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Buying Mood Brings the Dow Back Above 12,700

By: Schaeffer's Investment Research
Posted: 5/15/2012 8:30:00 AM
Referenced Stocks: CBOE;CPI;FB;HD;SPX

After falling as far south as 12,661.48 in yesterday's session, investors have emerged this morning determined to pull the Dow Jones Industrial Average (DJI) back above the 12,700 mark. A promising GDP report from the euro zone has encouraged a bullish climate, with futures on all three major market indexes modestly higher heading into today's session.

Among equities in focus, Facebook prepared for Friday's initial public offering (IPO) with a price hike; Groupon (GRPN ) is on pace for an earnings-induced pop; and Dick's Sporting Goods (DKS ) may see some additional short-covering activity following its quarterly announcement.

And now, on to the numbers...

Dow, S&P and Nasdaq futures

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 971,488 call contracts traded on Monday, compared to 831,844 put contracts. The resultant single-session put/call ratio arrived at 0.86, while the 21-day moving average was 0.71.

NYSE and Nasdaq summary

Volatility indices

Daily Chart of VIX since December 2011 With 140-Day Moving Average

From the Trading Floor

Sapp points out that the " 1,333 mark continues to be the level on the SPX that must hold for the bulls. It's double the March 2009 low of 666, and served as support in February. Below there, it could run to 1,300 in a hurry."

Elsewhere, Sapp continues, " Sentiment continues to worsen. However, it's impossible for the market to put in a short-term bottom when there continues to be bad news in Europe every morning. As long as European bond yields continue to drop, it's going to be very tough for the market to bounce."

Currencies and Commodities

Currencies and commodities

Late Monday, The Wall Street Journal reported that social media maven Facebook Inc. ( FB ) raised the expected price of its IPO to $34 to $38 per share from $28 to $35 per share, as demand to get a cut of the company swells. The new per-share price range raises the valuation of the company to $93 billion to $104 billion. FB is scheduled to go public this Friday, May 18.

In earnings news, Groupon, Inc. (GRPN - 11.73) said its first-quarter loss narrowed to $11.7 million, or 2 cents per share. Excluding items, the online coupon concern reported a per-share profit of 2 cents, while revenue swelled 89% to $559.3 million. The results beat analysts' expectations for adjusted earnings of 1 cent per share on $530.6 million in sales. Short-term calls were the options of choice ahead of earnings, with GRPN's Schaeffer's open interest ratio (SOIR) checking in at 0.70. The stock is set to jump more than 25% right out of the gate.

Dick's Sporting Goods (DKS - 47.24) banked a first-quarter profit of $57.2 million, or 45 cents per share, up 53% on a year-over-year basis. Sales for the period improved 15% to $1.3 billion, aided by an 8% rise in same-store sales. Analysts, on average, were expecting a profit of 38 cents per share on $1.23 billion in sales. For the full fiscal year, DKS hiked its earnings forecast to a range between $2.45 and $2.48 per share, topping Wall Street's view of $2.43 per share. Short interest declined by 1.9% in the latest reporting period, but still accounts for a lofty 8% of the stock's float. DKS is up 4.8% in pre-market trading.

Earnings and Economic Data

Today's economic calendar features the latest data on retail sales and business inventories, along with the consumer price index ( CPI ) , Empire State manufacturing index , and the National Association of Home Builders (NAHB) housing market index . Companies on deck to report earnings include Home Depot ( HD ) , J.C. Penney (JCP), Saks (SKS) , and SINA Corporation (SINA).

Overseas Trading

Asian markets ended mostly lower today, as traders took their cues from Wall Street's bearish start to the week. Equities with heavy exposure to Europe were among the most notable decliners, despite reassurances from euro-zone finance ministers that there are no immediate plans for Greece to break away from the 17-nation bloc. However, Internet heavyweight Tencent Holdings bucked the selling trend in Hong Kong, with investors pricing in some optimism ahead of Facebook's forthcoming IPO pricing. By the close, Japan's Nikkei and South Korea's Kospi each fell 0.8%, China's Shanghai Composite lost 0.3%, and Hong Kong's Hang Seng added 0.8%.

Stocks in Europe have climbed out of the basement at midday, after a report showed that Germany's economy expanded by 0.5% in the first quarter. The solid showing helped the broader euro-zone dodge a contraction, with the region's composite GDP remaining flat for the three-month period. At last look, the French CAC 40 is up 0.6%, the German DAX has gained 0.3%, and London's FTSE 100 is off 0.02%.

Overseas markets

Unusual Put and Call Activity:

For an explanation of how to use this information, check out our Education Center topics on Option Volume and Open Interest Configurations .

Unusual options activity - puts

Unusual options activity - calls

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