Two Sectors Pick Up Performance 09-29-2010

Cusick's Corner
The market is stuck, hitting its head at 1150 resistance on the S&Ps and finally getting the back of the pack, both Financials (XLF) and Energy (XLE) to pick up their lackluster performance. While this is encouraging to the bulls, veteran market watchers are becoming more skeptical of the sustainability of this latest move which may become more warranted if we do not get through resistance with authority and volume. Watch for potentially unusual volume, check out the Dragon tool, especially in puts where larger players may start to buy cheap insurance for the next 1-2 months (there was action in the EWJ, DTV, JWN). See you After Hours.

Major averages are little changed through midday Wednesday. With no economic data or earnings to guide the morning action, the tone of trading was cautious following a day of strikes and protests in Europe. There are concerns that opposition to recently announced austerity measures to help debt ridden countries like Spain and Greece will derail policies designed to solve the debt crisis. Major averages fell across Europe, paced by a .7 percent decline in France's CAC 40 Index. The decline was orderly, however, and there isn't much volatility on Wall Street either. The Dow Jones Industrial Average is off 5 points and the NASDAQ is flat through midday. The CBOE Volatility Index (.VIX) added .20 to 22.80. Options volume is running about the typical pace, with 3.6 million calls and 2.8 million puts traded by 12:30 ET.

Bullish
Hewlett Packard (HPQ) is up 2.3 percent to $42.57 and the best gainer in the Dow Jones Industrial Average Wednesday after the computer maker raised its earnings guidance late-Tuesday. Shares are up and a noteworthy spread early Wednesday is a three-legged play. One investor apparently sold a block of 13,500 January 37 puts at 97 cents and bought the January 42 - 48 call spread 13,500X for $2.17. The strategist sold the puts to help finance the call spread, perhaps betting that shares will continue rallying through early 2011. By selling the $37 puts, they also appear to be making the statement that they are willing to buy shares at that price level.

Schlumberger (SLB) shares are up $1.67 to $61.96 on a good day for the oil drillers after crude oil gained $1.40 to $77.58 a barrel. SLB is seeing relative strength and options activity is picking up as well. About 19,000 calls and 5,000 puts traded through midday. October 60 calls are the most actives. 6,930 contracts traded so far. October 62.5 and November 65 calls are seeing active trading as well.

Bearish
Green Mountain Coffee Roasters (GMCR) plummeted $5.19 to $31.82 and options volume is 9X the average daily on news the SEC is conducting an inquiry into the company's revenue recognition practices. Shares are reeling and 105,000 options have traded on the ticker, including 55,000 calls and 50,000 puts. October 27 puts are the most actives. 8,500 traded, as some investors scramble and brace for additional downside in GMCR.

IShares Japan Fund (EWJ) is little changed, up 7 cents to $10.03, after the widely watched Tankan Survey painted a mixed picture for the Japanese economy. While the report showed improvement in business conditions, the data pointed to pessimism among the country's manufacturers. In options action, volume in EWJ is twice the average daily, with about 17,000 puts and 700 calls traded so far. Most of the action is in the March 9 puts, which were apparently being bought at 23 cents per contract in morning trading Wednesday.

Unusual Volume Movers
Micron Technology (MU) options volume is running 9X the usual, with 61,000 contracts traded and call volume accounting for about 81 percent of the activity.

Family Dollar Stores (FDO) options activity is running 12X the usual, with 57,000 contracts traded and put volume representing 80 percent of the volume.
Amgen (AMGN) options volume is 3X the typical levels, with 36,000 contracts traded and call volume accounting for 56 percent of the activity.

Increasing volume is also being seen in Blue Coat Systems (BCSI), Visa (V), and Schlumberger (SLB).

Implied Volatility Movers
Blue Coat Systems (BCSI) shares are rallying and implied volatility is elevated amid takeover speculation Wednesday. It's unsubstantiated, but investors seem to be reacting. 20,000 calls and 2,400 puts traded in the name so far. Shares are up 6.4 percent to $24.78 and implied volatility rose 10.5 percent to 53.