Option Investor
Market Wrap

Oil Prices Ease; Record Receipts Has Budget Deficit Shrinking

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Stocks rebounded strongly to start the week and built gains toward the close as a combination of easing oil prices and record tax receipts for the month of April bolstered investor sentiment.

The major averages opened modestly higher, then sunk into negative territory just after the 10:00 AM mark when June Crude Oil futures (cl08m) lurched to another record high of $126.40.

CNBC reported later in the afternoon that there were reports out of China that its oil imports declined 4.00% for the month. While I could find no news to confirm those reports, June Crude Oil did settle down $1.73, or -1.37% at $124.23. It was the first decline for June crude since May 2nd.

Other energy complexes tracked lower with June Heating Oil (ho08m) retreating $0.0762, or -2.10% to settle at $3.5598 after last week's 12.96% surge, spurred largely by Wednesday's EIA weekly inventory report.

June Unleaded (rb08m) settled down $0.037, or -1.16% at $3.1642.

Just after todays close, the EIA reported that the national average for gasoline prices rose nearly 11-cents per gallon last week to a record $3.722/gallon.

Natural gas prices also retreated with June Nat. Gas futures (ng08m) settling back $0.2360, or -2.05% at $11.301.

Today's "top story" in my opinion looks to have caught several traders off guard. Including me!

I had tried to get an early start on tonight's Market Wrap, but just as I try to plan anything, today's 02:00 PM EDT release of the Congressional Budget status for April sent stocks notably higher to the close, and had the dollar reversing some of its earlier-session losses.

Monthly Tax Receipts, Outlays & Deficit/Surplus

Perhaps one of the more shocking economic reports we've received so far this year had the Treasury reporting record revenue receipts of $403.75 billion for April'08, which for the first seven months of this budget year (begins October), revenues have totaled $1.55 trillion, up 3% from the same period a year ago.

While the April 15 tax deadline usually finds a notable increase in revenues, the year-over-year comparisons raised some eye browse from economists that had forecasted a severe recession for the U.S.

While revenues from tax receipts showed a gain, outlays were also high on a year-over-year basis.

Through the first seven months of this budget year, the federal deficit totals $152.2 billion, nearly double the $80.8 billion deficit during the same period in 2007.

With the dollar having shown some sign of stability in the recent month, traders, investors and economists continue to monitor the U.S. deficit closely as economic growth/slowing will significantly impact tax revenues.

While the deficit in 2007 dropped to a five-year low of $162.8 billion (see table above), many economists expected the deficit to rise significantly this year because of economic weakening and extra spending in such areas as the recently announced $168 billion economic stimulus package and the funding of the war in Iraq.

U.S. Market Watch - (05:00 PM EDT)

Financials were atop today's list of sector winners, recouping some of last week's gains. Several of the mortgage insurers reported earnings today, and while weak, may not have been "as weak" as some feared.

MBIA Inc. (NYSE:MBI) $9.85 +4.45% held gains to the after posting a $2.41 billion first quarter loss.

Shares of Research-in-Motion (NASDAQ:RIMM) $141.97 +6.92% closed at a record high as the handheld electronic maker introduces its first major new BlackBerry model in more than a year.

But today's most noteworthy gainer came late in the session when shares of Electronic Data Systems (NYSE:EDS) $24.00 +27.25 jumped more than $5.00 before being halted for trade.

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Just when I noticed that shares of Hewlett Packard (NYSE:HPQ) $46.83 -4.68% had reversed earlier session gains, it too was halted for trade.

Not long after both stocks were halted, Hewlett Packard said it is in talks with EDS about a possible acquisition.

Option-Expiration Gyrations

As we head into this week's option expiration for May, the major averages look choppy, but today's volatility action (see VIX.X, and VXN.X) lower and price action looks like buyers could be pressed into Friday's expiration.

SPY and DIA Montage - Daily Intervals

Last week's action may have brought some jitters to bulls as the major averages "gravitated" back lower to this month "Max Pain" theory values for the various tracker like the SPY and DIA.

"Max Pain" Theory values are simply a culmination of all put and call open interest for an index, or a stock that has option traded on them and price action into an expiration can be choppy and volatile.

The ability for both the SPY and DIA to hold steady at their respective "Max Pain" Theory values suggests that institutional traders aren't necessarily to relinquish their hold on these two indices.

The S&P Depository Receipts (SPY) remain the only major equity average to still trade below its downward trend.

IWM and QQQQ Montage - Daily Intervals

Just as the SPY and DIA hold above their May "Max Pain" Theory values, so does the small caps of the IWM and the large caps at the NASDAQ with the QQQQ.

Apple Computer (AAPL) $188.16 +2.56%, the most HEAVILY weighted stock in the QQQQ remains a big driver. Today, AAPL said its online inventory of the iPod is now "sold out" in both the U.S. and the U.K., which continues to draw speculation that the company is set to announce it next generation of the popular device.

 

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