Timers Market 01-24-2011

Cusick's Corner
Today's market can be surmised as a timers market. When we were wrapping up last year, I mentioned that 2011 market movements will not have the breadth that we experienced in 2010, especially in Q4. This means that certain sectors will gain traction while others lag, and not just the whole market following each other to the upside. For timing trades -- in order to get through these grinding markets, it will be critical to look at momentum (RSI) and trend (Fibs/MA). This is going to make trading frustrating and might find traders trying to force the action (talk to a bear if you do not believe me). Today was a good day for momentum plays in Tech and Blue Chips, but these have to be monitored closely, do not take the buy-and-go-away mentality. Well, I am off to NYC to celebrate optionsXpress' 10 Year Anniversary where we will be ringing the NASDAQ opening bell on January 26th. See you Midday.

Stocks moved broadly higher following a round of mostly upbeat stock news Monday. With no economic data to guide the action, the focus was on the story stocks du jour. Alcoa (AA) gained more than 4 percent and was the best gainer in the Dow Jones Industrial Average after the company's Chief Executive said he sees demand for aluminum continuing into 2011. McDonald's (MCD) also helped the Dow after posting in-line earnings Monday morning. Chip stocks moved broadly higher. NVidia (NVDA) rallied 11.3 percent after Barron's published a favorable story on the chipmaker. Intel (INTC) gained 2 percent and helped both the Dow and the NASDAQ. JC Penney (JCP) rallied 7.2 percent on reports that activist investor Bill Ackman is joining the company's board next month. At the end of the day, the stock news seemed to offer enough fodder for the bulls. The Dow Jones Industrial Average posted its first triple digit gain of 2011 and closed up 109. The tech-heavy NASDAQ added 28.

Bullish
Momenta Pharmaceuticals (MNTA), a Cambridge, MA biotechnology company, was the subject of increasing options action today. Shares saw relative strength as well and closed up 4.3 percent to $15.80. In options trading, volume rose to 3X the recent average daily levels. About 12,000 calls and 1,730 puts traded in the name. February 17 calls were the most actives. 4,526 traded and, with 86 percent trading at the ask, some investors appeared to be buying the calls and speculating on a move beyond $17 in the weeks ahead. February 16, 18, 19 and 20 call options were actively traded as well. There was no news on the stock to explain the surge in speculative activity. The company's next earnings report is expected around February 10 and probably before the February expiration.

Bullish trading was also seen in Eastman Kodak (EK), Patriot Coal (PCX), and Advanced Micro Devices (AMD).

Bearish
Natural gas producer EOG Resources (EOG) shares finished the day up 1 penny to $101.73. Options volume rose to 4X the average daily after 15,000 puts and 2,800 calls changed hands. The top trade was part of a spread, in which the investor bought 6,000 February 95 puts at 96 cents and sold 6,000 February 90 puts at 37 cents. This Feb 95 – 90 put spread, for a net debit of 59 cents, is a bearish bet (or possibly a hedge), as it makes its best profits if shares fall to $90 or less by the February options expiration.

Bearish flow also surfaced in TIVO, PF Chang's (PFCB), and Denbury Resources (DNR).

Index Trading
NYSE Arca Mini Oil Index (BZJ) saw more options action that usual. The cash-settled index, which is a smaller version of the AMEX Oil Index (XOI), tracks the share price action of major oil companies like Exxon (XOM), Chevron (CVX), and Conoco (COP). It finished the day up .19 to 63.25 and 6,500 March 65 calls was sold at 90 cents each. Since there is no open interest in the contract, this is a new position and probably a bet that the index will not move beyond 65 by the March expiration. If it does, the strategist will face assignment on the short calls and be on the hook to pay the difference between the settlement value of the index and the strike price of the call (65).

ETF Action
Trading volumes also rose in the iShares MSCI EFA Fund (EFA) today. The exchange-traded fund holds shares of companies from Europe, Asia and the Fear East and finished the day up 63 cents to $59.87. The top trades of the day were two blocks (10000 each) totaling 20,000 March 57 puts that traded at $1.10 and $1.10 on the International Securities Exchange. Both blocks were opening customer buyers, according to data from the exchange. At the end of the day, 40,600 March 57 puts had traded hands. An institutional investor looking to hedge exposure to equity markets abroad might have initiated the massive premium purchases in these put options on Monday.