Market Shakes Off Disappointing Data 03-29-2011

Cusick's Corner
While the data early in the session was disappointing, the market has shaken it off and the buyers did jump in on the pullback. Financials, XLF, are still mired in the red but Small Caps have taken off with Telecom and Tech. If we see that Financials do garner some momentum, the upside might get more attention. See you After Hours.

Stock market averages are holding gains despite disappointing consumer confidence data Tuesday. According to the Commerce Department, its index of Consumer Confidence fell to 63.4 in March, which was down from 72 in February and below economist estimates of 65. The market didn't react to the data and, instead, the Dow Jones Industrial Average is trading higher for the seventh time in nine days. Beyond that, it's a relatively slow news day on Wall Street. The tech-heavy NASDAQ has added 17 points with help from Cisco Systems (CSCO), which is up 1 percent on news it is acquiring software maker Newscale for an undisclosed amount. Meanwhile, the CBOE Volatility Index (.VIX) is giving back .68 to 18.76 and overall options volume is light for a second day, with 3.8 million calls and 3.1 million puts traded through 12:30pm ET.

Bullish Flow
Home Depot (HD) is up 2.2 percent to $37.46 and the best gainer in the Dow Jones Industrial Average midday after the company announced plans to repurchase$1 billion in shares as part of an accelerated stock buyback program. Meanwhile, in options action, a noteworthy options trade midday is an August 34 put – 41 call ratio risk-reversal. In this combination, the strategist sold 23,000 August 34 puts to buy half as many 11,500 August 41 calls. They collected $1.22 (per 1X2) and are possibly looking for today's strength to continue through mid-August. By selling $34 puts, they're also stating that they're willing to buy the stock at that price through the August expiration as well.

AT&T (T) shares are also helping the Dow Jones Industrial Average. Shares have added 3.2 percent over the past two days after Robert Baird raised its rating on the stock Monday. T has gained 43 cents to $29.79 today. In options action, a block of 30,000 October 35 calls were bought at 11 cents each in midday action. With open interest of 235 contracts, the trade looks like a new position and possibly a bet that shares will rally beyond $35 through the October expiration.

Bearish Flow
Apollo Group (APOL), the for-profit education company, is trading down $3 to $39.35 after reporting upbeat earnings for the most recent quarter, but disappointing forward-looking guidance. Trading in the options market is brisk, with 33,000 calls and 11,000 puts traded in the name. The top trade of the day is a call spread, in which the investors sold 10,000 January 50 calls at $1.75 and bought 10,000 January 65 calls at 45 cents. This spread, at a $1.30 net credit, is possibly a bet that the stock will not recapture the $50 level through the January 2012 expiration.

CurrencyShares Yen ETF (FXY) is trading down $1.05 to $119.83 and has now fallen 4.7 percent since the G-7 announced plans to intervene on behalf of the Japanese yen on March 18. One investor appears to be bracing for additional Yen weakness. In morning trading, 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.

Unusual Volume
AT&T (T) options volume is running 2X the (22-day) average, with 94,000 contracts traded and call volume accounting for about 77 percent of trades.

Home Depot (HD) options volume is 5X the average daily, with 63,000 contracts traded and put volume representing for 63 percent of the activity.

Annaly (NLY) options volume is running 8X the average daily, with 32,000 contracts traded and call volume accounting for 74 percent of the activity.

Increasing options activity is also being seen in Macy's (M), Family Dollar (FDO), and Apollo Group (APOL).

Implied Volatility Mover
Implied volatility in Lennar (LEN) is easing. Shares are down 96 cents to $18.79, even as the homebuilder reported a surprise profit of 14 cents per share. The Street was expecting a loss of 5 cents. Revenues also topped expectations. Still, shares are under pressure and options volume is 3X the average daily. 11,000 calls and 5,280 puts traded in LEN so far. Implied volatility is down 18 percent and new 52-week lows, now that this earnings event risk has passed.