Financials & Tech See-Saw 01-21-2011

Cusick's Corner
Trading was rather dull and stayed in a narrow range during the final hours of Expiration Friday. Overall volume was strong but nothing out of the ordinary. Gains in Financials (XLF) were offset by the loss in the Tech (XLK) sector. The VIX is back up (see Index Trading) to mid-December levels. Earnings are still in full swing – AXP and HAL report on Monday. There is nothing on the economic calendar until Tuesday when the FOMC meets to discuss rates. Consumer Confidence, New Home Sales and GDP data also come out on Tuesday. Have a good weekend.

Stocks finished decidedly mixed on Expiration Friday. With no economic data to guide the action, the focus was back on corporate earnings releases. General Electric (GE) surged and helped to keep the Dow Jones Industrial Average above water after the company reported earnings that beat Street estimates. GE settled the day up 7.1 percent. BofA (BAC) lost 2 percent, however, and was the Dow's biggest loser on disappointing earnings. Internet giant Google (GOOG), which reported late-Thursday, gave up early gains and closed lower as well. Consequently, while the Dow Jones Industrial Average added nearly 50 points on the session, the tech-heavy NASDAQ lost 14.75.

Bullish
Eastman Kodak (EK) saw increasing options action Friday. Shares lost a dime to $5.15 and the day's options volume included 24,000 calls and 3,245 puts. The top trade of the day was a block of 1,200 April 5 calls at 72 cents when the market was 69 to 72 cents. February 5 calls were the most actives, however. 12,062 traded. Open interest is 1,483 and 75 percent traded at the ask, indicating some investors were buying to open new positions. It might be a play on earnings, due the morning of January 26.

Bullish trading was also seen in Pfizer (PFE), General Dynamics (GD), and AstraZeneca (AZN).

Bearish
Fuel Systems Solutions (FSYS), a New York-based auto parts maker, finished the day off 83 cents to $28.23. Bearish options activity surfaced as well, after 4,020 puts and 410 calls traded in the name. The top trade was 393 Jan 35 puts and was likely a closing trade ahead of the expiration. Some investors appeared to be closing out positions in January and then opening new bearish positions in the February 28 and 35 put options. The stock has plummeted 34.6 percent since earnings were last reported on 11/3 and these traders might be taking defensive positions ahead of the next earnings release, expected early February.

Bearish flow also surfaced in Synamptics (SYNA), Computer Associates (CA), and Dollar General (DG).

Index Trading
CBOE Volatility Index (.VIX) added .48 to 18.47 and finished near session highs Friday. The volatility index gained 19.5 percent over the past four days and, in the process, fully erased the 9.8 percent drop suffered the week before. The volatility index is back at levels seen in early-December amid mixed earnings news and ongoing worries about macroeconomic issues overseas, including rate hikes in China and the European sovereign debt crisis. Meanwhile, some event risk awaits US investors next week. Not only is the earnings calendar chock full of reports, the FOMC meets to discuss rates Tuesday and the economic calendar includes Consumer Confidence, New Home Sales and GDP data.

ETF Action
Options action picked up in the SPDR Homebuilder ETF (XHB), as players took position in anticipation of the next move in the housing sector. Shares lost 20 cents to $17.66 and options volume was 86,000 calls and 6,600 puts. January 17.5 calls, which are expiring, were the most actives. 58,500 traded. However, the activity also included a buyer of 7,300 March 36 puts at 84 cents and, separately, a buyer of 10,000 March 17 calls at $1.00. These investors were possibly opening new positions in anticipation of volatility in the sector over the next two months. New Home Sales data comes into play Tuesday morning.