Money Needs a Home 06-28-2011

Cusick's Corner
While riots were going on in the streets of Athens, the market keep chugging along. Three of the four offensive sectors, XLI, XLK, XLY, were outperforming the major benchmark, S&P 500. The dollar, bonds and volatility all pulled back. There is now a lot of money that is in need of a home, especially with the steep sell off at the end of the day in Bonds. And with the end of the month and quarter upon us, there is not much selling that is getting in the way of this rally, not even with Greece. We'll go into the overnight and early morning sessions preparing for challenges to major upside resistance, 1300 and 1304 on the S&P September Futures, and if that's breached it will pave the way to a more sustainable push to the upside. This move has been on light volume (don't be too complacent), but this market has had solid upside breadth across multiple asset classes. Watch the Crude inventories due out after the open. We had a bullish number last week only to be overshadowed by the IEA doing a special 30 day release from the reserves, which reversed the course of crude. Crude did bounce today, CLU11 $93.40 + 2.22. A lot to chew on but this leaves us with some interesting ideas. See you Midday.

Stock market averages moved higher Tuesday. The stage was set for early gains on Wall Street after European stock indexes posted gains on hopes Greece can avoid defaulting on its debt. There's optimism that Greek parliament will adopt unpopular austerity reform despite angry protests in the streets of Athens. The euro has gained .55 percent against the dollar and stock market averages finished higher across the Eurozone as well. In the US, some of the early focus was also on the S&P/Case Shiller Index, which showed home prices improving in US cities for the first time in 8 months. Separate data released later was less bullish. According to the Conference Board, consumer confidence fell in June. The index of consumer sentiment declined to 58.5, from 60.8 the month before and below estimates of 62.0. The focus, however, seems to be on Greece and on diminishing fears that debt troubles could spread to other European economies. At the end of the day, the Dow Jones Industrial Average added another 145 to yesterday's 109-point gain. The tech-heavy NASDAQ rallied 41 points.

Bullish
Yoku.com (YOKU), a Beijing-based Internet information services provider, rallied 30 percent to $35.54 per share today after the company announced a partnership with Time Warner (TWX). The two companies will collaborate to offer on-demand American movies to online users in China. YOKU shares surged on the news and options volume hit 4X the average daily. 30,000 calls and 14,000 puts traded in YOKU today. July 33 calls, which are now 7.7 percent in-the-money after today's rally, were the most actives. 3,650 traded. July 30, 35 and 37 puts saw brisk trading as well. July 30 and 34s were the most active puts.

Bullish trading was also seen in Alcatel Lucent (ALU), Shaw Group (SHAW), and Hansen Natural (HANS).

Bearish
KB Homes (KBH) is a name worth watching Wednesday morning. The homebuilder is due to release earnings before the opening bell. The sector will also be in focus at 10:00am ET when pending home sales numbers are released. KBH shares added 13 cents to $11.92 and options volume was 6X the average daily ahead of the news. The top trade was a block of 17,000 August 12 calls sold at 62 cents per contract. At the end of the day, 19,850 had changed hands against open interest of 5,494. Selling of these August 12 calls, which are .7 percent out-of-the-money and expiring in 52 days, might reflect the view that the upside is limited for KBH. A shareholder might have initiated the trade against stock as part of a covered call strategy.

Bearish flow also surfaced in Spreadtrum Communications (SPRD), Gamestop (GME), and Rena Solar (SOL).

Index Trading
It was another quiet day in the index options market today, as some macro players are in wait-and-see mode ahead of a decision related to the much-anticipated austerity plan in Greece. The decision has important implications for the Greek debt, the Eurozone, the euro, commodities, and equity markets across the globe. Trading in the index pits today included an even split of 576,000 calls and 577,000 puts on the S&P 500 Index (.SPX), Russell 2000 Small Cap Index (.RUT) and other cash-settled indices, which is only 88 percent the recent average daily volume, according to Trade Alert data. CBOE Volatility Index (.VIX), which tracks the implied volatility of S&P 500 Index options, lost 1.39 to 19.17 and the most active index options contract of the day was VIX July 25 call, as some players might be taking positions on concerns a negative decision on austerity reform in Greece could trigger increasing volatility in the US financial markets as well.

ETF Action
KBW Bank ETF (KBE) added 4 cents to $23.36 and options volume was 2.5X the average, driven by a January 23 straddle seller. The strategist sold 10,000 January 23 calls at $2.05 and sold 10,000 January 23 puts at $1.95. Therefore, $4 credit was collected per straddle. The combo traded more than once and volume in both contracts surpassed 12,000. The volume also exceeded open interest, which indicates that this straddle writing (selling) is probably new positioning. It's not a bullish or bearish play, but a bet that shares will hold around $23 (plus and minus the $4 credit) through the January options expiration.