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Morning Rage 9.20.2012

Bad news across the Atlantic continues with a sharp loss in the services industry for European countries. Yesterday, housing starts and permits reports were lower than expected, but still within range of analysis expectations. Existing home sales grew 7.0%.

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Rite Aid Corp. (RAD| +0.77% [1.34]) released earnings reports this morning and posted 41.4M in losses, an improvement from the same quarter of last year’s 94.8M losses. Analysts expected a loss of $0.07 a share and Rite Aid beat the expectation, losing only $0.05 a share.Weekly jobless claims reports are released this morning at 8:30am EST with an expected claim drop at about ten thousand this week. The Philadelphia Fed survey will follow at 10:00am, which is an index of general business and manufacturing conditions. The index is expected to decline, but at a lesser pace than last month.

Other post-earnings stocks to keep your eyes on are Bed, Bath, and Beyond (BBBY | 68.79) which is down $-3.44, or 5%, after higher costs left earnings unable to meet analysts’ expectations. Expectations were higher this quarter because of improved government data on same-industry sales.

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You Can't Fight the Fed 9.19.2012

1. The market will continue higher throughout the rest of the year.   
2. Obama will win the Presidency.
3. The government will print money till the cows come home, driving up the price of gold with inflation bound to happen.

The stock market is being bought on any dip and I think it will continue until next year. I expect a huge sell off in 2013.  The word “recession” is thrown around way too often, there is a slowdown in China, and troubles in Europe are still looming overhead. However, now is not the time to get short, price action and price momentum is too strong to play against. There has been a slew of upside call buyers in 2014 in gold and silver miners indicating these stock will continue to go up as long as QE infinity goes on.  You can’t fight the Fed..  .

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Is $700 More Than Just a Number for AAPL? (Pin Risk History and Analysis) 9.19.2012

   It is interesting to point out and remember that one man’s floor is another man’s panic point; this is essentially at the core of volume related technical studies.   The individual perception of what seems to be logical during panic, euphoria, or complacency all makes a market at a price. The question becomes how do we get to theses prices or large round numbers? Maybe a certain amount of rounding must be done… it is interesting to note that of 11 of the 15 biggest analysts on the street have large round numbers as price targets on AAPL (ie ending in a 0), but this is not breaking news…what is the trade on this and what may cause these large round numbers? The answer is pin risk in the derivatives market.     

As of the close on Tuesday (09/18/12) AAPL was trading at $701.95. Last year at this time, the same question could have been asked, for AAPL was a mere 1% away from a new all time high. Lone behold on that expiration Friday AAPL pinned right on $400 (see Sep. 2011 quote below). The following Monday AAPL made a new all time high…raging to $411.         

September is traditionally a slow month, so open interest can be powerful tool during this month. Hedgers and speculators square up their positions, for they do not know if they will be assigned or expire ITM. Open interest at the $400 line was roughly 30,000 on the calls and 21,000 on the puts. Exhibit 2 below visualizes the open interest of the September 2011 options on both sides.

In September of 2010 (exhibit 3) AAPL pins directly equidistant from the $270 and $280 strike. Then in 2009 AAPL pinned right on $185. And finally in 2008 AAPL went out at $140.91, not as strong as the other months, but still noteworthy.

E-mail the author with any comments or inquiry…

mark@keeneonthemarket.com

Data courtesy of Thinkorswim