Market Challenging Mid-Term Support 11-16-2010

Cusick's Corner
Well, the last time we heard the terms bailout and interest rate hikes, the markets were quite volatile. This recent slide continued after the close and through the night, slicing through critical support with no bid in sight. Some bulls were part of those frustrated “longs” that missed the move from Sept lows to the Oct highs. But the action into the afternoon highlights that it's more of a corrective market than a buy on the dip opportunity. The “bid” could be on the sidelines, at least while this market across the board is challenging mid-term support of the 50-Day Simple Moving Average. If the mid-term support levels are not reestablished, the bears will be in control. See you After Hours.

Stocks are broadly lower in a day of very volatile trading Tuesday. The table was set for early weakness on Wall Street after markets overseas suffered steep losses. In Asia, markets slumped after South Korea raised a key rate and the move fueled speculation that China might soon follow with a rate hike. Meanwhile, markets across Europe closed broadly lower amid ongoing worries about the European Debt Crisis and anxiety about the mounting troubles in Ireland. In the US, the domestic news was mixed. Data released before the Producer Price Index [PPI] up .4 percent in October and half as much as economists had predicted. Meanwhile, separate data showed Industrial Production flat in October. Economists were looking for an increase of .2 percent. However, the latest NAHB Homebuilder Index was a bit stronger than expected, increasing to 16 in November, compared to 15 in October and ahead of economist estimates of 15. However, volatility overseas trumped the day's economic data and stocks are deep in the red midday. The Dow Jones Industrial Average is down 183 points and the NASDAQ lost 41. Options volume is elevated and clearly more defensive, with 5.6 million calls and 5.7 million puts traded through 12:15 ET.

Bullish
Ford Motor (F) shares hit a morning high of $17.92, but gave up the gains and are now trading down 36 cents to $16.64. Options volume surged, as 329,000 calls and 223,000 puts traded on the session. One of the top trades is a block of 14,000 March 15 puts on the 83-cent bid, which looks like an opening put writer. The next biggest trade is a block of 13,192 March 17 calls at the $1.60 asking price, which looks like a buyer. These trades look like bullish positions and anticipation of gains in Ford shares through March 2011. Shares have performed well this week, helped by positive commentary from Mad Money's Jim Cramer, optimism for GM's stock offering on Wall Street Thursday, and news Monday that Ford's Super Duty has captured 50 percent of heavy duty truck market share.

Urban Outfitters (URBN) is bucking the bearish trend. Shares of the retailer rallied $3.67 to $36.41 and options volume is 4X the average daily after the retailer reported third quarter earnings that topped expectations. Shares surged on the news and December 37 calls are the most actives in URBN. 2,500 traded, as it appears that some players were taking positions in anticipation of additional upside through December. January 35 and 40 calls are busy. November 36 and December 38 puts are seeing interest as well.

Bearish
The top options trades so far today are in the iShares Emerging Markets Fund (EEM) after one strategist apparently bought the December 44 – 39 put spread at 87 cents, 43000X. With shares trading down $1.26 to $45.13 amid increasing volatility in the global financial markets, 43,000 EEM December 44 puts traded at $1.07 while 43,000 December 39 puts traded at 20 cents. The spread might be a bearish bet or maybe to hedge a portfolio. The potential pay-off (excluding commissions) is $4.13 if EEM falls an additional 13.6 percent, to $39 or less, by the December expiration.

Beazer Homes (BZH) is down amid weakness in the builders despite better-than-expected housing data. According to the National Association of Homebuilders [HAHB], sentiment among builders, as measured by HMI index, increased to 16 in November from 15 the month before. Economists were looking for a reading of 15. Nevertheless, the SPDR Homebuilder Trust (XHB), which tracks the price action of a basket of leading building companies, is off 28 cents to $15.62. Meanwhile, BZH lost 8 cents to $4.17 and one options player seems worried about additional losses in the short-term, as 4000 BZH November 4 puts were bought at a dime Tuesday morning. November options expire at the end of the week.

Unusual Volume Movers
MELA options volume is running 6X the usual, with 63,000 contracts traded and put volume accounting for 56 percent of the activity, according to data from website WhatsTrading.com.

Marvel Technology (MRVL) options activity is running 2.5X the usual, with 58,000 contracts traded and call volume representing 62 percent of the volume.

NetApp (NTAP) options volume is 3X the typical levels, with 29,000 contracts traded and put volume accounting for 69 percent of the activity.

Increasing volume is also being seen in Suncor (SU), Kohl's (KSS), and Sears (SHLD).

Implied Volatility Movers
The CBOE Volatility Index (.VIX) is seizing higher ground. The market's “fear gauge” is up 2.80 to 23 and near session highs (23.07). The volatility is running to its best levels since early October. Meanwhile, trading in VIX options is very active as well. 161,000 calls and 92,000 puts traded so far. November 21 and 22.5 calls are the most actives, as some players are perhaps banking profits on in-the-money calls ahead of the expiration. VIX November options expire tomorrow.