Swing & Fade Traders Frustrated 07-06-2011

Cusick's Corner
The market is in a light volume, range-bound environment that has no solid leadership across the board. We are seeing stocks and commodities that are trading now in a range to the upside but the huge trend, a break out or down, has not been confirmed. If you look at the S&Ps, we held the 1250 level and have not been able to break 1340. We are in a cycle where the markets have rallied but within a defined range and that's tough for traders who are trying to swing trade. The fade trader is also frustrated because they cannot get a good risk or reward where we have a gap and run, they look to jump in and then the market capitulates and shifts. Many traders are watching for the market to move with conviction, breaking out of the overall trend which has not happened at this stage. See you Midday.

Stock market averages overcame morning losses and finished with modest gains Wednesday. Trading was tentative early after Moody's late-Tuesday cut Portugal's credit rating to junk. The move weighed on European stock benchmarks overnight, the euro slipped against the buck. The European Debt Crisis was back in focus. Later, the ISM Services Index was released and showed a decline to 53.3 in June, from 54.6 the month before and below economist estimates of 54. Yet, the market showed little reaction to the data and, instead, some late-morning buying interest helped lift the Dow Jones Industrial Average and the NASDAQ into positive territory at midday. From there market action was mostly choppy and range-bound, with little news flow to guide things one way or the other. At the closing bell, the Dow Jones Industrial Average was up 56 points and the tech-heavy NASDAQ gained 8.

Bullish
Kinetic Concepts (KCI) shares rallied and options on the San Antonio, TX medical instruments company were heavily traded after Bloomberg.com reported that some private equity firms might be looking to buy it for $5 billion. KCI jumped to new 52-week highs and settled the day up $7.42 to $66.20. Options volume totaled 7,150 calls and 1,185 puts. By way of comparison, typical volume in KCI is fewer than 250 contracts. July 70 calls were the most actives. 2,820 traded and, with about 74 percent trading at the ask, it looks like call buyers were taking positions - possibly bracing for an official announcement and a rally beyond $70 before the July contract expires in 9 days.

Bullish trading was also seen in Target (TGT), Bebe Stores (BEBE), and Rite Aid (RAD).

Bearish
Transocean Offshore (RIG) shares came under pressure Wednesday afternoon and lost $2.04 to $62.23 on reports an oil rig was being evacuated in West Africa. The news triggered a flurry of activity in Transocean options as well. 18,000 calls and 42,000 puts traded in RIG today. July 60 puts, which are now 3.6 percent out-of-the-money and expiring in a little more than a week, were the most actives. 15,720 traded. July 62.5 puts saw heavy trading as well. Some nervous shareholders might have been buying puts to protect shares on fears the situation could escalate and create liabilities or other problems for Transocean.

Bearish flow also surfaced in ZAGG, Accenture (ACN), and Toyota Motors (TM).

Index Trading
Trading is very slow in the index market, as many institutional players are away during the holiday-abbreviated trading week. 438,000 calls and 543,000 puts traded across the S&P 500 (.SPX), NASDAQ 100 (.NDX) and other cash indexes, which is only about 70 percent the recent average daily volume, according to data from Trade Alert. CBOE Volatility Index (.VIX), which gauges expected or implied volatility of SPX options, hit a morning high of 17.08 and finished the day up .28 to 16.34. Meanwhile, the ten most actively traded index contracts were all SPX puts or calls. SPX July 1260 put saw the most volume. 32,590 traded. The S&P 500 added 1.34 points to 1,339.22 and some investors were likely selling those puts, as the July 1260 put on the S&P is 5.9 percent out-of-the-money and stops trading next Thursday.

ETF Action
SPDR Gold Trust (GLD) added $1.28 to $148.91after gold prices gained $16 to $1528.70 an ounce. GLD is an exchange-traded fund that owns the precious metal stored in bank vaults. Options on the ETF are very actively traded as well. Today, for example, 196,000 calls and 109,000 puts traded in GLD. July 150 calls were the most actives. 62,700 contracts traded. Some large blocks were being sold, according to an exchange floor contact. Some investors might be liquidating positions after today's rally. The July 150 call on the gold fund is .7 percent out-of-the-money and expires at the end of next week.