Bulls on the Loose 03-29-2011

Cusick's Corner
Encouragement – that's what the market felt holding onto the gains of the Midday. This is also plays well into the bull spread strategies that I discussed a few Corners ago. Tomorrow's ADP data will be a potential catalyst for the bulls early in the session, plus if we see a bearish Crude Inventory number into the teeth of the Midday. There has been also more discussion of universal continuation of QE (Quantitative Easing), both internationally and domestically. If QE continues, which looks likely, the market will like that as well. Barring any exogenous headline, i.e. Japan/Libya, the market bulls are in control. See you Midday.

Stock market averages finished higher on a relatively slow news day. Investors seemed to shrug off disappointing consumer confidence data released mid-morning, when the Commerce Department said its index of Consumer Confidence fell to 63.4 in March, down from 72 in February and below economist estimates of 65. The Dow Jones Industrial Average traded higher mid-morning despite the weak data and the rally was extended in afternoon action. Home Depot (HD) was the Dow's best gainer. Shares of the home improvement retailer rose 2.9 percent after announcing plans to accelerate a $1 billion share buyback program. At the end of the day, HD and twenty-two other Dow stocks moved higher. Seven traded lower and the industrial average added 81 points. The tech-heavy NASDAQ gained 26.2 points.

Bullish
Harmony Gold (HMY) sees a second day of bullish order flow. As noted yesterday, May 15 and 16 calls were busy Monday. Today, shares of the South African miner touched a new 52-week high and finished up 50 cents to $14.72. Options volume was 2.5X the average daily, with 7,040 calls and 535 puts traded on the session. While the focus was on May calls yesterday, today the attention turned to August 15 calls. 5,070 traded and, with 99 percent trading at the ask, it looks like call buyers were dominating the action. The relative strength and bullish options trading in HMY over the past two days is certainly interesting, as it comes amid no news and weakness in the precious metal. Gold lost $3.3 to $1416.60 an ounce today.

Bullish trading was also seen in Home Depot (HD), Monster Worldwide (MWW) and CVS.

Bearish
While HMY sees two days of bullish trading, Clinical Data (CLDA) saw a second day of increasing put volume. As noted in yesterday's closing report, April 30 puts were active Monday. Today, shares added 7 cents to $30.36 and the options volume of 13,000 puts/3,120 calls is 4X the typical volume for CLDA. April 30 puts were again the most actives, with another 5,740 traded. June 30 and 31 puts were actively traded as well. CLDA rallied 124 percent from January 21 to February 15 on news the FDA had approved the company's anti-depressant drug. The rally ran out of steam in late-Feb, however, after Forest Labs (FRX) said it was acquiring the company for $30 per share. The two days of interest in April 30 puts is possibly driven by risk arbitrage player hedging the deal, or maybe some investors are buying short-term puts on concern that the deal falls apart altogether.

Bearish flow also surfaced in Apollo Group (APOL), Johnson Controls (JCI), and A123 Systems (AONE).

Index Trading
Trading has been very slow in the index pits this week, leaving me without much to write about. 278,000 calls and 371,000 puts traded across the S&P 500 Index (.SPX) and other index products Tuesday, which is about 46 percent the recent daily average, according to Trade Alert data. The CBOE Volatility Index (.VIX) eased 1.29 to 18.15 and is now a far cry (-42 percent) from multi-month high set less than two weeks ago. Volume has plummeted in VIX options trading as well. 106,000 calls and 83,000 puts traded in the volatility index today. By way of comparison, 609,000 calls and 209,000 puts traded in the VIX when it rallied to 31.28 on March 16. Fear (and VIX call buying) has subsided substantially since that time.

ETF Action
It's been a rough stretch for the Japanese yen since G-7 officials announced plans to intervene in the currency market to halt its recent rally. A strong yen hurts exports, which slows the country's economic activity, and it's obviously a bad time for the Japanese economy to feel the impact of a strengthening yen. Consequently, monetary officials have been active in the market to slow its rise and CurrencyShares Yen ETF (FXY), which tracks the US Dollar/Yen currency pair finished off $1.03 to $119.85 today. FXY has now fallen 4.7 percent since the G-7 announced plans it slow the yen. One investor appears to be bracing for additional weakness in the ETF. In morning trading Tuesday, they bought 10,000 May 120 puts at $2.11 and sold 15,000 May 117 puts at 84 cents. This 2X3 put ratio spread is a bearish play, as it makes its best profits if FXY falls to $117 through the May expiration.