Three Sectors Lagging 06-18-2010

Cusick’s Corner
The market did nothing into the After Hours. Trading was choppy and there were very few headlines. Over the weekend, take some time to focus on the market trend. The market continues to be in a bull trend since July of last year, but three sectors seem to be lagging, most notably Housing (XHB), Finance (XLF), and Retail (XRT). These sectors have not been able to break out into new highs, unlike Gold (GLD), which could start to possibly hamper this current run. The only one of these three that looks to have the potential to break out is Retail. If Retail (XRT) can breakout above resistance, roughly $40, it could run to late April highs of $45. Well folks, have to run, they are asking us to leave the Chicago Board of Trade building because of high winds. Have a good weekend and see you Midday.

The major averages finished with modest gains on a surprisingly slow trading day Friday. The options expiration offered very little excitement, as volume was light and trading slowed to a crawl ahead of the weekend. Only about 7.7 million calls and 6.5 million puts traded, or 93 percent the recent average daily volume for the listed options market. Meanwhile, with no economic data or earnings to guide the action, the Dow Jones Industrial Average opened steady and stayed in narrow 59-point range throughout the trading session. The Dow finished the day up 17 points and the NASDAQ added 2.6.

Bullish Flow
While the equity market saw slow trading, gold rallied to new record highs near $1260 an ounce. Options action heated up in some of the gold miners, including Barrick Gold (ABX). Shares of the largest miner by market value added $1.56 to $46.38 and options volume hit 2.5X the average daily levels, with 49,000 calls and 24,000 puts traded. The top trade was in the July 44 put – 48 call “risk-reversal”, which was apparently sold at 19 cents, 3700X. This appears to be part of a short-term collar strategy, where an investor bought a large block of shares and hedged that position by purchasing July 44 puts. The sale of July 48 calls paid for the puts (plus a 19-cent credit). The trade is a hedged play and one with a bullish bias, as it makes its best profits if shares are at $48 by the July expiration, which is now four weeks away.

Bullish order flow was also seen in Cirrus Logic (CRUS), Anadarko Petroleum (APC), and Newmont Mining (NEM).

Bearish Flow
Liberty Media (LINTA) saw unusual volume as the stock tanked and implied volatility jumped on no obvious news. Shares sank 8 percent to $12.35 and were by far the biggest losers in the NASDAQ 100. Meanwhile, options volume rose to 34X the recent average daily levels, with 4,130 puts and 240 calls traded. Players were scrambling to buy July 10 puts as shares tumbled. 3,780 traded. Implied volatility jumped 9 percent to 49.5.

Bearish flow also picked up in Oracle (ORCL), Smith and Wesson (SWHC), and IBM.

Index Trading
The CBOE Volatility Index (.VIX) fell 1.10 to 23.95 and lost nearly 5 points on the week. The decline in the VIX comes as the euro recovers lost ground and fears about the European Debt Crisis momentarily subside. Meanwhile, the market is approaching the summer doldrums, which is often a period of lower volume and lessened volatility. Friday, for example, 409,000 calls and 621,000 puts traded across the S&P 500 Index and other cash indexes, which is about 72 percent the recent average daily volume for the index market.

ETF Trading
IShares Brazil Fund (EWZ) added 38 cents to $67.20 and a noteworthy spread traded in the June 73 put – July 66 put (1X2) ratio spread after an investor apparently sold-to-close 20,000 June 73 puts at $5.95 per contract to buy-to-open 40,000 July 66 puts at $2.56. The strategist was likely banking a profit and looking to avoid assignment on the in-the-money June puts and then rolling to a new position, twice the size, in the July out-of-the-money put options. It’s likely a move by an institutional investor looking to hedge their exposure to Brazil’s equity markets.