Watching the Strength of this Uptrend 12-16-2010

Cusick's Corner
The market continues to rise in the face of the Dollar, DXH11, over .80 the Euro, FXE, hovering at 132 and the Volatility Index VIX is at 17.43, a level that we have not seen since April. I am watching the strength of this uptrend into the After Hours -- I want to see the market close on its highs. Once again the trend is definitely to the upside, the concern is the growing complacency with the market and the overall bullishness of the retail investor -- oX Put/Call ratio and the AAII sentiment are very bullish. Protection to lock in profits is worth investigating at this stage, especially going into year end. See you After Hours.

Stock market averages are holding modest gains with help from better-than-expected economic news Thursday. Data released before the opening bell showed Housing Starts up to an annual rate of 555,000 in November, from 534,000 the month before and better than the 545,000 economists had predicted. Separate data showed weekly jobless claims falling by 3,000 to 420,000 in the period ended December 11. Economists were looking for an increase of 2,000. Then, later in the day, the Philadelphia Fed Survey was release and showed surprise improvement to 23.4 in December. Economists were looking for the gauge of manufacturing activity to fall to 13.0, from 22.5 the month before. Although the Dow Jones Industrial Average traded lower at the open, it caught a bid shortly after the Philly Fed was released and is trading up 40 points, 74 points off session lows. The NASDAQ is up 17.5. The CBOE Volatility Index (.VIX) is off .51 to 17.43 now that most of this week's event risk has passed. Options trading is active due to the expiration and heavy trading in some stocks going ex-dividend, with 8.2 million calls and 3.9 million puts traded through 12:30 ET.

Bullish
Citigroup (C) is seeing some interesting trading activity Thursday morning. Shares added 2 cents to $4.62 after Standard & Poor's raised the bank's standalone credit rating. Shares are modestly higher and one noteworthy trade is a block of 135,000 January 2012 $6 call options. It traded at 30 cents per contract and appears to have been initiated by a buyer. Another noteworthy trade is a three-way spread. In this trade, the strategist apparently bought 109,576 June 4.5 – 5.5 call spreads and sold half as many (54,788) June 4 puts. They might be looking for Citi shares to move beyond $5.5 through the June expiration and are financing some of the call spread with a put sale. By selling $4 puts, they're also stating that they're willing to buy the stock at that price level through the June expiration.

NASDAQ OMX Group (NDAQ) shares touched new 52-week highs and are up $1.28 to $23.81 midday after announcing plans to buyback 22.78 million in shares. The stock rallied on the news and options volume is 9X the recent average daily, with 6,690 calls and 1,235 puts traded. The top trade is a lot of 306 Jan 25 calls at 40 cents each. The market was 25 to 40 cents at the time and so this looks like a buyer initiating the trade. 4,200 NDAQ Jan 25 calls now changed hands.

Bearish
Pride International (PDE) loses 59 cents to $31.08 and options volume has picked up to 10X the recent average daily. The top trades are part of a spread. One strategist apparently bought 10,413 January 27.5 puts at 40 cents and sold 10,413 January 30 calls at $2.05. A shareholder looking to protect or “collar” their stock position might have initiated the risk-reversal. Or, it might be an outright bearish bet. It also appears to be a roll out of a similar position in the December 27 – 30 risk-reversal, which also traded 10,413X.

A large block of calls traded in Bank of America (BAC). Shares added 37 cents to $12.66 after Standard & Poor's raised its credit rating on the bank late Wednesday. Meanwhile, in options action, one investor apparently took advantage of the strength in the stock to unload a block of 25,280 February 13 call. It was sold at 58 cents per contract.

Unusual Volume Movers
Novartis (NVS) options volume is running 5X the usual, with 57,000 contracts traded and call volume accounting for 62 percent of the activity, according to data from website WhatsTrading.com.

Morgan Stanley (MS) options activity is running 2.5X the usual, with 52,000 contracts traded and call volume representing 96 percent of the volume.

FedEx (FDX) options volume is 3X the typical levels, with 36,000 contracts traded and call volume accounting for 61 percent of the activity.

Increasing volume is also being seen in Ciena (CIEN), Adobe (ADBE), and AK Steel (AKS).

Implied Volatility Movers
FedEx (FDX) implied volatility is easing, as shares rally after the company delivered its latest profit report. While the company reported second quarter profits below forecasts, it raised its outlook on strong holiday volume. Shares are up $1.38 to $93.77. Options volume is 3X the recent average daily. 22,000 calls and 14,000 puts traded. Meanwhile, implied volatility is down 5 percent to 24.5 now that this earnings event risk has passed.