Bulls Have Conviction Going into Weekend 03-11-11

Cusick's Corner
Nice bounce with authority. The After Hours were solid, trading with strong volume and wider scope. The bulls have the conviction coming into the weekend. All eyes will be on Asia, monitoring Japan, and any further activity in the Middle East. Have a good weekend.

Stocks are trading broadly higher late Friday. Retail Sales numbers released early showed a 1 percent increase in February, which were in-line with economist estimates. A separate report later showed the University of Michigan Sentiment Index unexpectedly falling to 68.2 in March, from 77.5 in late February and well below expectations of 76.5. The Dow Jones Industrial Average dipped on the data, but had moved back into positive territory at midday. Some of the recent concern about rising crude oil prices seems to have eased after WTI April Crude hit a low of $99 a barrel. Crude was recently down $1.70 to $101.00 a barrel and well off Monday's high of roughly $107. Meanwhile, some of the cyclical names, like 3M (MMM), Alcoa (AA), and Caterpillar (CAT), are showing leadership within the Dow Jones Industrial Average. Investors have been concerned lately about the debt problems in Europe, higher oil prices, and escalating tensions in North Africa and the Middle East. A massive earthquake in Northeast Japan was getting a lot of attention Friday. While the economic impact is hard to quantify, the event seems to be driving weakness in crude and also easing investor anxiety levels regarding other global events. After a 228-point slide Thursday, the Dow Jones Industrial Average is up 68 points heading into the closing bell. The tech-heavy NASDAQ added 17 points.

Bullish
Star Scientific (CIGX) shares are up 52 cents to $2.89 and options volume is very heavy, after the tobacco company announced that patent claims have been confirmed in a recent legal matter. Shares had been rallying ahead of the news and are now up 55.4 percent since Monday. Prior to the announcement, trading had been heavy in $2 and $2.5 calls in various expiration months. Now, the focus is shifting to the $3 calls, which are 11 cents out-of-the-money. March 3 calls, which expire in one week, are the most actives. 2,455 traded. May 3, Mar 2.5, and Aug 2.5 calls are seeing brisk trading as well.

Bullish trading was also seen in Medco Health Solutions (MHS), Clean Energy Fuels (CLNE), and Crown Castle (CCI).

Bearish
Toyota Motors (TM) shares lost $1.94 to $85.58 after an earthquake of the coast of Sendai, Japan raised concerns about Japanese auto production. Many parts suppliers are located in the region. TM shares are down $1.94 to $85.58 late Friday and have now lost nearly 9 percent since March 1. Trading activity is picking up in Toyota options as well. 5,335 puts and 2,755 calls traded in the automaker so far. March 80 puts, which are 6.5 percent out-of-the-money with 5 trading days of life remaining, are the most actives. 1,275 traded so far.

Bearish flow also surfaced in Temple Inland (TIN) and Questcor Pharmaceuticals (QCOR).

Index Trading
CBOE Volatility Index (.VIX) is down 1.68 to 20.20, as the S&P 500 Index (.SPX) stabilizes after yesterday's 25-point slide. SPX is up 11.4 points heading into the final fifteen minutes of trading Friday. Meanwhile, trading in VIX options is brisk. 260,000 puts and 232,000 calls traded on the volatility index today. The top trade is a block of 20,000 March 20 puts at 25 cents per contract. It might be a closing trade, as VIX March options expire next Wednesday and have just two trading days remaining. Or, it might be a short-term speculative play, betting that VIX will be trading lower next Monday and Tuesday.

ETF Action
iShares Japan Fund (EWJ) shares lost 1.5 percent to $10.85 today after shares on the Tokyo Stock Exchange moved broadly lower in late-day action. The earthquake struck during the final hour of trading in Tokyo and sent the Nikkei sliding 100 points. Yet, the decline has been orderly and there are no signs of panic. Meanwhile, EWJ options volume is 29,000 puts and 8,575 calls traded on the ETF. March and April 10 and 11 puts are the most actives, as some investors were likely buying some short-term puts on concerns about additional volatility in Japan's equity markets. March options expire at the end of next week.