SPX Resistance 1070 06-08-2010

Cusick’s Corner
The market hung around support, 1050 on the SPX, and wedged through to the upside to finish in the green. Watch resistance, looks to be at the 1070 mark on the S&P because we still have not seen any relative strength in the small caps, RUT. This small bullish divergence today is potentially promising, it can only be confirmed if we break through the May-June highs with some volume behind it. Watch the Finance sector, XLF, there was a bullish formation called a Harami (check out the Stocks section in our Education Center to learn more about this bullish candle pattern), signaling a potential trend shift in the works. If the Financials can get a head of steam, XLF over 15, we could see the potential for the rest of the market to follow suit. See you Midday.

Stocks finished mixed on a slow news Tuesday. After a two-day 439-point drop, the Dow Jones Industrial Average opened lower and fell to seven month lows early. Cautious trading continued through the morning, but with no hard news to guide the action, the situation had stabilized and trading turned mixed by midday. From there, action was choppy until a final hour rally helped lift the Dow to session highs. At the end of the day, DuPont (DD), Exxon Mobile (XOM), and BofA (BAC) were the Dow’s biggest gainers and the industrial average finished up 123 points. However, the tech-heavy NASDAQ lost 3.

Bullish Flow
ARM Holdings (ARMH) shares finished the day down 25 cents to $11.34, even after CNBC’s Jim Cramer recommended investors buy the chip designer. The talk show host said he’s bullish on ARMH because the company is a supplier for many popular devices including Apple’s new iPad. Shares failed to react to the comments, but action heated up in the options market. Total volume rose to 2.5X the average daily. 4,915 calls and 355 puts traded on the session. Buyers of October 12.5 calls led the action after 2,346 contracts traded and 97 percent of the volume traded at the asking price. Another 2,186 October 10s changed hands (99 percent Ask).

Cameco (CCJ), CVS, and International Game Technology (IGT) also had bullish flow.

Bearish Flow
Diamond Offshore (DO) had a rough day. Shares lost $2.27 to $56.94 after Goldman Sachs whacked the stock with a Sell rating and, separately, businessinsider.com reported that the driller’s Ocean Saratoga rig has sprung a leak. Options volume surged to 7X the average daily, with 15,000 calls and 24,000 puts traded Tuesday. The action was scattered across a number of June and July puts and calls, as players jockeyed for position in anticipation of additional volatility in DO shares in the weeks ahead.

Bearish flow also picked up in Caterpillar (CAT), Inverness Medical Innovations (IMA), and Gannett (GCI).

Index Trading
Trading picked up a bit in the index market, with about 900,000 puts and 650,000 calls traded across all index products. The top trade of the day was a block of 14,750 CBOE Volatility Index (.VIX) June 32.5 calls traded at the $3.30 asking price in morning action. VIX hit a high of 37.38 early, but after a relatively quiet day of trading finished down 2.88 to 33.69 and not far from session lows (33.36). A total of 133,000 calls and 126,000 puts traded on the VIX total, as some wary investors continue to turn to this product to hedge their portfolios from the risk of increasing volatility in the months ahead.

ETF Trading
Large blocks of puts traded in the Select Sector Financials (XLF) Tuesday. The top trades included 20,000 June 15 – 14 put spreads at 72 cents per contract, which appears to be a closing trade ahead of next week’s expiration. However, another trade involved the purchase of 18,000 September 13 – 10 put spreads at 60 cents per spread in afternoon trading. Shares finished up 29 cents to $14.16 and it is possible that the same investor initiated both spreads. That is, they sold-to-close the June 15 – 14 put spread before the expiration and then extended the bearish view out to September, while rolling down the spread to the 13 – 10s.