Is the Buck Badgering the Market? 05-24-2011

Cusick's Corner
The Buck firmed into the close while Finance, XLF (thanks Citi +.35 and 9% of the XLF) was the strongest of the offensive sectors, this segment is just off its lows. We may have a consolidation forming in front of the long weekend. In the Commodity markets there was a nice oversold bounce but with the firm Dollar, Crude, CLU11, might come under pressure and Gold/Silver may continue to be a safety trade as macro uncertainties continue to rise. Watch the Durables that are due out at 8:30am ET, this will be a real litmus test of the consumer. If Durables pull back, the risk trade could unwind fast. Also Crude inventories are out just after the open, could add additional pressure to the longs. Lots to digest but much to plan for -- see you Midday.

Trading was slow and stock market averages finished with modest losses Tuesday. Some data was in focus mid-morning after a report showed New Home Sales improving to an annual rate of 323,000 in April; which was up from 301,000 in March and better than the 300,000 that economists had predicted. Orderly trading in Europe and a rebound in crude oil seemed to help keep things steady on Wall Street as well. After a 131-point slide Monday, the Dow Jones Industrial Average opened higher and was sporting a modest gain mid-morning with help from Chevron (CVX) and Exxon Mobile (XOM). The two were among nine Dow stocks to finish with gains after crude oil added $1.85 to $99.55 a barrel. However, trading was slow and the underlying tone remained cautious on Wall Street after Monday's market sell-off. Twenty-one Dow stocks fell and the industrial average limped into the closing bell down 25 points. The tech-heavy NASDAQ had lost 12.4 points.

Bullish
Sprint Nextel (S) shares saw relative strength today. The stock added 5 percent to $5.85 per share after Leap Wireless said that it is opposed to AT&T's efforts to acquire T-Mobile. The company says that the combination would hurt customers by creating an "alarming concentration" in the wireless industry around the two largest players. Sprint shares had taken a 13.8 percent hit when the deal was announced in mid-March. However, the stock has recovered the loss and bit more since that time. Shares notched new 52-week highs Tuesday. Meanwhile, in options trading Tuesday, 81,000 calls and 20,000 puts traded in Sprint today, which is 2.5X the average daily. January 5 calls, which are now 84 cents in-the-money, were the most actives. 22,433 traded. August 6, November 8 and June 6 call options saw brisk trading as well.

Bullish trading was also seen in Arcelor Mittal (MT), Gamestop (GME), and Office Depot (ODP).

Bearish
Regions Financial (RF), a Birmingham, AL regional bank, lost 6 cents to $6.77 and is in the midst of a five-day 6.6 percent losing skid. There's been no recent news to explain the weakness in the stock, but the slide seems to have stirred up some bearish sentiment in the options market. 6,790 puts and 1,300 calls traded in RF today. Much of the action was focused on the June 7 puts. The top trade was a 2,886-contract block at the 38-cent asking price. At the end of the day, 6,250 traded against prior open interest of 3,386. Looks like opening buying of in-the-money puts on concerns about additional losses for RF shares though the June expiration, which is in 24 days.

Bearish flow also surfaced in China Biotics (CHBT), Hovnanian Enterprises (HOV), and Cracker Barrel (CBRL).

Index Trading
Tuesday was a light volume day in the options market. 419,000 calls and 413,000 puts traded across the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash indexes; which is only about 74 percent of the recent average daily volume, according to Trade Alert data. The S&P 500 finished down 1.09 to 1,316.28 and the CBOE Volatility Index (.VIX) gave up .45 to 17.82. Meanwhile, the most actively traded index contract was SPX June 1225 puts. 18,790 traded. The contract is almost 7 percent out-of-the-money and expires in three and half weeks. Some investors were possibly buying these deep OTM puts as short-term portfolio hedges.

ETF Action
The top options trades Tuesday surfaced in the SPDR Financial ETF (XLF) in afternoon action. XLF is an exchange-traded fund that holds all of the financial-related names from the S&P 500. It lost 2 cents to $15.48 today. Meanwhile, a block of 60,000 March 12 puts traded at 37 cents while a block of 60,000 March 11 puts traded at 24 cents. These contracts expire in March 2012 and it appears that the position is an opening 12 - 11 put spread at 13 cents. If so, it might be to help hedge a stock portfolio, as the trade offers a maximum pay-off if XLF falls to $11 or less through the expiration, which represents a 29 percent decline over the next ten months.