Sellers Packed Up Their Tents 06-03-2010

Cusick’s Corner
While the market challenges long-term resistance, 200-Day Moving Average SPX 1105.5, traders are waiting for tomorrow’s Unemployment number which is estimated at 500K. This rally is in the face of a declining Euro and bullish EU market, a potential indicator that the sellers have packed in their tents at this stage. Keep a close eye on the new support levels, 107 on the SPY and 1105 on the ESM10, if they turn over -- the shorts could take control and the downtrend could continue. Watch the pre-market futures, ESM10, to get a feel for opening sentiment into the Employment data due out at 8:30am ET. See you Midday.

Stocks finished modestly higher following a round of mixed economic news Thursday. Data released early showed weekly jobless claims falling a better-than-expected 10,000 in the most recent period. Economists were looking for a smaller 5,000 drop. However, ADP said the economy added 55,000 private sector jobs in May. Economists were looking for the ADP report to show an increase of 60,000. The mixed jobs data seemed to cause some confusion ahead of Friday’s key monthly jobs report. But, with overseas markets rallying, the Dow Jones Industrial Average was able to forge modest gains at the open. However, selling pressure surfaced mid-morning after two separate reports showed the ISM Services Index unchanged at 55.4 in May and Factory Orders up 1.2 percent in April. Economists were looking for 55.7 from ISM and 1.7 percent increase in orders. The major averages slipped on the data and were in the red midday. However, the whipsaw action continued Thursday afternoon and, by the closing bell, the Dow Jones Industrial Average was up 5. The tech-heavy NASDAQ added 22.

Bullish Flow
Fortinet (FTNT), a thinly traded Santa Ana, CA computer component manufacturer, saw interesting options action Thursday. Shares lost 22 cents to $15.78 and options volume surged to 56X the recent average daily levels. 6,700 calls and only 65 puts traded in the name. September 15 calls were the most actives with 4,510 changing hands. September 17.5, December 15 and December 17.5 calls were busy as well, with nearly 90 percent of the total call volume traded at the asking price. Interestingly enough, there were no big trades in the name. The biggest was a lot of 92 September 17.5 calls at the 75-cent asking price. Overall, it looks like speculative call buyers were taking positions in this stock and, for whatever reason, looking for shares to move higher in the months ahead.

Hologic (HOLX), Las Vegas Sands (LVS), and Exelixis (EXEL) also had bullish order flow.

Bearish Flow
Rowans Companies (RDC), a Houston-based offshore driller, came under fire after the Washington Post reported that Mineral Management Services stopped issuing permits for drilling in the Gulf, including in shallow waters. Later, the Interior Department denied the report and said drilling in shallow waters could continue in certain situations. RDC hit a low of $21.66 when the initial report made the rounds, but finished down 89 cents to $23.79 and almost 10 percent from session lows. 15,000 puts and 7,200 calls traded, as players in the options market reacted to the day’s volatility in RDC.

Bearish flow also picked up in Tellabs (TLAB), Norfolk Southern (NSC), and Continental Resources (CLR).

Index Trading
Volume has been light in the index market in recent days. Thursday, for example, about 363,000 calls and 560,000 puts traded across the S&P 500 Index (.SPX) and other index products. The volume represents only 56 percent of the recent average daily volume. Meanwhile, the CBOE Volatility Index (.VIX) lost .71 to 29.46. The declining index volume and easing VIX indicates that fewer portfolio managers are buying index puts to protect portfolios. Not everyone thinks the market is out of the woods, however. Some of the biggest index trades Thursday were bearish spreads on the S&P 500, including SPX June 950 – 925 put spreads, 18100X, and SPX June 1050 – 1000 puts spreads, 9500X.

ETF Trading
US Natural Gas Fund (UNG) gained 46 cents to $8.01 after natural gas inventory data helped fuel gains in natural gas Thursday. Gas prices (July) rose 27 cents to $4.69. Meanwhile, in UNG, which is an exchange-traded fund that tracks natural gas through futures contracts, options volume rose to 3X the recent average daily, with 165,000 calls and 48,000 puts traded. June and July 8 calls were the most actives, with more than 40,000 traded in each.