Tech Under Pressure 07-30-2010

Cusick’s Corner
Tech, NASDAQ continues to be under pressure and is lagging the other two major indices -- S&P and RUT. Tech needs to start to challenge that 2300 level on the NAZ Composite. The latter two indices may have confirmed a bounce in the 10 week retracement, clustering at key levels, 1050 on S&P and then breaking out which is very positive. In the commodity space, Natural Gas sector has been on the move, UNG, and for the first time in over 2 years, it is showing some momentum to the upside. We are also seeing a stronger correlation between the performance of the S&Ps and Nat Gas. There was an interesting trade today in Chesapeake Energy (CHK), a natural gas producer. A strategist purchased the CHK January 21 straddle for $4.53 (risk is $453 per contract), attempting to take advantage of some potential volatility in Natural Gas. If the underlying “blows” up either way, the client is positioned to potentially profit. See you After Hours.

Stocks battled back from early losses and are trading mixed midday Friday. The table was set for morning losses after data showed Gross Domestic Product increasing at a 2.4 percent annual rate in the second quarter, down from 3.7 percent in the first and below economist estimates of 2.5 percent. The Dow Jones Industrial Average opened sharply lower on the news. However, the early decline was orderly and the major averages found some support around 10:00 ET when data showed the Chicago Purchasing Managers Index at 62.3 in June, and much better than the 56.3 economists were expecting. Separate data showed the University of Michigan at 67.8 in late July, and also better than expectations of 67.5. The Dow Jones Industrial Average battled back to higher ground on the data and is down 25 points midday, but almost 100 points from its worse levels. The NASDAQ is flat. The CBOE Volatility Index (.VIX) edged up .30 to 24.43. Option volume is slowing, with about 2.9 million calls and 2.4 million puts traded through 11:00 ET.

Bullish
Rambus (RMBS) shares saw a spike on increasing volume and are now up 42 cents to $19.77 on unconfirmed talk the company will soon announce settlement in patent litigation. The talk is unsubstantiated, but it seems to have moved the stock mid-morning Friday. Meanwhile, options action is picking up as well. 7,700 calls and 1,250 puts traded on Rambus through midday. August 21 and 22s are the most actives, as short-term speculators focus on these out-of-the-money calls as a cheap way to play the stock’s upward momentum. August options come off the board three weeks from today.

EBAY is up and large blocks of January calls traded on the online auction company. Shares are up 23 cents to $21 and a block of 7,500 January 25 calls traded at the 56-cent asking price within thirty minutes of trading Friday. About an hour later, a block of nearly 10,000 January 30 calls traded at the 12-cent offer price. 21,000 calls and 3,300 puts have now traded in Ebay. No news on the stock to explain the relative strength in shares and bullish options trading. Earnings were reported a little over one week ago.

Bearish
The top options trade, on a rather slow day Friday, is in the iShares Silver ETF (SLV). Shares of the fund, which actually owns the metal stored in bank vaults, are up 48 cents to $17.72 and a block of 17,800 September 15 puts traded at the 13-cent Asking price in morning trading. With only 3,548 contracts of open interest, this looks like an opening put buyer. 30,000 now traded. Silver is up 43 cents to $18.05, but is down about 6.1 percent since June 18.

Louisiana Pacific (LPX) is down and calls are being sold following disappointing earnings news. The company reported a quarterly profit of 17 cents per share, and two cents below analyst estimates. Shares are down 66 cents to $7.34 and 26,300 August 9 calls have traded. The top trades are blocks traded on the 5 and 10 cent bid price. Some disappointed investors are likely liquidating positions on the earnings news. Open interest in the contract has been increasing in recent days and, at 26,100, is currently the largest position in the name.

Unusual Volume Movers
Arena Pharmaceuticals (ARNA) options volume is running 2.5X the usual, with 52,000 contracts traded and call volume accounting for about 70 percent of the activity.

Tellabs (TLAB) options activity is running 3X the usual, with 28,000 contracts traded and put volume representing 72 percent of the volume.
Genworth (GNW) options volume is running 2.5X the usual, with 22,000 traded and call volume representing 68 percent of the activity.

Unusual volume is also being seen in Coinstar (CSTR), MEMC (WFR), and Pactiv (PTV).

Implied Volatility Movers
Finisar (FNSR) options volume is picking up and implied volatility is higher, as shares display relative weakness Friday. FNSR is down $1.3 to $16 and options volume is 10X the average daily. 8,420 puts and 2,400 calls traded. No news on the stock. Shares might be falling after peer Oclaro (OCLR) slumped on earnings news. For whatever reason, the stock is down and implied volatility up 11 percent to about 50.