Capitulation 08-04-2011

Cusick's Corner
I will not discount Chicken Little next time. Pure panic is in the market and preservation of capital is pinnacle. The reality is that the data is bad, and with the Claims Data coming in at 400K, the Non-Farm payrolls need to come in tomorrow at or above 150K. If we see 75K then this could lead to further capitulation but when the dust clears that could be an opportunity to start nibbling at the strong names, put credit spreads/ratio call spreads, but I am making some small adjustments to my volatility plays and Currency positions but not adding, just trimming any further risk. See you Midday.

Stock market averages suffered steep losses on a very volatile day of trading across global financial markets today. Key benchmarks across Europe closed with losses of more than 3 percent on concerns the debt crisis is spreading and larger countries like Spain and Italy might be next to seek EU financial support. The euro lost 1.5 percent against the dollar. The buck also rallied against the yen, gaining 2.5 percent on reports Japanese officials are once again intervening to slow the yen's appreciation. The dollar index gained 1.8 percent. A stronger greenback hurts US exporters because it makes their goods relatively more expensive abroad. Dollar strength is also a negative for gold and oil. Crude, which slipped on bearish inventory data yesterday, plummeted today on dollar strength and concerns about the global economy. Prices were recently down $5.50 to $86.43 per barrel. Gold had rallied early, but finished the day down $17.30 to $1,647.60 an ounce. Meanwhile, stocks opened sharply lower on Wall Street and the selling pressure intensified throughout the day. At the closing bell, the Dow Jones Industrial Average was down 512 points and near session lows. The tech-heavy NASDAQ tumbled 137 points.

Bullish
Rangegold Resources (GOLD) rallied and bucked the bearish trend today. Shares of the African gold miner gained $2.87 to $93.60 and hit a morning high $98.45 after gold rose to records above $1680 an ounce. However, gold lost more than $40 through midday and the decline triggered an uptick in volatility among many of the gold miners. Yet, shares of Rangegold were able to hold gains into the close and were helped higher by a solid profit report. Rangegold reported a quarterly profit of $1.20 per share. Analysts were expecting about $1. Shares finished up on the news and trading in GOLD options was 4.5X the average daily after 6,920 calls and 2,535 puts traded in the name. August 100 calls, which are now 6.8 percent out-of-the-money and expiring in 15 days, were the most actives. 1,920 traded. September 100, 105, 110 and 115 calls saw some interest as well.

Bullish trading was also seen in Comcast (CMCSA), Mindray Medical (MR), and Ford Motor (F).

Bearish
Home Depot (HD) lost 3.8 percent to $31.90 after fears about the global economy sent all thirty Dow stocks lower today. HD has now lost 13.5 percent in less than two weeks. Meanwhile, options volume in the home improvement retailer was impressive today. 75,000 puts and 23,000 calls traded in HD. One player sold 25,000 September 36 puts on Home Depot at $4.10 and bought 30,000 September 32 puts at $1.36. The trade looks like a roll, or closing out a position in the September 36 puts opened at $1.05 per contract on July 21. Shares are down about 11 percent since that time, and the strategist is banking a hefty profit in the 36s, while opening a new bearish position in the 32s. Doing so reduces the capital at risk. However, earnings could trigger additional volatility in HD before the September expiration. Home Depot is due to release results on August 16.

Bearish flow also surfaced in Leap Wireless (LEAP), OfficeMax (OMX), and Family Dollar (FDO).

Index Trading
CBOE Volatility Index (.VIX) surged today amid very heavy trading in the options market. The market's "fear gauge" jumped 8.28 to 31.66. In doing so, it surpassed this year's previous high of 31.28 set shortly after the Japan quake and nuke disaster. VIX, which tracks the expected volatility priced into S&P 500 Index (.SPX) options, is now at its best levels in thirteen months. Trading was very heavy in the options on the volatility index Thursday. 729,000 calls and 186,000 puts changed hands in the VIX pit today. In fact, overall volume surged throughout the options market. About 15 million calls and 19.5 million puts traded across the nine options exchanges, which is more than double the recent average daily volume. Volume and volatility are at extremes.

ETF Action
SPDR 500 Trust (SPY) saw very heavy trading today as well. SPY, which holds the same components as the S&P 500 Index, tumbled $5.91 or 4.7 percent to close $120.26 in very volatile trading. Meanwhile, 5.7 million puts and 2.8 million calls traded in the "SPYders" today, which is 3X the average daily volume for the product. In fact, 19 of the 20 most active options contracts today were options on the SPY. 16 of the top 20 were put option contracts on the exchange-traded fund. SPY August 120s, which are now at-the-money and expire in 15 days, were the most actives. 293,764 traded. August 122 and 123 puts on the SPDR 500 Trust were very heavily traded as well. SPY Weekly 125, which is now almost 4 percent OTM and expires after tomorrow, was today's most active call option