Gold Bugs Get Bit 06-24-2011

Cusick's Corner
EU debit crises and austerity measures are the headline risks this market seems to be focused on, what has caught my eye is Gold, GCN11, which is just getting pounded. With the Gold futures right at the $1500 level, I will be watching whether or not the bid comes in and starts to nibble. This has broken the strong uptrend if we get a close below 1520. Finance has also been the bane of this market, while Tech (as I have noted all week) and Energy has firmed up, supporting at this stage a more subdued pullback. And Nina, my very astute sidekick, pointed out that today is the Rebalancing in the Small Caps, thus some momentary volatility in that higher beta space. Might look at some protection into the weekend -- see you After Hours.

Stocks are broadly lower Friday as disappointing earnings and worries about the European debt situation outweighed positive economic news. Oracle (ORCL) is down 3.7 percent after the software maker late-Thursday lowered its fourth quarter sales outlook. Disappointing earnings news from Micron (MU) is also weighing on the tech sector. Shares of the chipmaker are down 11.7 percent. Meanwhile, the euro lost .4 percent against the dollar after Moody's placed a number of Italian banks up for review for possible downgrade. Yet, the day's economic data was a bit better-than-expected, with durable-goods orders up by 1.9 percent in May and the Commerce Department revised up its estimate for first quarter economic growth to 1.9 percent. But the disappointing earnings and ongoing worries about the European debt crisis seem to overshadow the day's economic news. The Dow Jones Industrial Average is down 89 points and the tech-heavy NASDAQ lost 24.2. The CBOE Volatility Index (.VIX) jumped 1.35 to 20.64. Overall options volume is light and seems defensive, with 3.1 million calls and 3.3 million puts traded through 12:00pm ET.

Bullish Flow
Micron Technology (MU) shares are under fire today after the chipmaker reported a 7-cent quarterly profit on $2.14 billion in revenues. Analysts were expecting 17 cents on $2.37 billion. MU shares are down $1.04 to $7.39. Meanwhile, options volume is interesting, as 45,000 calls and 17,000 puts have traded in Micron today. July 8 calls, which are now 8.3 percent out-of-the-money, are the most actives. 12,500 traded and 53 percent of the volume traded at the ask. Another 7,665 July 7 calls traded and 69 percent of the volume has been at the asking price. So, it appears that call buyers are active in the chipmaker today and possibly looking for the stock to recapture some of today's losses in the weeks ahead. July options expire in three weeks.

General Motors (GM) shares are down 12 cents to $30.02 and call volume is outpacing put volume by a ratio of ten-to-one. 11,000 calls and 1,100 puts traded on the automaker through midday. July 31s are the most actives. 5,700 contracts have traded and 94 percent of the volume has been at the asking price, which indicates buying interest. The contract is 3.3 percent out-of-the-money with three weeks of life remaining. Some investors are possibly taking positions on hopes GM shares can roll beyond $31 before the contract expires. GM touched a 52-week low of $28.17 on June 16, but has been trending higher and is up 6.6 percent since that time.

Bearish Flow
Brocade (BRCD) shares fell on news the company's CFO has resigned. Shares of the San Jose, CA data storage device-maker are down 51 cents to $6.16. Meanwhile, today's options volume in Brocade includes 25,000 calls and 30,000 puts, which is 2.5X the average daily for the name. July 6 calls are the most actives and appear to be seeing some liquidating trades, as volume is 15,870 contracts and 80 percent of the flow has been on the bid. At the same time, some investors appear to be positioning for further losses in the stock and buying October 6 puts. Volume is 11,920 contracts and 56 percent traded at the ask.

SuccessFactors (SFSF), a San Mateo, CA business software company, is down $2.89 to $28.51 and possibly falling in reaction to Oracle's downside revenue forecast. Shares are under pressure and today's options volume of 10,000 contracts is 12.5X the average daily for SFSF. About 6,000 puts and 4,000 calls traded in the name. July 32 puts, which are now 10.9 percent in-the-money, are the most actives. 2,300 traded. August 28 calls, September 30 puts, and July 30 calls are see interest as well.

Unusual Volume
Williams Companies (WMB) options volume is running 4X the (22-day) average, with 100,000 contracts traded and call activity accounting for 62 percent of the volume.

Oracle (ORCL) options volume is 2.5X the average daily, with 97,000 contracts traded and call volume representing 60 percent of the activity.

Brocade (BRCD) options volume is running 2.5X the average daily, with 55,000 contracts traded and put volume representing 55 percent of the total volume.

Increasing options activity is also being seen in International Paper (IP), United Continental (UAL), and EMC.

Implied Volatility Mover
CBOE Volatility Index (.VIX) added 1.34 to 20.63 and is on a two-day 11.7 percent run higher. VIX, which tracks the expected volatility priced in S&P 500 Index options, is up 33.5 percent month-to-date. Yet, while the market's "fear gauge" has been rallying, overall volume in the VIX options pit remains relatively light. 54,000 calls and 67,000 puts so far today. In addition, almost 40 percent of the volume is due to one trade after a 47,000-contract block of VIX August 18 puts traded at 86 cents per contract. It was possibly a closing sale and seems to reflect expectations that VIX will hold above 18 through the August expiration.