Unemployment Impacting Retail Sales 07-14-2010

Cusick’s Corner
Intel was impressive but was not enough overnight to hold up the market. This could be in part to the due to the low Retail Sales data that is potentially showing the pressure of continued high unemployment and the fact that there are a lot of unemployed who are losing benefits. This is also highlighting the impact of “disinflationary” pressures on the prices of Homes and Equities, including a potentially negative impact on wage growth. This could start to impact GDP estimates and could pressure some future guidance. The market could have some additional volatility this afternoon when FOMC minutes are released at 2:00 ET. See you After Hours.

Stocks are trading mixed following better-than-expected earnings from Intel (INTC), but disappointing retail sales numbers Wednesday. After the close of trading yesterday, Intel reported earnings and revenues that beat Street expectations and also raised guidance for the third quarter. The chipmaker was the second Dow component to post better-than-expected earnings after Alcoa (AA) also posted stronger-than-expected results late Monday. However, stock index futures came off their best levels early Wednesday after data showed retail sales falling .5 percent in June, which was worse than the .2 percent decline that economists had predicted. The Dow Jones Industrial Average opened modestly higher and trading has been pretty slow through the morning hours. The Dow is up 6 points and the tech-heavy NASDAQ has added 12.5 through midday. The CBOE Volatility Index (.VIX) slipped .18 to 24.38. Trading remains active in the options pits, with about 4.1 calls and 3.4 million puts traded through 12:30 ET.

Bullish
AK Steel (AKS) is seeing active trading after Goldman Sachs raised the stock to Buy from Neutral. Shares rallied 98 cents to $14.32 and options volume is 3X the average daily. About 33,000 calls and 5,570 puts have traded through midday. Some players were buying the September and December 15 call options, perhaps betting that the stock will see additional gains in the weeks ahead, and heading into a July 27 earnings release.

Bank of America (BAC) was the subject of a noteworthy spread trade ahead of its profit report on Friday. Total volume includes 149,000 calls and 32,000 puts. The top trades of the day are in the January 2001 calls, after an investor apparently bought 12,500 Jan 20 calls at 48 cents and sold 12,500 Jan 25 calls at 9 cents. With shares flat at $15.67, this spread is an aggressive play at a 39-cent debit. It requires a move to $20.39 to breakeven at the January expiration.

Bearish
Large blocks of puts traded on the Select Sector Financials (XLF) ahead of earnings from JP Morgan, Citi and Bank of America later this week. Shares of the fund, which holds all of the financial names from the S&P 500, are of 12 cents to $14.77 and 226,000 puts have traded so far. It includes large blocks of August 13 and 14 calls, which have both traded 60,000X. This might be some sort of a position adjustment, but seems to be some related to hedging activity and perhaps reflects concerns the sector will see some volatility will the results are announced.

Lorillard (LO), the Greensboro, NC tobacco company, is down 15 cents to $74.50 and options volume is 3X the recent average daily, driven by apparent buyers of July 72.5 put options. 4250 have traded through midday. Open interest is 1293 and so the activity looks opening, which is somewhat unusual because July options expire later this week and the contract is $2 out-of-the-money.

Unusual Volume Movers
Intel (INTC) options volume is running 3.5X the usual, with 349,000 contracts traded and call volume accounting for about 69 percent of the activity.

Vivus Pharmaceuticals (VVUS) options activity is running 3X the usual, with 99,000 contracts traded and call volume representing 59 percent of the volume.
Nvida (NVDA) options volume is running 3X the usual, with 61,000 traded and call volume representing 67 percent of the activity.

Unusual volume is also being seen in EMC, Arena Pharmaceuticals (ARNA), and RadioShack (RSH)

Implied Volatility Movers
Monsanto (MON) implied volatility is moving higher, as shares rally around news company insiders recently bought $3.5 million worth of their own shares. MON is up $2.16, or 4.1 percent, to $54.33 on the news. Options action is brisk, with 36,000 calls and 22,000 puts traded so far. The heavy trading is sending implied volatility up about 6 percent to 35.5.