEEKLY Pivot action.

I will also revisit the dollar/yen (USD/JPY) cross rate benchmarks, where the dollar has firmed, and shown some gains against the Japanese yen. We should remember that "one reason" the major market indexes around the world fell sharply in late February, was the sudden RISE in the yen against both the U.S. dollar and the euro!

SS&P Depository Receipts (SPY) - 60-minute intervals

A pivot trader looking just at a "longer-term" MONTHLY Pivot etracement should have expected institutional computers to SELL against MONTHLY Pivot ($142.12) after seeing February's action almost test MONTHLY S2, then trade MONTHLY S1 in March. In essence, institutional computers SHOULD have tried to get squared up at $142.12.

Last week's strong move above MONTHLY Pivot $142.12, finds BUYERS today! Even with so much "bad news" (rising oil prices, new home sales). As if computers were bound and determined to buy that level and SELL premiums, if observing the VIX.

I've marked three (3) observations of the USD/JPY, where I'd have to observe that any USD/JPY jitters from equity bulls have eased.

Over the last three trading sessions, the USD/JPY has closed 118.11, 118.11 and today's 118.13, so VERY LITTLE action.

MMarket Volatility Index (VIX) - 60-minute interval

It is one thing to see a broader-market index like the SPY "peg" a PIVOT, but in my opinion, today's "jump" right to a MONTHLY Pivot and reversal in the IX, even as a closely monitored February new home sales comes in much weaker than forecasted, strongly suggests to me that institutional computers, were already set to trade BULLISH. Either that, or the February new home sales data wasn't "weaker than expected."

Major Market Bullish % changes!

At tonight's close, I should also update some changes in StockCharts.com's major market bullish %.

On Thursday of last week, StockCharts.com's narrower S&P 100 Bullish % ($BPOEX) reversed back up to "bull confirmed" status at 70%, and saw a net gain of 2 stocks (or +2%) to reversing higher point and figure buy signals today to 72%.

In this evening's Market Monitor at OptionInvestor.com, I also noted that StockCharts.com's NASDAQ-100 Bullish % ($BPNDX) reversed back up to "bear correction" status at 62%, with a net gain of 2 stocks' (or +2%) point and figure charts showing reversing higher "buy signals."

II ran through some of today's percentage gainers for the NASDAQ-100 (NDX/QQQQ) and saw Lam Research (NASDAQ:LRCX) $48.08 +1.60% giving a reversing higher PnF "buy signal" at $48.00.

MedImmune (NASDAQ:MEDI) $34.61 +1.46% was another NASDAQ-100 component giving a reversing higher PnF buy signal when it traded $35.00.

One "news item" from a fundamental standpoint that may be of interest to computer-related technology stock traders was Microsoft (NASDAQ:MSFT) $28.22 +0.71% announcing today that it has sold 20 million copies of its new Vista operating system for consumers since its January launch, outpacing sales of earlier Windows versions.

Microsoft said it included the sales from Vista copies featured on new personal computers, individual box sales of the programs, upgrades and the coupons distributed by PC manufactures in the fourth quarter that provided free discounted upgrades to Vista customers who purchased machines between Oct'06 and March'07 (remember MSFT "delayed" its Vista launch last year).br>
The company said current trends indicate that more people are buying the higher-end version of Vista than past operating systems, noting that during the same time period, the earlier Windows XP sold about 17 million versions in 2002.

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