EARLY TRADE

A declining Yen, relief over the now infamous carry trade and overseas gains translate into a strong gap higher and an unperturbed bull apparently still roaming. As of 10:45 ET, the S&P500 ($SPX) and NASDAQ Composite ($COMPQ) are up 1.01% to 1.07% on phantom gaps and less volatile conditions.

How do you spell relief? For Wall Street it's about potentially overblown concerns regarding Asian economies cooling down for certain. It's also about liquidity coming back to a now popularized dislocated asset trade involving the Yen. And just as important, it's about the quick about face of a previously risk-averse investor willing to ‘snap up shares' at a premium in front of key data and generally disappointing same store sales results.

Monthly same-store sales could have rained on the bulls or the more likely Invisible Hand's upside parade. However, thus far mostly disappointing results haven't ruffled the bullish threads being purchased in the major indices. Highlighting the day's releases, Wal-Mart (WMT), the world's largest retailer missed expectations by .6% with a figure of .9%, Wholesaler Costco (COST) reported a 4.0% gain versus estimates of 5.3% and department store giant Federated (FD) also missed. With that being said, Wall Street was apparently preparing for weaker-than-expected results due to bitter cold in much of the country. And with investors now ‘free' to focus on the more influential March sales figures, relief (well kinda) is also being donned in all of the fore mentioned names. I guess you could call it "Spring Wear for investors."

On the economic front, the news is mixed but of secondary interest to Thursday's big headlines citing the bottom is in. The April crude contract is consolidating quietly after a move back through $61-a-barrel [down -.24 at 61.58] and a rather touchy area for bulls concerned its effect on consumer spending and corporate profits. On the officially sanctioned side of the equation, weekly claims figures fell by 10,000 to 328K and below consensus forecasts of 335K. That of course, could be seen as a good bit of news for market bulls. However, with futures up handily in the premarket and in front of the results, the reaction by investors was very much subdued. With less people applying for benefits than the Street anticipated, though, the data does work in favor of bulls trying to get past recent chatter and increased anxieties of a weakening economy. Furthermore, with investors still bracing (somewhat) for Friday's monthly jobs data, can we honestly blame them for not making today's economic evidence key to the current gapping of the bull?

Elsewhere, leadership for the market is broad-based in Thursday's first half, albeit doing the proverbial "Sit Ubu Sit" routine after strong gaps in most areas. Showing relative strength moxy out-the-gate, the hard hit commodities arena is tacking on gains (XME, XLB, GLD, GDX, SLV) and claiming the top spot for sector and industry group traders. Broker / Dealers (IAI), typically thought to be a leading barometer of where the market is heading, are also seeing strong percentage gains of 2.35% after being in the popularized position of being oversold short-term. And finally, the semiconductors (SMH), a group both loved and loathed of late for doing all kinds of mischievous technical tricks of late, is tacking on gains of about 1.50%. Within the sector, semi equipment manufacturers Applied Materials (AMAT) and KLA-Tencor (KLAC) received analyst nods of approval.   

GROWTH & MOVERS COVERAGE

EARNINGS CALENDAR

Select reports scheduled after the market close and in the premarket:

REPORT CALENDAR

Economic releases on tap:

INDICES & MARKET MOOD

One area not showing the ‘right stuff' is biotech (IBB, BBH) and names like Amgen (AMGN), Genzyme (GENZ), Biogen (BIIB) and "DNA" or Genentech. The homebuilders (XHB) are another interesting group to watch (KBH, PHM, BZH). On the heels of DR Horton's (DHI) "…is going to suck, all 12 months" bit of candor by the CEO; traders could say the price action is admirable. Personally, I'm not sure, but the group's consolidation is likely to produce a nice leg once broken in either direction.

Another part of the market also declining and giving fair warning is the CBOE Volatility Index ($VIX). It's true the recent panic fling to 20%, the highest levels in nine months, could have been appreciated for non directional strategy attempts such as the Short Iron Condor in the Russell2000 (IWM). In fact, that particular one had been written about in recent commentary elsewhere. However, the current swift three-day retreat of 30% to an absolute percentage level of 13.50% appears overdone in its own right. Some analysts / traders will disagree with the observation. In fact, some will point to the move in the VIX as simply being a reflection of investors' newfound awareness that last week's global sell-off has little real impact on the US economy's fundamentals.

Personally, that type of analysis reeks of wishful thinking while ignoring the real big picture, namely the monthly chart. When we look there for answers, rather than convenient headline and hindsight reasons for acting, that picture says somewhat forcefully, that the "V" bottom being embraced is not likely to win the popularity contest in the coming days. With that said, while something along the lines of a FTD would be nice, a buy signal at this juncture is going to take a little bit more to get this very neutral participant to act with any directional abandon. 

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.

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