Technicians See Hanging Man 06-01-2011

Cusick's Corner
This is not a healthy move in the market today -- the S&Ps broke Tuesday's lows. Technicians called yesterday's move a "hanging man" which is a confirmed bearish bar when the market the next day slices through the low of the previous day. The ISM could be the catalyst, showing a steep month-over-month contraction in manufacturing and now close to levels that move from a number expressing expansion, above 50%, to contraction, below 50%. We will be watching the After Hours to see if the sidelined longs start biting into the close or if they let the Claims and Employment data come out. See you After Hours.

Stock market averages fell on disappointing economic data early Wednesday and have failed to stage any meaningful rebound attempts through midday. Jobs were in focus early after ADP reported that the US economy added just 38,000 private sector payrolls during the month of May. Economists were looking for an increase of 170,000. On a brighter note, a report released later showed Construction Spending up .4 percent in April, which was above expectations of .5 percent. However, the latest ISM Index of manufacturing activity fell to 53.5 last month, which was down from 60.4 in April and well below expectations of 53.5. At the end of the day, the poor data was too much to overlook and the Dow Jones Industrial Average is down 145 points at mid-session. The tech-heavy NASDAQ lost 30. The CBOE Volatility Index (.VIX) added 1.20 to 16.65. Overall options volume is light, but becoming clearly more defensive. 3.4 million calls and 3.5 million puts traded through 12:00pm ET.

Bullish Flow
Ford Motor (F) calls options were busy this morning ahead of the company's auto and truck sales numbers. Shares are down 3 percent to $14.47 after the automaker reported a .1 percent decline in total sales. Meanwhile, options volume in Ford includes 89,000 calls and 56,000 puts through midday. The top trade of the day surfaced just after the opening bell when a 4,500-contract block of Weekly $15 call options traded at 8 cents on ISE. Data from the exchange indicate the trade was an opening buyer. The timing was not so good, however, as the contract is now 3.7 percent out-of-the-money and bid at just 2 cents. Weekly (6/3) calls expire after the end of trading on Friday.

ProShares China UltraShort ETF (FXP) is seeing active trading today. This exchange-traded fund moves twice the inverse to the iShares FTSE/XINUA China 25 Index ETF (FXI), which is a fund that holds shares of twenty-five leading Chinese companies. FXP is up 84 cents to $26.14 and options volume in the ETF is 24X the average daily. 11,000 calls and 190 puts traded on the fund. The focus is on July 26 calls, which are now 14 cents in-the-money. More than 10,300 traded. By buying calls on this inverse fund, investors are actually placing bearish bets on China's equity markets.

Bearish Flow
Put volume is picking up in the SPDR 500 Trust (SPY). The SPYders, which is the exchange-traded fund that holds all of the S&P 500 names, is down $1.96 to $132.94. 828,000 puts and 453,000 calls have traded on the ETF through midday. Some of the top trades are part of put spreads in the June Quarterlys, which expire on the last trading day of the fiscal quarter or the end of this month. One investor bought the Quarterly 132 - 127 put spread at 91 cents, 25000X. The 133 - 128 put spread was also bought at $1.11, 25000X. Institutional investors probably initiated the spreads to hedge stock portfolios on the heels of today's increase in market volatility.

Alcoa (AA) lost 48 cents to $16.33 and is one of twenty-nine components of the Dow Jones Industrial Average trading lower midday. Only Dow component Coca Cola (KO) is in positive territory. Meanwhile, a noteworthy options trade in the aluminum maker today is a seller of 11,000 AA January 17.5 calls at $1.21 per contract. 19,238 traded and open interest is 29,283. Some investors might be liquidating bullish positions in those calls. The contract is now 6.7 percent out-of-the-money after today's slide in Alcoa's share price.

Nokia (NOK) options volume is running 10X the (22-day) average, with 204,000 contracts traded and call volume accounting for about 82 percent of trades.
SPDR Retail Trust (XRT) options volume is 2.5X the average daily, with 63,000 contracts traded and put volume representing for 88 percent of the activity.
Petrohawk (HK) options volume is running 2.5X the average daily, with 58,000 contracts traded and call volume accounting for 97 percent of the activity.
Increasing options activity is also being seen in Apollo (APOL), Ensco (ESV), and DirectTV (DTV).

Implied Volatility Mover
Corinthian Colleges (COCO) implied volatility jumped along with the share price Wednesday. The stock had fallen to a 52-week low of $3.76, but then suddenly jumped to $4.07 on heavy volume. Options action heated up as well. 7,170 calls and 65 puts have traded in the for-profit education company so far. June 4 and 4.5 calls are seeing the bulk of the volume. Meanwhile, implied volatility in COCO options rallied 36 percent to 68. The unusual action in the stock is part of a sector trend, as APOL, DV, CECO, and STRA are also higher on the day.