It's Inverted Hammer-time! Can't Touch This? 06-10-2010

Cusick's Corner
The Euro is up -- overseas markets showed strength. There has been some flight from safety today – Gold is down, Dollar down and money has flowed to other sectors like Energy. BP is up after yesterday’s plunge in the stock (see Implied Volatility Movers) and Transocean (RIG) has bounced back as well. Goldman Sachs (GS) is dragging down the Financials today after the SEC announced another investigation. For those technical analysts out there, an Inverted Hammer showed up on the SPX yesterday. (Check our Basic Charts and tick the Technical Chart Patterns box to see it.) An Inverted Hammer occurs during a sustained downtrend and indicates that the downtrend may be about to end in the short-term, reversing to an uptrend or moving sideways. (More info on this formation under the Education Center > Stocks.) This is a pattern that would require more confirmation the day after the candle is formed (today). So we have to look if the price closes higher today compared to the body of the Inverted Hammer. HAWKS WIN! See you After Hours.

Stocks are broadly higher following a round of mixed economic news and a sharp rally in the euro. The European currency rallied overnight and was recently up .0101 to 1.2081 against the dollar. The gains in the euro helped to ease some of the recent concerns about the European debt problems and the potential impact of the crisis on the global economy. Europe’s equity markets also rallied, with a 2 percent gain in France’s CAC 40 Index pacing the advance. Meanwhile, the domestic news was mixed. Data released before the opening bell showed weekly jobless claims falling by 3,000 to 456,000 in the period ended June 5. Economists were expecting a larger drop, to 450,000. Meanwhile, a separate report showed April trade balance at to $40.3 billion, from $40 billion in March and better than the $41.3 billion economists had expected. In the end, the events across the Atlantic continue to dwarf any domestic news and the Dow Jones Industrial Average is rallying along with the euro. The Dow is up 170 points midday. The CBOE Volatility Index (.VIX) fell to 29.69 and was recently down 2.57 to 31.16. Options volume is running about the typical levels, with 3.8 million calls and 3.9 million puts traded at 12:30 ET.

Bullish
ARM Holdings (ARMH) hit a high of $13.01 and was recently up 66 cents to $12.37 per share. The British chip maker rallied overnight on talk Apple Computer (AAPL) might make a bid for the company. It’s unsubstantiated, but the talk triggered a gap higher in ARMH shares at the start of trading in the US and options action is running 5X the average daily, with 11K calls and 2,800 puts traded so far. July 10 calls are the most actives, with 3,130 traded and some investors likely exiting positions after the recent run higher in shares. October 10, 12.5, and 15 calls are among the most actives as well.

Dow Chemical (DOW) is up 67 cents to $12.38 and options action includes more than 13,000 July 20 puts. 6,000 were sold at an average of 19 cents in morning trading, according to an exchange-floor contact. Since open interest is only 287 contracts, this appears to be an opening put writer taking a new position. It’s a bullish play. By selling these puts, the strategist is making a statement that they are willing buyers of shares at $20 through the July expiration.

Bearish
Walgreens (WAG) shares are down 81 cents to $29.02 and options volume is 3.5X the recent average daily amid concerns about the drug retailer’s battle with rival CVS. The issue revolves around their pharmacy benefits management arrangement. Shares of Walgreens fell early in the week after the company unveiled plans to end any new drug plans with CVS’ PBM network. WAG is down almost 6 percent on the week. Some players are bracing for additional losses and there’s active trading in June 28 and 29 puts Thursday with 3,050 and 2,700 contracts traded respectively.

Altria (MO) puts are seeing heavy trading ahead of a Supreme Court appeals court ruling later this month. 66,000 contracts traded midday. The action includes 34,000 July 20 puts. June and December 20 puts are seeing interest as well. Implied volatility has risen from about 26 to 32.5 in the past week, as players in the options market taken positions ahead of the decision.

Unusual Volume Movers
Harley Davidson (HOG) options volume is running 8X the usual, with 68,000 contracts traded and call volume accounting for about 72 percent of the activity.

CVS options activity is running 2X the usual, with 38,000 contracts traded and put volume representing 69 percent of the volume.

A-Power (APWR) options volume is running 9X the usual, with 17,000 traded and call volume representing 64 percent of the activity.

Unusual volume is also being seen in Smithfield Foods (SFD), Vodafone (VOD), and MannKind (MNKD).

Implied Volatility Movers
BP implied volatility is easing after surging to record highs on bankruptcy fears Wednesday. Shares gained $2.57 to $31.77 and found some support from reassuring words from company executives. Meanwhile, options action remains brisk. Another 167,000 calls and 253,000 puts traded on the energy giant. Meanwhile, implied volatility is down 11 percent, but remains elevated around 105.