Dollar Firms Up 06-01-2010

Cusick's Corner
The Dollar firmed up and bounced late in the day and the remaining currencies began a late day slide. This looked to have influenced a pull back in stocks and energies. Additionally, this debunked the potential bounce theory of the midday, and put the strength back into the hands of the bears. But keep your eye on the Energy sector to attempt a bounce, there are quite a few names that have had some aggressive down days over the last 5 sessions that have really gone beyond their 5 session average range. Watch the Auto Sales into the Midday tomorrow, 2:00pm ET. See you Midday.

Trading was quiet into midday, but volatility picked up late and the stock market averages suffered another round of losses Tuesday. Trading had turned mixed midday on the heels of better than expected manufacturing and construction spending data. The ISM Index of manufacturing activity, released at 9:00 a.m. Central Time, showed ISM slipping to 59.7 in May; which was down from 60.4 in April, but not as bad as the 59.4 expected by economists. Separate data showed Construction Spending up 2.7 percent in April, which was significantly better than the .1 percent increase economists had predicted. The stock market averages moved out of negative territory on the news and trading turned choppy until the final hour. Then, things unraveled again with help from falling commodities prices. Crude oil led the decline with a 1.8 percent loss. Alcoa (AA), Chevron (CVX) and Exxon (XOM) were among the biggest losers in the Dow Jones Industrial Average, which finished down 113 points. The NASDAQ lost 34.7.

Bullish Flow
Farm and construction machinery equipment maker Terex (TEX) saw heavy trading Tuesday. Shares hit a high of $22.56 in morning action after renewed buyout speculation made the rounds. It's not the first time the name has been the subject of unsubstantiated chatter. While the stock didn't hold the early gains, and finished down 51 cents to $21.25, some options players seemed optimistic about some sort of takeover announcement. About 12,000 calls and 390 puts traded in TEX, or 3.5X the recent average daily volume for Terex. June 23 and 24 calls were the most actives. July 22, June 21, and June 20 calls were busy as well.

Bullish order flow was also seen in Questcor Pharmaceuticals (QCOR), Newell Rubbermaid (NWL), Corinthian Colleges (COCO).

Bearish Flow
National Oilwell (NOV) lost $4.23 to $33.90 on a rough day for the drillers. The sector is under pressure amid worries about the out-of-control Gulf spill and the potential impact on future drilling activity in the area. In NOV options, volume rose to 3X the average daily. About 12,000 puts and 5,800 calls traded on the session. June 33, 32, and 35 puts were the most actives. August 25 puts saw interest as well.

Bearish flow also picked up in Schlumberger (SLB), Dow Chemical (DOW), Williams Sonoma (WSM).

Index Trading
The CBOE Volatility Index (.VIX) saw a late day rally and closed near session highs. The market's "fear gauge" finished up 3.47 to 35.54. A noteworthy options trade surfaced very late in the day when a strategist apparently sold 24,750 June 35 calls at $2.53 each and bought 2X as many, or 49,500 June 55 calls at 49 cents each. This spread is possibly a roll up in strike prices. Or, this strategist is possibly opening a new 1X2 backspread at a $1.55. If it's a backspread, the strategist can keep the credit if VIX settles below 35 at next week's expiration. They can also make money if VIX rallies significantly beyond 55. The risk in the trade is from a gradual move higher and the max loss would be suffered if the volatility index settles at the upper strike, or 55, at the expiration.

ETF Trading
IShares Hong Kong Fund (EWH) lost 22 cents to $14.56 after data released Tuesday showed slowing economic growth in China. EWH, which is an exchange-traded fund that holds a basket of Hong Kong-listed equities, edged lower and options volume rose to 5X the recent average daily. The bulk of the activity was in the July 13 puts, which traded 12,500x, including blocks at 75 and 80 cents per contract. These puts were apparently opening trades and tied to EWH shares. Therefore, the strategists were not necessarily making straight bearish bets on the fund, but rather taking positions in anticipation of heightened volatility in the Hong Kong equities market.