Jumping Mid-term Support 04-19-2011

Cusick's Corner
The market action confirmed that the major trend in Equities is intact, plus earnings After Hours are supporting the move as well. The market finished not only in the green, but most importantly key bench marks like the S&P June Futures jumped above mid-term support, 50-Day Moving Average at 1309. In the end I like the fact that the downside did not have an extension. EU markets firmed, but this choppy action can be expected for the remainder of the week. With the energy names rebounding today, watch the Crude inventories tomorrow -- see if that potentially puts some pressure on the Crude markets. We will also have Home sales, there's still a glut of affordable homes on the market and we want to see if they are moving and signaling some movement in the consumer credit markets. See you Midday.

Stock market averages finished with modest gains on relatively slow market action. Johnson & Johnson (JNJ) gained 3.7 percent and was the best gainer in the Dow Jones Industrial Average after the company said it earned $1.35 per share in the most recent quarter, which beat Street estimates by 9 cents. Meanwhile, the latest Housing Starts data showed improvement to 549,000 in March, which was up from 512,000 last month and also better than the 520,000 that economists had expected. The Housing Starts number and J&J's positive results helped lift the Dow Jones Industrial Average in morning trading, but the NASDAQ was in the red for a second day. However, with little news to guide the action, some buying interest surfaced in afternoon trade. At the closing bell, the Dow Jones Industrial Average was up 65 points and 8 points from its best levels. The tech-heavy NASDAQ added 9.6.

Bullish
BMC Software (BMC) lost 23 cents to $48.98 and has now suffered a two-day 3.7 percent setback after Citigroup analysts cut the rating on the stock to Hold from Buy. Shares are under pressure, but some investors seem to view the weakness as an opportunity for bullish trades. The top options trade of the day was a 5,000-contract block of May 52.5 calls at 57.5 cents per contract. It traded on the International Securities Exchange, where data indicate a position was bought-to-open. 5,600 traded on the day, which compares to open interest of 261 contracts. The May 52.5 call is 7.2 percent out-of-the-money and expires in 31 days. May 55 calls and January 47.5 calls saw interest as well. The bullish trading also comes ahead of earnings, due on May 4.

Bullish trading was also seen in Hanes Brands (HBI), CREE, and General Electric (GE).

Bearish
Energy Conversion (ENER), a Rochester Hills, MI company specialized in the development of solar technologies, finished the day down 7 cents to $1.99 and options volume surged, as 26,000 puts and 3,390 calls traded in the name Tuesday. The top trade was a 17,000-contract block of September 1.5 puts at 30 cents. The bid-ask was 19 to 30 cents at the time. 19,593 traded total and, since open interest is only 216 contracts, the action looks like opening put buying. June 2 and December 1.5 puts were actively traded as well. ENER shares have been under pressure since mid-March when the company warned that rule changes to solar incentives in Europe would hurt earnings. Today's options order flow seems to reflect concerns about the risks of additional losses heading into earnings, due early-May.

Bearish flow also surfaced in Heinz (HNZ), Ecolab (ECL), and Cemex (CX).

Index Trading
547,000 calls and 527,000 puts traded across the S&P 500 Index (.SPX), the S&P 100 (.OEX) and other cash indexes Tuesday, which is about typical volume for the index market these days. The CBOE Volatility Index (.VIX), which added 1.64 to 16.96 Monday, gave back most of the gains. The volatility index dipped 1.13 points to 15.83. Meanwhile, the top options trades in the index market today were in the VIX. One investor apparently bought 12,500 May 22.5 calls at $1.12 and sold 25,000 May 27.5 calls at 51 cents. Therefore, they paid a dime for this 1X2 call ratio spread and might be looking for VIX to rally to 27.5 through the May expiration. There is additional risk to the upside in this trade, because only half of the May 27.5 calls are covered by the May 22.5s.

ETF Action
SPDR Homebuilders Trust (XHB) added 19 cents to $18.61 and options volume included 34,000 calls and 10,000 puts after data released Tuesday morning showed better-than-expected housing starts and building permits for March. The top options trade in XHB today was a block of 20,000 December 20 calls, which was sold at $1 even. The position was tied to 800,000 XHB shares. Since the delta of the calls is .40 and 20,000 contracts were sold while 800,000 shares were bought, the position is delta neutral. The strategist might be looking for XHB to drift towards $20 in the months ahead and is trying to profit from modest appreciation in shares and time decay in the options.