Will Consumers Stay Strong? 04-28-2011

Cusick's Corner
The lack of follow through and leadership from critical sectors, Financials (XLF) & Tech (XLK), has left traders a bit on edge. Housing really was a boost to the market but not nearly enough to be the catalyst for further upside. The market has been able to finish in the green all of this week and technically poised for further upside but we do have data that is due out tomorrow, Personal Income & Spending, followed later in the session by the Michigan Sentiment. As mentioned in the Midday, the consumer was very strong this past quarter but with increasing commodity prices pressuring retailers, how much longer can these pricing pressures continue before they are en masse passed along to the buying public. If spending drops the market might react negatively finally, raising red flags that inflation is truly impacting the consumer habits. See you Midday.

Data was in focus early Thursday after the latest report on GDP showed the economy growing at a 1.8 percent annualized rate in the first quarter of 2011. Economists were expecting 1.7 percent. At the same time, the Labor Department reported that weekly jobless claims increased by 25,000 in the period ended April 23. Economists were looking for a decline of 14,000. However, a third report released later showed pending home sales up 5.1 percent in March, which was significantly better than the 1.7 percent that was expected. The stock news was mixed. Dow component Procter & Gamble managed a small gain after reporting earnings that beat Street estimates. Pulte Group (PHM) and Sprint (S) also saw post-earnings strength. Baidu.com (BIDU), Akamai (AKAM) and Whole Foods (WFMI) suffered losses. At the end of the day, the news was mixed, but the Dow Jones Industrial Average managed another 72-point gain. The tech-heavy NASDAQ added 2.7.

Bullish
Jetblue (JBLU) shares battled back from morning weakness and added 6 cents to $5.62. Options action picked up in morning trading as well. 9,735 calls and 735 puts traded on the airliner. The activity was heavily concentrated in the December 7 calls. The top trade was a 1,000-contract block at 30 cents per contract and an opening buyer, according to ISEE data. At the end of the day, 8,675 contracts had traded. Open interest is only 10 contracts. So, this activity looks opening and probably positioning for an upward move in JBLU, after shares fell 26 percent since mid-November.

Bullish trading was also seen in Xerox (XRX), Titanium Metals (TIE), and Sprint (S).

Bearish
OfficeMax (OMX) came under pressure and trading was heavy in OMX options after the company reported earnings of 13 cents per share. Analysts were expecting 27 cents. Shares lost $2.49 to $10 and options volume hit 16X the average daily. 19,000 puts and 9,955 calls traded on the retailer. August 9 puts, which are now $1 or 10 percent out-of-the-money, were the most actives. More than 10,000 traded. Open interest is 1,144 contracts and it appears that some investors were opening new positions on concerns about additional losses in OMX through mid-August.

Bearish flow also surfaced in SunPower Tech (SPWRA), Whole Foods (WFMI), and Jabil Circuits (JBL).

Index Trading
Volume in the index picked up, but volatility fell Thursday. 611,000 calls and 564,000 puts traded across the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash index products today, which is about 115 percent the normal volume, according to Trade Alert data. The CBOE Volatility Index (.VIX) lost another .73 to 14.62 and closed at its lowest levels since mid-2007. Meanwhile, in VIX options action, 381,000 calls and 132,000 puts traded on the index. The top trade was part of a spread, in which the investor apparently sold 24,000 May 24 puts at $7.65 and then bought 24,000 July 24 puts at $5.90. They collected $1.75 on the spread and were probably rolling a bearish position out an additional two months.

ETF Action
Large call buyers surfaced in the Industrials Select Sector Fund (XLI) today. Shares, which hold GE, United Technologies (UTX) and the other industrial names from the S&P 500, touched a new 52-week high and finished the day up 13 cents to $38.55. In options action, one investor bought a massive position in 47,000 June 40 calls at 46 cents per contract on the ISE. Sentiment data confirm that trade was buyer-initiated. Another block of 37,500 June 40 calls also traded at 35 cents. At the end of the day, 109,000 contracts traded. The XLI June 40 call is 3.8 percent out-of-the-money and expires in 50 days.