Market Perspective & Perception 04-21-2011

Cusick's Corner
I had a great conversation with my dad this afternoon about Perspective & Perception and why it would be a great topic for a Corner -- so here I go. Perspective is how things appear, the reality. What we know is that earnings have been solid, economic data mixed and global markets in bull mode as well. Perception is more personal, it's how you see the issue/thing. You might be looking at a chart and see it one way, like the Reverse Head and Shoulders that I pointed out yesterday, but another trader may look at that same chart differently. Take the weekend and review the reality of the facts (the market perspective) and then your interpretation of that view (market perception), look to see if in fact you have made some assumptions about the market that are better or worse than they really are. See you next week.

Stock market averages finished with modest gains, as positive earnings news seemed to offset weak economic data. Apple Computer (AAPL) gained 2.4 percent and helped to pace an advance in the technology sector after the company reported earnings that topped Street estimates. Qualcomm (QCOM), United Healthcare (UNH), and Traveler's (TRV) were also up on earnings news. On the economic front, data released before the opening bell showed jobless claims falling by 13,000 to 403,000 last week. Economists were looking for a decline to 390,000. Later, the Philadelphia Fed Survey of manufacturing activity printed at 18.5, which was a big drop from the 43.4 in March and also much worse than the 33.0 that economists had expected. But the list of leading economic indicators rose .4 percent last month and two times better than was expected. The focus seems to be primarily on earnings, however, and stock market averages were able to post gains ahead of the three-day weekend. The Dow Jones Industrial Average added 52 points and the tech-heavy NASDAQ gained 17.7.

Bullish
Sirius XM Radio (SIRI) saw interesting options order flow today. Shares of the satellite radio company finished the day up 6 cents to $1.93 and total volume hit 3.5X the average daily after 32,000 call and 2,440 puts traded in SIRI Thursday. May 2 calls were the most actives. 10,544 traded. The top trade of the day was a 2,264-contract block at the 6-cent asking price. Of the total volume in May 2 calls, 94 percent traded at the asking price, which suggests that buyers were driving the action. The contract is 3.6 percent out-of-the-money and expires in 29 days. January, June, September and December 2 calls were busy as well. The bullish sentiment comes ahead of the company's earnings report. Sirius XM is due to release results in early-May.

Bullish trading was also seen in Yahoo (YHOO), Sandisk (SNDK), and Orex Pharmaceuticals (OREX).

Bearish
Waste Management (WM) shares added 21 cents to $38.38 and options volume included 6,375 puts/1,095 calls. Most of the action was in smaller lots. The biggest traded was a 704-contract block of May 36 puts at the 30-cent asking price. May 37 puts were the most actives. 2,329 traded. May 35 and 38 puts saw some interest as well. No news on the Houston, TX waste management company to explain the increased interest in out-of-the-money short-term puts. It might be a play on earnings. The company is due to release results on the morning of April 28th.

Bearish flow also surfaced in Collective Brands (PSS), Equity Residential (EQR), and HSBC (HBC).

Index Trading
The CBOE Volatility Index (.VIX) had an interesting week. The market's "fear gauge" jumped to a high of 19.07 after an S&P downgrade of US's credit rating sent stocks skidding Monday morning. VIX eased off those highs through midday Monday and closed at 16.96. VIX then fell to 15.83 Tuesday. Wednesday, which was the options expiration from VIX April options, the volatility index fell to a low of 14.30 and its worse levels since July 2007. It rebounded to 15.07, but then lost .42 to 14.65 today. VIX has not closed at these levels since the summer of 2007 and is now 53.2 percent below the multi-month highs of 31.28 set on March 16. Suffice it to say, there's little fear priced into the market's "fear gauge".

ETF Action
57,000 puts and 5,500 calls traded on the Industrials Select Sector Fund (XLI) today. Shares, which hold GE, United Tech and the other industrial names from the S&P 500, finished up 11 cents to $37.63 and May 36 puts were the most actives. The action included two 16,300-contract blocks traded on the 27-cent bid price. 37,700 traded total. Open interest is 102,853 and some of the activity is probably closing trades - or selling puts to offset existing positions. Meanwhile, the July 37 puts traded 11,350 contracts and the volume was predominantly at the asking price. So, some investors might have been closing positions in the May 36 puts to open new positions in the June 37s. It might be short-term hedging activity to mitigate the risk from holding shares from one specific market sector.