S&P 500 Looks to Stay in 1160-1220 Range 11-22-2010

Cusick's Corner
The market is trading a lot like what the weather looks like going into the holiday week, unpredictable and potentially messy. The current environment spells a consolidation is actively in play, meaning we should have some declines and rallies that look to flow into the first quarter of next year. The S&P 500 looks like it will stay in a range of 1160-1220 and the question that I often get is how I pick bottoms. I say go to med school and practice proctology, but you could use a momentum indicator like RSI, anywhere from 14-25 periods on a Daily chart. If you see a move from .25 and then turns up, until it gets to the 1.0 level the momentum would be on the side of the corrective phase. At this stage we are at .49 and the market has stayed in this recent corrective stage. One sector that you can watch is Finance, XLF; it needs to lead up and at this juncture it is not. Watch $14.25 in the XLF, if it breaks that level, signals a potentially deeper corrective move for Finance and potentially the general market. See you After Hours.

Major averages are lower on concerns about problems in the financial world. Although Ireland reluctantly agreed to EU and IMF loans over the weekend, stocks moved broadly lower across Europe on worries the problems will spread to other countries like Portugal and Spain. Meanwhile, in the US, there was no economic news to guide the morning trading and the focus is on the financials after the Wall Street Journal reported over the weekend that a number of brokerage firms are now the subjects of a large insider-trading probe. Meanwhile, Barron's, in an article titled “Banks Face Another Mortgage Crisis”, reports that major US banks still face massive losses related to the sub-prime mortgage debacle. Consequently, the Dow Jones Industrial Average is down 96 points midday, weighed down by BofA (BAC), JP Morgan (JPM), and GE. However, the NASDAQ is flat. Options volume is running about the typical levels, with 3.7 million calls and 2.8 million puts traded through 12:00 ET.

Bullish
20,000 call options traded on Cirrus Logic (CRUS) so far today. Shares are up $1.50 to $15.32 and seeing relative strength after Jefferies analysts raised the rating on the stock to Buy from Hold. The firm says it is increasingly confident that Apple (AAPL) will incorporate Cirrus Logic products into next generation iPhone, iPad and other devices. Shares are rallying and investors are showing a lot of interest in December 14, 15, 16 and 17.5 call options.

Banco Bilboa (BBVA), the Spanish bank, loses 62 cents to $11.07 on worries the European Debt Crisis is deepening and creating increasing risk for countries like Spain and Portugal. Greece and Ireland have already needed help. However, while BBVA is trading 5.3 percent lower, the options order flow includes an apparent morning buyer of 2,500 January $11 calls at 95 cents per contract. It looks like a new positioning, as 5,863 contracts now traded and existing open interest is only 68 contracts.

Bearish
Tyson (TSN) shares are up 58 cents to $16.22 after the company reported a quarterly profit that topped analyst estimates. Yet, while shares are up, the options order flow seems somewhat bearish, as 17,000 puts and 3,000 calls traded on the meat producer. Most of the action is due to one spread trade, in which an investor apparently bought 8,000 January 15 puts at an average of 42.5 cents and sold 8,000 January 12.5 puts at a dime. This looks like a vertical put spread and maybe to hedge the recent gains in the shares.

Speaking of hedging, large put spreads traded in the iShares Small Cap Fund (IWM) Monday morning. Shares lost 56 cents to $71.89 and early trades included December 70 – 68 put spreads, about 20,000 on the International Securities Exchange [ISE]. Looks like 44 cents was being paid for the spread and is likely a portfolio manager buying the spread as a hedge. Similarly, another big spread in the small cap fund Monday morning was a December 69 – 66 put ratio spread, in which the investor bought 20,000 December 69s and sold 40,000 December 66s. The 1X2 put ratio spread, for a net debit of ten cents, will perform will if shares fall to $66 (-8.2 percent) by the December expiration.

Unusual Volume Movers
HP (HPQ) options volume is running 2X the usual, with 80,000 contracts traded and call volume accounting for 60 percent of the activity, according to data from website WhatsTrading.com.

Tesoro (TSO) options activity is running 4X the usual, with 23,000 contracts traded and call volume representing 90 percent of the volume.

Nokia (NOK) options volume is 2X the typical levels, with 18,000 contracts traded and put volume accounting for 66 percent of the activity.

Increasing volume is also being seen in Fluor (FLR), Riverbed Technology (RVBD) and Talbot's (TLB)

Implied Volatility Movers
Goldman Sachs (GS) implied volatility is higher after the New York Times Dealbook reported that the investment bank is one of several firms being pursued by regulators in an insider-trading probe. Shares are down $6.90 to $159.77 and options volume includes 80,000 contracts, or double the normal. 37,000 calls and 43,000 puts traded. Meanwhile, implied volatility is up more than 20 percent to 29.