Lagging Sectors That Need More Momentum 08-31-2010

Cusick’s Corner
The market has held up this Midday with the help from a better than expected 53.5 Consumer Confidence number, in spite of a strong push back to the 1040 level earlier in the session. We are waiting for the dissection of the latest Fed minutes, but after the action yesterday on light volume, I am having a hard time believing that we are going to see any movement on the volume side into the holiday weekend. Watch Tech, XLK, and the Small Caps, IWM, these have been lagging and if any upside has a chance, these segments need to get more momentum. See you After Hours.

Major averages are holding modest gains on better-than-expected economic news Tuesday. Data released early showed the Case-Shiller 20 City Index up 4.23 percent in June and better than the 3.1 percent increase that economists had predicted. Later, the Chicago PMI showed a drop to 56.7 in August, down from 62.3 the month before. Economists were looking for the gauge of manufacturing activity to fall to 57. However, the latest Consumer Confidence Index surprised to the upside, increasing to 53.5 in August; from 51 in July and much better than the 50.0 reading that economists were anticipating. The Dow Jones Industrial Average rallied on the consumer confidence headline and is up 43 points through midday. The NASDAQ added 4.5. The CBOE Volatility Index (.VIX) lost 1.03 to 26.18. Options volume is picking up from Monday’s slow pace, with about 3 million calls and 2.7 million puts traded through 12:30 ET.

Bullish
Some of the mining names are seeing relative strength after gold gained $10.50 to $1,248.50 an ounce Tuesday. Newmont Mining (NEM) is one of them. Shares added $1.66 to $61.58 and options volume is running 2X the typical levels, with about 17,000 calls and 4,080 puts traded so far. Players are showing the most interest in September 62.5, September 65 and March 55 call options.

The top options trade today is in the Select Sector Financial ETF (XLF). The fund, which holds all of the financial-related names from the S&P 500, hit a morning low of $13.33, but is up a dime to $13.54 midday. Meanwhile, the big options trade was in the December 15 calls after one investor bought 50,000 at 34 cents per contract. A bullish trader, or someone looking for the ETF to rally beyond $15 by the December expiration, might have initiated this massive options trade.

Bearish
A noteworthy butterfly spread trades in the iShares Small Cap Fund (IWM) Monday morning. Shares are up 15 cents to $60.45 and one investor initiated a put butterfly spread in the October puts, apparently selling 20,000 of the 55 strike for the body of the butterfly while buying the 51 and 59 puts for the wings. This fly traded at 55 cents and, excluding commissions, offers a possible $3.45 pay-off if shares fall to $55 by the October expiration; which represents a decline of about 9 percent from current levels.

Immunogen (IMGN), a Waltham, MA biotech, lost 16 cents to $5.50 and options volume is 15X the average daily, driven by a seller of 5000 January 7.5 calls at 35 cents per contract. Shares tumbled nearly 40 percent last week after the FDA rejected Immunogen’s cancer drug. This call writer appears to be taking a new position and possibly betting that shares will remain below 7.5 through January 2011. It might also be a shareholder writing calls to generate some income off the battered shares.

Unusual Volume Movers
Brocade (BRCD) options volume is running 2X the usual, with 41,000 contracts traded and call volume accounting for about 94 percent of the activity.

Monsanto (MON) options activity is running 2X the usual, with 39,000 contracts traded and call volume representing 57 percent of the volume.
Verisign (VRSN) options volume is running 4X the usual, with 24,000 traded and put volume representing 97 percent of the activity.

Unusual volume is also being seen in Hecla Mining (HL), EOG Resources (EOG), and Omnicare (OCR).

Implied Volatility Movers
Saks (SKS) implied volatility is surging along with the share price. The stock moved higher early after the Daily Mail, a British newspaper, said a consortium of investors could make an $11 per share cash offer for SKS. Shares are up 22 percent to $8.05 on the buyout speculation and implied volatility jumped to 83, up nearly 40 percent from the day before.