Market Battles Back 06-23-2011

Cusick's Corner
As I mentioned yesterday and in today's Midday, Tech was really strong (look at the QQQs) and that leadership buoyed a weak market and by the afternoon, sectors like Consumer Discretionary, XLY, Housing, XHB, and even Finance, XLF, joined the advance. The table is now setting up for a challenge to the upside, especially since we have not violated the overall market trend. The Dollar strength did keep the commodity markets under pressure, but the late day pullback in Dollar strength did leave the major commodity complexes above the worst levels of the day. If we do see some selling into the weekend, I will be watching support, 1250 on the S&Ps. If this support is violated then the bulls might start to sweat. See you Midday.

Stock market averages battled back from steep morning losses and finished mixed Thursday. Trading was volatile early after stocks moved broadly lower across Europe. The euro also came under fire after ECB President Jean-Claude Trichet said warning lights are flashing on the Eurozone due to the debt crisis. Meanwhile, crude oil prices fell sharply on news the Obama administration and the IEA have plans to tap oil supplies from strategic reserves. Crude dropped $3.55 to $9.81 per barrel and gold gave up $31.70 to $1,521.70 an ounce. The domestic economic news was mixed. Early Thursday, the Labor Department reported that jobless claims increased by 15,000 to 429,000 in the week ended June 18. Economists were looking for the number to hold steady at 415,000. A separate report released later showed New Homes Sales falling to an annual rate of 319,000 last month; which was down from 326,000 in April, but not as bad as the 305,000 that was expected. Stock market averages fell sharply on the data, worries about the debt crisis, and tumbling crude. However, the situation had stabilized by midday and tech stocks helped to lift the market averages in the final hour. The euro also came off its lows on talk Greece had won approval for a new 5-year austerity plan. On Wall Street, the Dow Jones Industrial Average finished down 70 points, but 175 points off session lows. The tech-heavy NASDAQ gained 17.5 points.

Bullish
Bristol Myers Squibb (BMY) shares rallied 5.7 percent to $29.33 and options on the pharmaceutical company were busy today after the company, along with partner Pfizer (PFE), reported favorable Phase 3 study results for a blood thinner. The product proved safer than existing treatments in preventing strokes. PFE gained 1.8 percent on the news. Meanwhile, 54,000 calls and 48,000 puts traded on Bristol Myers. Typical volume is about 22,000 contracts. September 29 calls, which are now 33 cents in-the-money, were the most actives. 14,675 contracts traded. The average price per contract was 97.5 cents per contract and some investors were possibly taking positions to lock in their rights to buy or "call" BMY shares at $29 through the September options expiration.

Bullish trading was also seen in Pfizer (PFE), Traveler's (TRV), and Tata Motors (TTM).

Bearish
Coach (COH) shares hit a morning low of $59.22, but moved higher in the second half of trading and finished up 30 cents to $60.89, or 2.8 percent off its worse levels of the day. Bearish traders were active in the name early, as blocks of July 57.5 puts traded at the 80-cent asking price. At the end of the day, 6,740 contracts had changed hands. Since open interest is 1,115, the activity looks like opening put buying in COH. The July 57.5 puts are now 5.6 percent out-of-the-money and expire three weeks from tomorrow. The downside put buying might be a play on economic trends and concerns of softening sales for the luxury goods retailer. Some investors are possibly speculating that shares will see a correction in the weeks ahead. The stock has rallied about 50 percent in the past twelve months.

Bearish flow also surfaced in Alere (ALR), Intrepid Potash (IPI), and Kimberly Clark (KMB).

Index Trading
Despite the increased volatility Thursday morning, there doesn't seem to be any panic in the index market so far. 544,000 calls and 712,000 puts traded on the S&P 500 Index (.SPX), Russell 2000 Small Cap Index (.RUT) and other cash-settled indices today, which is about typical volume for the index market, according to Trade Alert data. Put volume often spikes when volatility picks up and investors scramble for portfolio protection, but that did not happen Thursday. Meanwhile, the CBOE Volatility Index (.VIX), which tracks the implied volatility of SPX options, hit a morning high of 21.50, but then gave back most of the gains and finished the day up .77 to 19.29. While the volatility index is up 24.9 percent month-to-date, it is a far cry from the levels above 30 seen at the mid-March lows.

ETF Action
Trading was very heavy in the ETF options today and a number of commodity-related products saw high volume. Total options volume across all exchange-traded funds today was 3.7 million calls and 5.8 million puts, according to Trade Alert data. The US Oil Fund (USO), which tracks the commodity through futures contracts, lost $1.09 to $36.01. Options action in the USO was brisk. 105,000 calls and 114,000 puts traded on the fund. Meanwhile, SPDR Gold Trust (GLD), which holds the metal stored in bank vaults, lost $2.65 to $148.34. Options volume in GLD was 254,000 calls and 220,000 puts.