SPX Stuck with 1245 Resistance in Place 12-17-2010

Cusick's Corner
The market stayed in this consolidative grind going into the After Hours. It was a fair and orderly Quad Witching, leaving us all with a lot of decisions to make over the weekend and into the holiday week. Right now the market is clearly stuck with overhead resistance in place, SPX 1245, and with housing data in the data mix next week, could lead to some potentially interesting moves. What might even make that trade a little more interesting is if there is any momentum in the discussion to cut the mortgage interest tax rebate. Have a good weekend and see you Midday.

The Quadruple Witch December options expiration failed to stir up very much volatility Friday. The List of Leading Economic Indicators, which rose to 1.1 percent in November and slightly less than the 1.2 percent that economists had expected, was the only economic stat of the day. The market showed little reaction to the number. Some attention remains on Washington where the House passed an $850 billion tax package late Thursday. Bonds rose, and yields fell, which seemed to help the stock market averages as well. The benchmark ten-year Treasury gained 22/32nd and its yield fell to 3.22 percent, from 3.48 percent late Thursday. Meanwhile, the Dow Jones Industrial Average traded in narrow 52-point range and lost seven points. However, the tech-heavy NASDAQ finished up 5.7 points with help from a better-than-expected profit report from Oracle (ORCL).

Bullish Flow
NASDAQ OMX Group (NDAQ) saw a second day of bullish trading. Shares rallied and call volume started picking up yesterday after the exchange announced a massive share buyback plan. Today, NDAQ added another 4 cents to $23.50 and options volume jumped to 6X the recent average daily. 7,500 calls and 625 puts traded on the session. March 23 calls were the most actives. 6,180 traded and about two-thirds traded at the asking price, indicating that buyers were driving the volume. Existing open interest is only 238 contracts and so this appears to be new positioning on hopes for the rally in NASDAQ shares can continue through March.

Bullish order flow was also seen in Sara Lee (SLE), Dr. Pepper Snapple (DPS), and Intermune (ITMN).

Bearish Flow
Genzyme (GENZ) puts were active ahead of an investor meeting Monday, December 20. Shares lost 8 cents to $69.79 and options volume rose to 3X the recent average daily. 22,000 calls and 49,000 puts traded on the biotech. The top trade was a block of 10,000 January 55 puts at 24 cents per contract on the International Securities Exchange, where ISEE data indicate that a costumer bought the block to open a new position. January 60 puts were the most actives. 15,550 traded. The heavy put volume and overall tone of trading seemed to reflect some bearishness or anxiety ahead of the meeting.

Bearish flow also picked up in Perrigo (PRGO), Lowe's (LOW), and Dean Food (DF).

Index Trading
Large blocks of calls traded on the CBOE Volatility Index (.VIX), even as the index fell to its lowest levels since April. VIX dipped below 16 Friday and finished the day down 1.28 to 16.11. The market might be “pricing in” the prospect of lower volatility during the holiday period in the two weeks ahead. However, in the options action, some investors seem to be bracing for increasing volatility. 341,000 calls and 124,000 puts traded on VIX today. The activity included separate block buyers of: 10,000 March 40 calls at 85 cents, 10,000 January 40 calls at 15 cents, 10,000 January 35 calls at 27.5 cents, and 10,000 January 30 calls at 45 cents each.

ETF Trading
An impressive spread trades in the KBW Regional Banking ETF (KRE). Shares finished up 12 cents to $25.18 and one strategist initiated a March 20 – 24 put spread at 65 cents, 19000X. They apparently paid 81 cents per contract for 19,000 March 24 puts and collected 16 cents per contract for 19,000 March 20 puts. The spread looks opening and might have been initiated to hedge exposure to the regional banking names heading into 2011. The spread offers a potentially pay-off of $3.35 (excluding commissions) if shares fall to $21 or more through the March 2011 expiration.