Reserve Head & Shoulders Pattern in SPX 09-02-2010

Cusick’s Corner
The bulls are in control and the market from a technical perspective is setting up nicely for a potential challenge of upside resistance, 1100 on the SPX. Right now there is a Reverse Head and Shoulders pattern specifically in the SPX. You can find this formation on the chart -- the June lows are the left shoulder, the July lows are the head and lastly the August lows are the right shoulder. These are the support levels and the neckline, 1125 on the S&P, is the resistance that needs to be broken to confirm the bullish push. Another potential bullish signal can be spotted through the Small Caps (as noted in previous Corners), which need to exhibit strength and have a potential Double Bottom forming in the RUT. If the RUT can break July highs, would be a confirmation of this pattern as well. One important point, technicals can shift on a dime and they are useful guideposts – but do not abandon having a plan and don’t get caught up in the emotion. See you After Hours.

Major averages are sporting modest gains in quiet trading Thursday. With no earnings of significance to guide the action, the focus early was on the day’s busy economic calendar. Data released pre-market showed weekly jobless claims falling by 6,000 to 472,000 in the last week of August. Economists were looking for a decline of 3,000. Separate data showed second quarter productivity revised down to a 1.8 percent rate, which was in-line with economist estimates. Later, during market hours, data showed Factory Orders up .1 percent in July and less than the .3 percent increase that economists had expected. The bright spot, however, was the latest Pending Homes Sales report, which showed an increase of 5.2 percent in July; up from –2.8 percent in June and significantly better than what economists had expected (0 percent.) The Dow Jones Industrial Average is up modestly on the data. Through midday, the Dow added 10 points and the NASDAQ gained 14. Meanwhile, the CBOE Volatility Index (.VIX) slipped .53 to 23.36. Options action is running about the normal levels, with 3 million calls and 2.5 million puts traded through 12:15 ET.

Bullish
Burger King (BKC) is seeing a second day of heavy trading. As noted in yesterday’s midday report, call options were active Wednesday on reports 3G might make a bid for the company. Shares are up $4.58 to $23.44 Thursday after 3G made a $24 offer for the fast food chain. Meanwhile, options volume surged to 4.5X the average daily. Another 25,000 calls and 14,000 puts traded on Burger King through midday. Like yesterday, September and October 20 calls are the most actives.

Brocade (BRCD) is seeing a third day of heavy call activity. The action started Tuesday amid unconfirmed takeover speculation and continued Wednesday. Today, shares of the chipmaker are up 30 cents to $5.49 and an impressive 81,000 call options have already traded. The volume represents 8X the normal and more than 60X the number of puts. October 6 puts are the most actives, with some players taking positions on hopes for additional upside in the weeks ahead. 15,000 contracts traded through midday.

Bearish
Mariner Energy (ME) and Apache (APA) are seeing volatility on reports of a rig explosion in the Gulf of Mexico. Mariner Energy shares fell to a low of $19.62 when the news hit the wires. However, it has since battled back after news reports indicated the rig did not suffer any fatalities and no oil was spilled. ME is down 70 cents to $22.65 and up $3, or 15.4 percent, from session lows. Meanwhile, options volume is 261X the average daily, with about 38,000 puts and 6,740 calls traded.

Apache (APA), which is making an acquisition of Mariner Energy (ME), hit a low of $87.58 and was recently down $1.55 to $90.91. Options volume is 5.5X the average daily. About 29,000 puts and 15,000 calls traded. September 80 and 85 puts are the most actives, with some investors likely buying some downside protection should the explosion trigger additional volatility in APA shares.

Unusual Volume Movers
3Par (PAR) options volume is running 5X the usual, with 22,000 contracts traded and call volume accounting for about 54 percent of the activity.

Ciena (CIEN) options activity is running 6X the usual, with 42,000 contracts traded and call volume representing 62 percent of the volume.
Gannett (GCI) options volume is running 14X the usual, with 33,000 traded and call volume representing 64 percent of the activity.

Unusual volume is also being seen in Costco (COST), Goodyear Tire (GT), and Anadarko Pete (APC).

Implied Volatility Movers
Anadarko Pete (APC) implied volatility is moving higher after The Australian published a story saying BHP might have APC on its radar as a possible acquisition target. APC is up $1.66 to $50.45 on 3X the average daily options volume. 46,000 calls and 12,000 puts traded. Implied volatility is up 13 percent to 52.