Enter Today's Date into Your Trading Diary 02-23-2011

Cusick's Corner
What a day -- the market at the Midday did test the 1300 level in the Futures & Cash (ESH11 & SPX) but then bounced. Holding the lower channel into the After Hours of this 3 month rally was important, it has not shifted the short-term trade of short risk assets and long crude. Crude was something to watch with Feb Futures (CLG11) over $100 and April right behind (CLJ11) at $98. The market will stay focused on this market, especially if production looks to be potentially off line for longer than a few days. The short-term sentiment is on the side of the shorts for the general markets, but it's still encouraging to see that support held today. Keep an eye on earnings -- HPQ missed on revenue and guidance and we are seeing a similar miss in PCLN. A miss on revenue data, headlines, or earnings may pressure the market further. See you Midday.

Stock market averages finished with another round of losses Wednesday. Dow component Hewlett Packard (HPQ) lost 9.6 percent and was the biggest loser in industrial average after the computer maker reported earnings late yesterday. While the headline EPS number was above estimates, revenue growth fell short of expectations. The slide in H-P happened just one day after shares of Walmart (WMT), the world's largest retailer, fell on similar revenue worries. On the economic front, a report released during market hours showed January Existing Home Sales at an annual rate of 5.36 million, from 5.22 million the month before and ahead of economist estimates of 5.22 million. Yet, the domestic news of the day continues to take a backseat to events overseas and rising death tolls in Libya amid escalating violence and civil unrest. As a result, crude oil finished up 2.8 percent and above $98 a barrel. The two day spike in crude and worries about earnings risk from events abroad is clearly weighing on sentiment. After falling 178 points Tuesday, the Dow Jones Industrial Average lost another 107 points Wednesday. The tech-heavy NASDAQ gave up 33.4.

Bullish
Exxon Mobile (XOM) options were heavily traded. XOM and Chevron Texaco (CVX) were the Dow's best gainers after crude oil (April) settled up 2.8 percent to $98.10 a barrel. XOM shares touched new 52-week highs and finished the day up $1.63 to $87.07. 106,000 calls and 61,000 puts traded on the oil giant. Most of the action was in smaller lots. The top trade was a January 85 straddle, which was bought (calls and puts) at $15.20. The investor bought 1,000 January 85 calls at $8.15 and bought 1,000 April 85 calls at $7.05. It's not really a bullish or bearish play, but a bet that volatility will remain high from now through April. However, since the April calls are in-the-money, the position does have a bullish bias.

Bullish trading was also seen in IMAX, Autodesk (ADSK), and Cemex (CX).

Bearish
Stryker Corp (SYK), a Kalamazoo, Michigan medical instruments company, saw increasing options action today. Shares finished down 16 cents to $61.76. Options volume rose to 3X the average daily. 3,790 puts and 645 calls traded in the name. The action was concentrated in Mar 60 puts. 3,045 traded, mostly in smaller lots. Yet, all of the day's volume traded at the 75-cent asking price, which seems to suggest that put buyers were initiating the trades and looking for SYK to sink below $60 from now through the March expiration in 23 days. The bearish trading and shares weakness comes even after UBS upgraded the stock to Buy to Neutral.

Bearish flow also surfaced in Longtop Financial (LFT), Live Nation (LYV), and Danaher (DHR).

Index Trading
Options action is picking up in the index pits in reaction to the recent uptick in market volatility. 785,000 calls and 811,000 puts traded across the S&P 500 Index (.SPX) and other cash indexes, which is 1.4X the 22-day average daily volume, according to trade alert. The S&P 500 lost 8.04 to 1,307.40 and the CBOE Volatility Index (.VIX), which tracks the expected volatility priced in SPX options, gained another 1.33 to 22.23. Meanwhile, the three most active index options contracts were call options on the VIX. March 25 calls traded 64,290 contracts. March 22.5 and 30 calls were the next most actives. Increasing interest in out-of-the-money VIX calls is often an indication that some investors are concerned about increasing market volatility. In this case, they're taking positions in the March contracts, which expire in 20 days.

ETF Action
US Oil Fund (USO) saw a second day of heavy trading. USO, which is the exchange-traded fund that tracks crude through futures contracts, gained another $1.31 to $39.80 and is now up 9.5 percent on the week! 217,000 calls and 87,000 puts traded in the USO Tuesday. Another 332,000 calls and 166,000 puts traded on the fund today. March 40 calls, which are almost at-the-money after today's move, were the most actives. 28,375 traded. March 42, March 46 and Weekly (2/25) 40 calls were very busy as well. The April 34 was the most active put option.