Tech is Under Seige After Close 07-19-2010

Cusick's Corner
Tech is under siege after the closing bell. This includes the biggies too; IBM and TXN both reported earnings after the close and are down in the extended market trading session. Both stocks gave increased guidance for the remainder of the year but weak longs looked to take advantage of a good run. I am going to keep an eye on the NASDAQ futures overnight, NQU10 currently down 7.75 after hours, to see how the rest of the world is reacting to these results. Tech is a key sector and I watch its relative performance versus a major bench mark, SPX, to gauge the current health of a trend. (As I have noted in the past, I like to see 3 of these sectors, XLF, XLK, XLI, or XLY outperforming a benchmark like SPX.) Tomorrow has the potential to have some volatility with the Housing Data and the market digesting the latest earnings data. See you Midday.

The major averages finished with modest gains despite another dose of disappointing economic data Monday. With little the news to guide the morning action, attention turned to the NAHB Index of Homebuilder Confidence Index at 10:00 ET. The index fell to 15-month lows of only 14 in June. Economists were looking for a decline to 16, unchanged from the month before. The Dow Jones Industrial Average fell on the news, but was able to climb back into positive territory by midday. From there, action was slow and the Dow, which suffered a 260-point setback Friday, recaptured 56 points. The CBOE Volatility Index slipped .28 to 25.97.

Bullish Flow
Chip equipment maker Xilinx (XLNX) saw interesting options activity ahead of earnings. Shares rallied $1.12 to $28.71 and options volume rose to 4X the average daily. 18,000 calls and 6,170 puts traded on the day. August 29 and September 28 calls were the most actives, with 6373 and 4288X traded, respectively. In addition, with more than 90 percent of the volume trading at the Ask, the action seemed dominated by call buyers – perhaps looking for a strong report to lift shares Wednesday at the close.

Bullish order flow was also seen in Apollo Group (APOL), Weatherford (WFT), and Halliburton (HAL).

Bearish Flow
Shares in Gerdau Ameristeel (GNA), a Tampa, Florida steel and iron company, added 2 cents to $10.96 and options volume rose to 5X typical levels Monday. 4,484 puts and zero call options traded in the name. The focus was on September and December 10 puts, which traded 4234 and 250X, respectively. In addition, nearly all traded at the offer and so it looks like put buyers were dominating the action. There was no news on the stock. It might be a play on trends in the steel industry and or hedging activity ahead of the company’s earnings which are due out early August.

Bearish flow also picked up in Western Digital (WDC), Brunswick (BC), and Wyndham Worldwide (WYN).

Index Trading
Some of the PHLX Sector Indexes saw increasing options action Monday, as players in the index market compartmentalized the market to look for opportunities within specific industries rather than the market as a whole. For example, the PHLX Gold and Silver Mining Index (.XAU), which tracks the share price action of leading mining companies, finished down 2.14 to 165.25 after gold (August) lost $6.20 to $1182 an ounce. Volume in the XAU options hit 4X usual, with 2959 calls and 3692 puts traded on the day. Volume in the PHLX Bank Sector Index (.BKX), the PHLX Oil Service Index (.OSX), and the PHLX Housing Index (.HGX) also increased Monday, as players turned to these sector indexes to play trends in the financials, oil and the housing industry.

ETF Trading
The SPDR Homebuilders Trust (XHB) saw interesting trading activity Monday. The fund finished the day down 4 cents to $14.20 after a disappointing reading from the latest NAHB Homebuilders Sentiment Index weighed on the sector Monday. In options trading, 44,000 calls and 3,070 puts traded on the day. The action was heavily concentrated in the August 15 calls, which were being bought 31 and 32 cents in morning trading. At the end of the day, more than 40,000 traded. The premium buying is noteworthy as it comes ahead of Housing Starts data Tuesday and Existing Home Sales Thursday.