Sold! 03-10-2011

Cusick's Corner
“Sold!” -- that is all you heard this morning, major averages are all challenging the mid-term support. The 50-Day MA is potentially putting the longs on alert and giving the technicals fuel to ramp up. With the Claims deficit data coming in higher than expectations, China potentially slowing down and Euro Debt is back on the radar with the downgrade of Spain, fundamentals have also given a short-term cause to take some risk off. As discussed yesterday, the bond action on the short-term tipped the Risk Off trade, we need to keep an eye on that. Volatility is on the move as well, putting more premium on insurance but this might be something to monitor over the next 30 days. See you After Hours.

Stocks are broadly lower on disappointing economic news and unsettling events overseas Thursday. Data was in focus early after the Labor Department reported that jobless claims increased by 26,000 to 397,000 in the week ended March 5. Economists were looking for an increase of 11,000. A separate report showed the US Trade Balance widening to $46.3 billion in January, from $40.3 billion in December and more than the $41.5 billion that had been expected. Meanwhile, European stock market averages finished broadly lower after Moody's cut Spain's credit rating. The euro fell, as did dollar-denominated oil and gold. Crude is down $2.88 to $101.50 a barrel. Exxon Mobile (XOM) and Chevron (CVX) are both off 2.6 percent and the biggest losers in the Dow Jones Industrial Average. The Dow is down 150 points and the NASDAQ has lost 40.5. The CBOE Volatility Index (.VIX) edged up .59 to 20.81. Overall options volume is running heavy and clearly more defensive than in recent days, with 5.5 million calls and 5.4 million puts traded through 12:00om ET.

Bullish Flow
H&R Block (HRB) is seeing relative strength and calls are busy after the tax preparation company reported quarterly earnings Wednesday afternoon. The results beat Street views and the stock is trading up 83 cents to $16.02. Options volume is 16,000 calls and 3,440 puts, or twice the average daily volume for HRB. March 16 calls are the most actives. 12,656 traded and, with 68 percent trading at the ask, it looks like call buyers are dominating the action. It's short-term speculative activity because these calls are now at-the-money and expire at the end of next week.

Green Mountain Coffee Roasters (GMCR) shares are trading up $16.25 to $59.89 and notched new 52-week highs today after the company announced a new partnership with Starbuck's. Options action is brewing as well. 56,000 calls and 51,000 puts traded in GMCR so far. March 45 and 50 calls are the most actives. Some investors might be exiting positions after today's move higher. Both contracts are now well-in-the-money with 8 days of life remaining.

Bearish Flow
While HRB is rallying on earnings, peer Jackson Hewitt (JTX) is taking a hit today. Shares are down 50 cents to 75 cents and falling to new 52-week lows after the tax preparation company reported earnings and also canceled its post-earnings call due to ongoing talks with lenders. Options volume in JTX includes 1,110 calls and 3,590 puts, or 5X the average daily. April 1 puts are the most actives. 2,220 traded and, with 95 percent trading at the ask, it looks like put buyers are driving the action on concerns about additional weakness in JTX shares from now through mid-April.

Industrials Select Sector ETF (XLI) shares are trading down 51 cents to $36.48 and 66,000 puts have traded on this exchange-traded fund through midday Thursday. The volume represents 7X the expected and compares to call volume of 7,000 contracts. April 35 and 31 puts are the most actives and includes some spread trades. For example, 7,500 of the 35s traded at 62 cents while a block of 7,500 April 31s traded at 12 cents. Looks like the spread was bought for a 50-cent net debit. If so, it's a bearish short-term bet or a possibly a hedge. The spread makes its best profits if shares fall to $31 or less by the April expiration.

Unusual Volume
iShares Japan Fund (EWJ) options volume is running 5X the (22-day) average, with 48,000 contracts traded and call volume accounting for 84 percent of the volume.

Starbuck's (SBUX) options volume is 3.5X the average daily, with 39,000 contracts traded and call volume representing for 57 percent of the activity.

Quicksilver (KWK) options volume is running 3.5X the average daily, with 34,000 contracts traded and call volume accounting for 50 percent of the activity.

Increasing options activity is also being seen in General Mills (GIS), Human Genome Sciences (HGSI), and Cemex (CX).

Implied Volatility Mover
Human Genome Sciences (HGSI) shares are rallying and implied volatility is falling after the FDA approved the company's Benlysta drug for lupus patients. Shares are up $3.39 to $29.08 and today's options volume includes 61,000 calls and 56,000 puts on the biotech. Implied volatility is down 47 percent to 48, as shares jump and the important event risk has now passed.