This is a Melting Up Market 03-03-2011

Cusick's Corner

Prices continue to melt up. The shorts never showed up into the After Hours at key resistance areas. This grind higher is also putting a lot of pressure on the shorts, specifically those who shorted Tuesday, which is yet another short-term catalyst to the upside. I have the S&P 1332 level, the high of this week as a potential resistance which could be a good spot for the bulls to potentially hedge, especially with job data and the weekend upon us. See you Midday.

Stocks rallied around better-than-expected economic data today. A report released before the opening bell on Wall Street Thursday showed jobless claims falling by 20,000 to 368,000 in the final week of February. Economists were looking for an increase of 12,000. The better-than-expected number held some sway because it comes ahead of key monthly jobs numbers tomorrow morning. Economists expect Friday's report to show an increase of 185,000 in payrolls and a jobless rate of 9.1 percent. Separate data released Thursday included the ISM Services Index, which moved up to 59.7 in February, from 59.4 the month before and better than the 59.0 that economists had predicted. The Dow Jones Industrial Average rallied around the data and was trading sharply higher at midday. Additional strength surfaced in the afternoon and, by the closing bell, the Dow had added 191 points. The NASDAQ gained more than 50.

Bullish
Omnivision Technology (OVTI) saw an impressive rally on increasing call volume Thursday. Shares notched a new 52-week high and settled the day up $2.68 to $33.49. Meanwhile, 21,000 calls and 5,400 puts traded on the Santa Clara, CA semiconductor company. The action was focused mostly on front-month March calls with strike prices ranging from 24 to 34. There was no news to explain the action, but, for whatever reason, shares were seeing relative strength and some investors seemed to be buying calls, perhaps anticipating additional upside through the March expiration in two weeks and one day. Omnivision Tech shares surged 31.8 percent after earnings were reported on February 24.

Bullish trading was also seen in Valero (VLO), Chiquita Brands (CQB), and Total Systems Services (TSS).

Bearish
A noteworthy spread trades in YRC Worldwide (YRCW) today. YRCW sank 21 percent after the company announced restructuring plans Monday, finished the day up 15 cents to $2.37. In the spread, the strategist bought 21000 April 3.5 calls at 11 cents and sold 20000 July 2.5 calls at 34 cents. The action looks like a roll, and closing out positions in April 3.5 calls that were opened in mid-January at 43 and 45 cents. The stock was more than 50 percent higher at the time and the position is being liquidated at 11 cents. A new position in July 2.5 calls is being sold-to-open, perhaps a bet that shares will stay below $2.5 through the July expiration.

Bearish flow also surfaced in Delta Airlines (DAL), Franklin Resources (BEN), and Buffalo Wild Wings (BWLD).

Index Trading
It was a relatively quiet day in the index pits again Thursday, with 601,000 calls and 679,000 puts traded across the S&P 500 Index (.SPX) and other cash indexes, which is typical volume these days. One index that did see a bit more volume than usual (which isn't much) was the PHLX Oil Service Index. OSX tracks the price action of leading oil drilling companies and hit a new 52-week high Thursday. The index closed the day up 4.86 to 293.11. Meanwhile, 500 OSX March 280 calls traded on the session. Most traded for $13.80 per contract and might be liquidating trades, as the contract is $13 in-the-money and March index options come off the board in two weeks.

ETF Action
Active trading continues in the Powershares Bullish Dollar Fund (UUP), which tracks the performance of the dollar against a basket of other foreign currencies. UUP finished down 3 cents to $21.97 and options volume was 4X the average daily. 94,000 calls and 31,000 puts traded on the fund. Two of the top trades printed early when 15,000 January2013 $22 puts traded on the $1.40 bid and 15,000 January2013 $23 calls traded on the $1.10 bid. The position looks like a short-strangle for a net credit of $2.50 and a bet that shares of the dollar fund will hold between $22 and $23 through the January 2013 expiration.