Big Ben Speaks 04-27-2011

Cusick's Corner
The bulls got what they wanted and the market made a run to the upside. If you are not long, you are wrong. We can debate the issue of policies and how they are affecting the future of inflation and growth, but the rally is real and the market breadth is large. To gauge this current rally (weed through all the data and rhetoric), watch the commodities -- Ags, Base Metals, Oil, Gold and if the pressures in this market does not recede then these prices will start to impact the producers, the retailers and ultimately the consumer. The consumer is spending. If you look at any Retail index like XRT, you'll find a sector at 52 week highs and still running. The GDP and Claims data (that Bernanke trimmed and clarified) will only add more color to this story and if they come in better than expected, well, it could be like when gas meets fire. See you Midday.

Stock market averages moved higher in the second half of trading Wednesday after the Federal Reserve concluded its latest meeting and no major changes to policy were unveiled. The Fed held rates steady and said its QE2 bond buyback program would end in June. Signs of increasing inflation prevented the Fed from initiating a QE3. However, the Fed also lowered its economic growth forecast for this year and stayed with the script about keep rates low for an "extended period" of time. Earlier in the day, the focus was on a report that showed orders for durable goods up 2.5 percent in March, which was up from .7 percent in February and better than the 1.8 percent increase that economists had expected. The earnings news was mostly positive. Amazon.com (AMZN), Corning (GLW), and Dow component Boeing (BA) were up after results topped Street views. At the end of the day, it was the Fed that seemed to drive most of the market's direction. The Dow Jones Industrial Average saw a lift in the second half of trading and finished with a 96-point gain. The tech-heavy NASDAQ added 22.3.

Bullish
Power One (PWER), a Camarillo, CA maker of power conversion and power management products, finished the day up 13 cents to $8.15. Meanwhile, PWER options volume included 7,900 calls and 2,090 puts. June 9 calls, which are 10.4 percent out-of-the-money and expire in 51 days, are the most actives. 2,470 traded. May 8 calls, May 9 calls, and May 8 put options were actively traded as well. Investors were taking positions and possibly anticipating increased volatility in the stock around earnings, due May 5. There was also takeover speculation in the name making the rounds Wednesday. It's unsubstantiated market chatter, but might have also been the catalyst for the activity in upside PWER call options today.

Bullish trading was also seen in LM Ericsson (ERIC), Corning (GLW), and Tellabs (TLAB).

Bearish
Vance Info Technologies (VIT), a Chinese information technology company, lost 4.2 percent to $30.18 Wednesday. There were no obvious headlines to explain the relative weakness in the stock, but increasing put activity accompanied the move. 2,245 calls and 15,000 puts traded in the name. Typical volume is 350 contracts. The action was scattered across a variety of strikes. June 25 puts were the most actives. 3,100 traded. May 20, May 25, and June 22.5 puts saw interest as well. All are short-term out-of-the-money contracts and the action seems to reflect concerns about additional losses in VIT in the weeks ahead. The company is due to release earnings on May 16.

Bearish flow also surfaced in Coinstar (CSTR), Longtop Financial (LFT), and JA Solar (JASO).

Index Trading
There's not a lot of news to report from the index market these days. 437,000 calls and 532,000 puts traded across the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash index products today, which is about 95 percent the normal volume, according to Trade Alert data. The CBOE Volatility Index (.VIX) was higher in morning action, but then finished down .27 to 15.35 after stocks rallied on the heels of the Fed meeting. One of the top index trades of the day is a buyer of 15,000 May 15 puts on the VIX. The investor might be taking the view that volatility will continue to ease in the weeks ahead. VIX May puts, which are based on forward prices and not the spot VIX, expire in 20 days, or on Wednesday May 18.

ETF Action
The Bullish Dollar Fund (UUP) saw heavy trading, as shares slipped to new 52-week lows late-Wednesday. The exchange-traded fund, which tracks the performance of the dollar against the Yen, the Euro, and other major currencies, hit $21 per share and finished down 14 cents to $21.02. Meanwhile, 69,000 calls and 62,000 puts traded on the dollar fund, which is 5X greater than the average daily. The top trade was a 20,000 block of June 21 puts at 27 cents per contract, which might be a liquidating sale of at-the-money puts. Beyond that, heavy trading was seen in May and June 21 and 22 call options, as some investors might see the weakness as an opportunity to initiate bullish trades on the buck.