Big Ben Chimes In 07-21-2010

Cusick's Corner
After hearing Big Ben state that there’s “unusual uncertainty” concerning our nation’s economic outlook, market players were not really enthusiastic. Market volatility picked up after these statements -- the VIX finished up 1.71, putting more pressure on stocks. Keep an eye on the 28 level on the VIX, if broken could be a flag for some more potential pressure on securities. We have claims and housing data due out tomorrow morning, so these economic results could potentially add even more “uncertainty” to the market. See you Midday.

Stocks traded quietly through midday on mixed earnings, but then came under pressure late Wednesday following cautious commentary from Federal Reserve Chairman Ben Bernanke. With no economic data to digest, a mixed round of earnings reports guided the morning action. Apple Computer (AAPL), Morgan Stanley (MS), and Coca Cola (KO) were among the names out with better-than-expected results. The tech sector was weighed down by disappointing news from Yahoo (YHOO) and Seagate Tech (STX). The Dow Jones Industrial Average was modestly higher, but the tech-heavy NASDAQ was down a bit into midday. Then, the major averages faced a steep sell-off in afternoon trading when Fed Chairman Bernanke began his testimony before Congress. He basically rehashed concerns about the uncertain economic outlook. Maybe investors were expecting a more upbeat assessment for the future? For whatever reason, the major averages buckled when the text hit the newswires and the Dow finished down 109 points on the day and 144 points from its best levels of the session.

Bullish Flow
Sandridge Energy (SD), an Oklahoma City, OK oil and gas drilling company, lost 21 cents to $6.03 and call volume surged with 17,000 contracts traded, which was almost 10X the number of puts. Players flocked to September 6, 7, and 10 calls. The top trade of the day was a spread, where an investor apparently bought 2,432 September 9 calls and sold 3,083 September 10 calls. The spread, at a 6-cent debit, is cheap because the $9 calls are 49 percent out-of-the-money. It might seem farfetched. However, the stock did trade above that level as recently as January of this year.

Bullish order flow was also seen in Yahoo (YHOO), Anadarko Pete (APC), and BofA (BAC).

Bearish Flow
Tellabs (TLAB) shares lost 14 cents to $7.40 and options volume rose to 2.5X the average daily, with 14,000 puts and 1,600 calls traded on the session. December 7.5 puts saw the most action. 7,940 traded and, with 85 percent of the volume at the ask, it seems that put buyers were dominating the action. The increased volume is noteworthy because it marks the third consecutive day of heightened put activity in the chipmaker. Open interest in TLAB puts increased by 17K following Monday’s session and by 8,800 after a day of active trading Tuesday. It might be concern about earnings, due to be reported on July 27.

Bearish flow also picked up in Wynn Resorts (WYNN), Cemex (CX), and Lam Research (LRCX).

Index Trading
The US Dollar Settled Currency Euro Index (.XDE) saw more action than usual. The index, which tracks the price action of the Euro vs. Dollar currency pair (X100) finished the day down 1.32 to 127.53 on a rough day for the European currency. Meanwhile, in the index market, volume hit 3X the average daily. 2,420 puts and 55 calls traded on the index. October 132 puts were the most actives, and included some lots traded on the $5.56 and $5.60 asking price. 1500 traded and these investors were paying hefty premium for the in-the-money puts, probably initiating buy orders and looking for the euro to lose additional ground against the dollar during the months ahead.

ETF Trading
Market Vectors Russia Fund (RSX), which is an exchange-traded fund that lets investors participate in the performance of Russia’s equity markets, lost 13 cents to $30.01 per share. The options order flow was interesting, as it seemed dominated by speculative call buyers. For example, the August 30 call option traded 5,200 contracts and nearly all of the volume was at the offer. The top trade was a block of 1,700 traded at $1.40 and appears to be an opening position in anticipation of gains in the fund during the weeks ahead. August options expire in 30 days.