Running of the Bulls in November 11-04-2010

Cusick's Corner
The bulls continue to run the streets and now it looks like the institutional bid has joined the fray. This trend is continuing after all the data over the past 72 hours has cleared. There's now support firmly in this market. This latest move made the retail universe actually start to fade their earlier bullish enthusiasm. Check out sentiment indicators, the ISE Put/Call ratio jumped to .904, showing more bearishness today than it has been over the past few sessions. If you were a contrarian, you could possibly take that as another sign that the bulls are removing those red flags that I was pointing out last week when the ratios were in the .40 -.50 range. See you After Hours.

Stocks are broadly higher, as investors shrugged off disappointing jobs data and focused instead on October sales numbers and yesterday's Fed meeting. A number of retailers, including Gap Stores (GPS) and Macy's (M), are trading higher after posting strong same store sales numbers. Meanwhile, the economic news was mixed. A report on third quarter productivity showed an increase of 1.9 percent and better than the .9 percent gain that economists had expected. However, jobless claims numbers disappointed. According to the Labor Department, filings increased by 20,000 to 457K last week and about 12,000 more than expected. However, the mood on Wall Street is upbeat, the day after the Federal Reserve finished its latest FOMC meeting and said it was buying $600 billion in bonds. Treasurys are up today, the dollar is lower, and investors are aggressively bidding stocks higher. The Dow Jones Industrial Average is up 190 points. The NASDAQ has added 31. The CBOE Volatility Index (.VIX) lost 1.10 to 18.46. Options trading is very active, with 7.3 million calls and 5.8 million puts traded by 12:30 ET.

Bullish
Ford Motor (F) continues to rev higher. Shares notched a new 52-week high and are up 76 cents to $15.94 midday, the day after the automaker reported a 19.2 percent increase in October same store sales. Trading is brisk, with about 290,000 calls and 42,000 puts traded on Ford through midday. The top trade is a block of 10,000 January 15 calls at the $1.40 asking price, which appears to be a buyer initiating the trade. Nearly 60,000 of these calls have traded. November 15, November 16, December 15 and December 16 calls are seeing heavy trading as well.

A massive spread traded in the Financials Select Sector Fund (XLF) Thursday morning. Shares are up 27 cents to $15 and a morning trade was a January 15 – 17 call spread, which traded at 53 cents, 125,000X. Most of the spread traded on the CBOE, but part on the AMEX as well. Although it hasn't been confirmed, it appears that a buyer initiated this massive spread and, if so, seems to be looking for the financial sector to continue its recent rally through yearend. XLF is up 11.6 percent since late August.

Bearish
Potash (POT) is under pressure and options are actively traded after Canada blocked BHP's efforts to buy the company. Potash shares are down $4.37 to $141.13 on the news and 280,000 options contracts have already traded in the name. November 135 and 140 puts are the most actives. Not all of the flow is bearish, however. Some investors appear to be selling these out-of-the-money puts. In addition, call volume is 158,000 contracts and includes a December 150 – 160 call spread, which was bought at $1.95, 15000X, according to a source on the CBOE.

A noteworthy spread traded in the iShares Emerging Markets Fund (EEM) midday Thursday. EEM is rallying following a day of solid gains across global equity markets. Shares are up 97 cents to $48.47 and notched a new 52-week high. One strategist seems to be bracing for a pullback, however, and bought an EEM December 47 – 43 puts spread at 68 cents, 50000X. That is, they apparently bought 50,000 December 47 puts at 98 cents and sold 50,000 December 43 puts at 30 cents, which creates a bearish spread with a max pay-off if shares fall to $43, or 11.3 percent, by the December expiration.

Unusual Volume Movers
Ford Motor (F) options volume is running 2.5X the usual, with 346,000 contracts traded and call volume accounting for 86 percent of the activity, according to data from website WhatsTrading.com.

Qualcomm (QCOM) options activity is running 4X the usual, with 208,000 contracts traded and call volume representing 54 percent of the volume.

Hecla Mining (HL) options volume is 2.5X the typical levels, with 40,000 contracts traded and call volume accounting for 82 percent of the activity.

Increasing volume is also being seen in Weatherford (WFT), Valero (VLO), and Whole Foods (WFMI)

Implied Volatility Movers
The CBOE Volatility Index (.VIX) has been crushed since the Federal Reserve rate announcement yesterday. VIX hit a morning high of 22.02 before the news. Then, faltered in afternoon trading to finish down 2.01 to 19.56 Wednesday. VIX off another 1.10 to 18.46 today and has now suffered a two-day 14.4 percent drop. The steep drop in the volatility index is a sign that risk perceptions and anxiety levels are easing now that the Federal Reserve has pledged to buy more bonds and keep rates low until the economy improves.