Pullback in Commodities Takes Pressure Off 03-08-2011

Cusick's Corner
Of the three major indices, the S&Ps finished the strongest, well off the 50-Day Moving Average. The NASDAQ was a different story, finishing well in the green but straddling that 50-Day Moving Average. The Semis (SMH) were not helping the cause, but weakness in this sector will force this consolidation to continue. What has taken some of the recent pressure off is the pullback in the commodities space, JJG, UHN, XOP, helping risk assets and especially those in the Mideast, GULF, and Asia, IDX. This could be part of further rotation but it is worth noting and potentially strategizing around. See you Midday.

Stocks finished broadly higher on a relatively slow news Tuesday. With no economic data to guide the market, a lot of attention remains on the oil market. April WTI crude, which rallied towards $107 yesterday, hit a low of $103.33 Tuesday morning and was recently down 66 cents to $104.78 after OPEC pledged to pump more oil. Meanwhile, BofA (BAC) gained 4.7 percent after an analyst said the bank might soon increase its dividend. BofA was the best gainer in the Dow Jones Industrial Average and, with help from twenty-six other Dow stocks, the industrial average added 124 points. Only three Dow components moved lower, including McDonald's (MCD). Shares lost 1 percent after the fast food chain reported a 3.9 percent increase in February same store sales. Nevertheless, overall market breadth was positive. 416 S&P 500 stocks moved higher, 77 lost ground. Meanwhile, the tech-heavy NASDAQ added 20 points.

Bullish
TIVO calls have been busy in two of the past three sessions. Open interest in TIVO call options increased by 39,000 contracts following a day of active trading Friday. Today, call buyers returned. Another 76,000 calls and 19,000 puts traded in TIVO. The top trade was part of a bullish four-way spread. In this trade, the investor sold 10,000 August 7 puts and bought the August 8 – 15 call spread, 10000X. They also bought 10,000 May 20 calls at 6 cents. Three legs of this spread look like new positions. The May calls appear to be a closing trade. With shares down 31 cents to $8.75, this is bullish play targeting a move higher in TIVO in the months ahead. By selling puts (to buy the call spread), the strategist is also stating that they are willing to buy the stock at the strike price through the expiration, which in this case is at $7 per share through August.

Bullish trading was also seen in Patriot Coal (PCX), Accenture (ACN), and Autodesk (ADSK).

Bearish
JDS Uniphase (JDSU), which fell 6.9 percent Monday after peer Ciena (CIEN) posted disappointing earnings, lost another 11 cents to $25.38 today. Options volume in JDSU included 14,000 calls and 15,000 puts. The top trade was a 3000-contract block of April 24 puts at $1.48 per contract, which traded in the morning on the International Securities Exchange [ISE]. Sentiment data from the ISE indicate that a customer opened a new position. Later, another noteworthy trade was an April 25 – 20 put spread, apparently bought at a $1.41, 1351X on ISE. In this spread, the strategist apparently bought 1,351 of the 25s at $1.79 and sold 1,351 of the 20s at 38 cents, perhaps hedging a position in stock or making an outright bet that shares fall towards $20 through the April expiration.

Bearish flow also surfaced in Glaxo Smithkline (GSK), Temple Inland (TIN), and Myriad Genetics (MYGN).

Index Trading
Overall options volume in the index market picked up a bit today. 555,000 calls and 710,000 puts traded across the S&P 500 Index (.SPX) and other cash indexes, according to Trade Alert data. The four most active index options were puts on the S&P 500 Index. SPX finished the day up 11.69 to 1,321.82 and the April 1200 puts traded 52,460X. March 1,300, April 1,300 and April 1,225 puts were also among the most actives. Increasing interest in SPX out-of-the-money puts is sometimes a sign that managers are stepping up demand for portfolio insurance. However, the CBOE Volatility Index (.VIX) lost .84 to 19.82 on the day. Normally, when there's a mad rush for SPX puts, VIX tends to move higher. So, some of today's action in the SPX puts might be unwinding of SPX puts and portfolio hedges.

ETF Action
Put volume picked up in the CurrencyShares Euro Trust (FXE). Shares of the exchange traded fund, which track the Euro/USD currency pair (X100), finished the day down 76 cents to $138.42 and have lost a little over 1 percent in the past two days on comments from ECB President Trichet, who said last week that one rate hike is not necessarily a sign that more hikes are in the offing. The euro is trading lower on diminishing expectations about future rate European bank rate hikes. Meanwhile, some players in the options market seem to be bracing for additional euro weakness. 17,000 puts and 2,960 calls traded in the FXE today. April 137 and 138 puts were the most actives.