Trend Continues to be Your Friend 04-15-2011

Cusick's Corner
The market finished in the green today, but not enough to salvage the week which finished down. While this was an orderly pullback, the market appeared overbought so this was somewhat expected. Traders had mixed earnings and headline risks from the EU to contend with, while the data here in the States really quelled any potential fears in the short-term that they would impact the current trend of the market. The VIX finished the day at 15.32, a level that we have not seen since January which tells market watchers that there is definitely complacency in the current trend of the market up. While volatility can turn on a headline, corporate earnings and data appear to support the upside in equities. The trend continues to be your friend! Have a good weekend and see you Monday.

Stock market averages finished higher with help from economic data, but disappointing earnings from Google (GOOG) and Bank of America (BAC) seemed to keep a lid on any real rally attempts Friday. Economic news was in focus early after the Labor Department reported that the Consumer Price Index [CPI], a gauge of inflation at the consumer level, increased by .5 percent in March, which was in-line with expectations. Separately, the NY Empire State Index of manufacturing activity jumped to 21.7 in April, from 17.5 in March and much better than the 15.0 that was expected. Industrial Production rose .8 percent in March, and .2 percent better than economists had forecast. Finally, the University of Michigan said its index of consumer sentiment rose to 69.6 in April, up from 67.6 and ahead of expectations of 66.0. The strong economic data helped send stocks modestly higher, but BofA shares lost 2.4 percent and weighed down the Dow Jones Industrial Average after the bank released earnings Friday morning. Google, which lost 8.3 percent on the heels of its profit report, weighed on the tech sector. Still, the economic news seemed to hold more weight than earnings and the Dow Jones Industrial Average gained 57 points. The tech-heavy NASDAQ added 4.

Bullish
Assured Guaranty (AGO) led a rally in the mortgage insurance names Friday after Bank of America reached an agreement with the company related to mortgage repurchase claims. AGO surged $3.43 to $17.60 and a number of other names in the industry (MTG, PMI, RDN, MBI) rallied as well. Meanwhile, in Assured Guaranty options action, volume hit 11X the recent average daily levels. 46,000 calls and 12,000 puts traded in the name. January 17.5 calls, which are now 10-cents in-the-money after today's big move, were the most actives. 7,668 traded. April 16, April 18 and May 20 calls were heavily traded as well.

Bullish trading was also seen in Blue Coat Systems (BCSI), Kraft Foods (KFT), and Sprint Nextel (S).

Bearish
Gilead Sciences (GILD) shares gave up 15 cents to $41.70 and options volume hit two times the normal, after 18,000 puts and 4,100 calls traded on the biotech Friday. May 39 puts, which are 6.5 percent out-of-the-money and expire in five weeks, were the most actives. 9,790 traded. May 38, 40 and 41 puts were the next most actives. It's not clear what was driving the increased put volume in GILD, as there was no company news on the stock. The bearish action might be a play on earnings, which the company is due to announce next week - April 20 after the closing bell.

Bearish flow also surfaced in BHP Billiton (BHP), Cemex (CX), and Solarfun (SOLF).

Index Trading
The CBOE Volatility Index (.VIX) lost .96 to 15.31 and fell to a new 52-week closing low today. The previous low was 15.46 set on January 14. VIX is now 50.6 percent below the multi-month high of 31.28 set one month ago. Overall volume in the index market has been light, as stock market averages have rebounded sharply off the March 16 low and levels of market volatility have eased substantially. Today, for example, the S&P 500 Index (.SPX) traded quietly and added 5.2 points on the session. 432,000 calls and 714,000 puts traded across the SPX and other cash indexes, which is relatively light volume for an options expiration Friday. VIX September 16 puts were the most actives after more than 30,000 contracts traded. SPX 1,300 puts and VIX April 17 puts were the next most actively traded index options today.

ETF Action
ProsharesUltrShort Lehman 20+ Treasury Bond Fund (TBT) saw increasing options volume. TBT is a leveraged exchange-traded fund designed to move (2X) opposite to the iShares Long-term Bond Fund (TLT), which is an ETF that holds a basket of longer-term Treasurys. While bonds rallied and TLT gained $1.24 to $92.67 today, TBT lost 94 cents to $36.69. Meanwhile, 63,000 calls and 40,000 puts traded on the UltraShort Bond fund. May 38 calls were the most actives. 13,735 traded, as some investors appeared to be taking bullish positions in the TBT with May call options; which also represents a bearish bet on longer-term Treasury bonds.