Big Money Still On Sidelines 07-02-2010

Cusick’s Corner
The Unemployment number has come and gone with very little fan fare. The bottom line is that the private sector was hiring, maybe not at the levels that the market would like, but it dampened the impact of government layoffs. While the bounce into the Midday is nice, the market internals are horrible, everything is negative. I expect the potential for the downside to be tested, especially since there seems to be a lot of big money still on the sidelines. A few things to monitor -- Gold after the 50-Day Moving Average was broken with some authority, plus the Euro which has been on a momentary delay. One final note, take some time out this weekend to reflect and be thankful for the freedoms that we have in this great country and those who have served and given the ultimate sacrifice to continue these freedoms. Have a great weekend.

The major averages are lower again Friday after economic data showed the US economy losing more jobs than expected in June. According to the Labor Department, 125,000 jobs were lost last month. Economists were looking for a drop of about 100,000. While the unemployment rate declined to 9.5 percent from 9.7 percent, hourly earnings also fell .1 percent. Economists were looking for the rate of unemployed to increase to 9.8 percent and for hourly earnings of +.1 percent. After several days of disappointing economic news this week, the mixed jobs report did little to ease concerns about the deteriorating economic outlook. The Dow Jones Industrial Average, which had fallen in eight of nine trading sessions prior to Friday, saw modest gains at the open. It proved short-lived, however, and another wave of selling pressure has the Dow down 75 points midday and ahead of the three-day Fourth of July weekend. The NASDAQ lost 12.7. Meanwhile, options activity is slowing, with about 2.6 calls and 2.7 million puts traded through 12:15 ET.

Bullish
A number of biotechnology names saw increasing call volume after Bloomberg BusinessWeek reported that Sanofi Aventis is prepared to make a major acquisition in the US. Biogen (BIIB), for example, is up $2.19 to $48.91 and options volume is 19X the average daily. 19,000 calls and 3540 puts traded so far. August 55 and 60 calls are the most actives. Genzyme (GENZ), Allergan (ALGN), and Celgene (CELG) are seeing bullish trading as well.

AMD calls have seen heavy trading all week and the action continues Friday. 62,000 call options traded on the chipmaker through midday. The volume is 8X the expected activity and compares to 8,100 puts. Shares are down 27 cents to $7.12 and the focus is on October 7, October 8, August 7, October 6, and January 2012 10 calls. There is no news to explain the spike in activity and some of the action might offset (close) existing positions. However, this week’s heavy call volume is also noteworthy because it comes ahead of earnings, due on July 15.

Bearish
The top options trades so far today are in the SPDR S&P 500 (SPY) exchange-traded fund. SPY holds the same stocks that comprise the S&P 500 and shares are down 79 cents to $101.97 midday Friday. One strategist appears to be bracing for additional losses and sold the July 100 – 105 bearish risk-reversal at 12 cents, 29000X. That is, they bought 29,000 July 100 puts at $1.15 and sold 29,000 July 105 calls at $1.27. The bearish trade might be a closing position or possibly a short-term hedge. July options come off the board two weeks from today.

Pfizer (PFE) is down 8 cents to $14.15 and a substantial spread traded in the January 2011 puts after one player apparently bought 10,000 January 14 puts at $1.47 and sold 20,000 January 11 puts at 49 cents. This bearish 1x2 ratio spread is possibly a hedge or a straight bearish bet. It makes its best profits if shares fall 22.3 percent to $11 by the January expiration. PFE has fallen nearly 30 percent since mid-January. Longer-term, the ratio spread trader might have a bullish view, however. By selling January 11 puts, they are making the statement that they are willing to buy the stock at that price.

Unusual Volume Movers
Select Sector Energy Fund (XLB) options volume is running 3X the usual, with 49,000 contracts traded and put volume accounting for about 99 percent of the activity.

Select Sector Tech Fund (XLK) options activity is running 2X the usual, with 49,000 contracts traded and put volume representing 65 percent of the volume.

Motorola (MOT) options volume is running 7.5X the usual, with 65,000 traded and put volume representing 94 percent of the activity.

Unusual volume is also being seen in Juniper Networks (JNPR), ADS, and RadioShack (RSH).

Implied Volatility Movers
RadioShack implied volatility is moving after takeover chatter surrounded the electronics retailer Friday. It’s unsubstantiated speculation, but triggered a 4.7 percent rally in the stock, to $20.76. Options volume hit 5X the average daily, with about 16,000 calls and 2,200 puts traded through midday. Implied volatility rose 7 percent to 58.5.