Euro & Dollar are Barometers for this Rally 12-01-2010

Cusick's Corner
The EU is flush with cash, printing presses around the world on the ready and the Bull is in full control at this stage. With key resistance points in the rearview mirror, 1200 on the S&Ps is now viewed as support. With the backstops in place and continued positive economic data, it is not the most prudent thing to get in front of this move, but it is prudent to look at your positions and make sure that they are managed. Watch the Euro and the Dollar as the barometers for this rally. See you After Hours.

The month of December is off to a strong start on Wall Street, as stocks rally around gains in overseas markets and better-than-expected economic data. Stock market averages finished sharply higher across Europe, led by a 4.3 percent in Spain's IBEX on diminishing concerns about the European Debt Crisis. Meanwhile, Hong Kong's Hang Seng rose 1 percent following a stronger-than-expected reading on manufacturing activity in China. The domestic news helped as well. ADP reported early Wednesday that the US economy added 93,000 private sector jobs last month, which was more than the 58,000 increase that economists had predicted and comes two days before the Labor Department releases its key jobs report. The Dow Jones Industrial Average is up 240 points and near session highs. The NASDAQ has added 55. The CBOE Volatility Index (.VIX) tumbled 2.83 to 20.71. Overall options volume is picking up a bit, with about 4.7 million calls and 3.5 million puts traded through 12:45 ET.

Bullish
Tiffany (TIF) touched a new 52-week high. Shares are up 72 cents to $62.82 through midday and have now rallied 7.8 percent since the jeweler reported strong earnings last Tuesday. Meanwhile, options volume is 3.5X the average daily today, driven by a January 60 – February 70 (1X2) call ratio spread. In this play, the strategist sold 4,400 January 60 calls at $4.50 to buy 2X as many (8,800) February 70 calls at $1.25. They're probably closing a position in the 60s, which are in-the-money, and opening a new bullish position, twice the size, in the February 70 calls, which are out-of-the-money.

Omnivision Technology (OVTI) is rallying and options action is picking up after the company reported strong earnings and raised its guidance. Shares are up $2.66 to $30.95 and today's options volume of about 12,000 contracts represents 3X the normal. 8,460 calls and 3,200 puts traded in the name so far. December 27 calls are the most actives and likely seeing some liquidating trades because the contract is now $3.95 in-the-money and has 16 days of life remaining. December 24, 28, 31, and 32 calls are seeing heavy trading as well.

Bearish
The overall tone of trading is positive Wednesday and there's not much bearish trading to report. One noteworthy trade did surface in the iShares Russell 2000 Small Cap Fund (IWM). Shares are up $1.75 to $74.50 and one strategist apparently sold 38,000 December 67 puts at 19 cents to buy 19,000 December 70 puts at 47 cents. This 1X2 put ratio spread, at a net debit of 9 cents, is probably designed as a hedge. That is, the position will increase in value and offset losses from a stock portfolio if the Russell 2000 falls between now and the December expiration.

Orexigen Therapeutics (OREX) has been under pressure in recent days and heading into a December 7 panel review of its Contrave obesity drug. Shares are off 46 cents to $4.73 and down 18.5 percent on the week. Meanwhile, options are very actively traded. 14,000 calls and 12,000 puts traded. December 5 and 6 calls are among the most actives. December 3 and 4 puts are busy as well. Players are taking positions ahead of the event and implied volatility, which is now reaching beyond 300 percent, indicates that the options market is bracing for a big move on the news.

Unusual Volume Movers
McMoran (MMR) options volume is running 2.5X the usual, with 26,000 contracts traded and call volume accounting for 76 percent of the activity, according to data from website WhatsTrading.com.

Plains Exploration (PXP) options activity is running 2X the usual, with 23,000 contracts traded and call volume representing 90 percent of the volume.

Tiffany (TIF) options volume is 3.5X the typical levels, with 15,000 contracts traded and call volume accounting for 95 percent of the activity.

Increasing volume is also being seen in Whirlpool (WHR), Decker's (DECK), and Omnivision Tech (OVTI).

Implied Volatility Movers.
The CBOE Volatility Index (.VIX), which tracks the implied volatility of S&P 500 Index (.SPX) options, is under pressure. SPX is up an impressive 25.5 points to 1,206 and has moved beyond a previous resistance level around 1,200. Meanwhile, VIX hit a low of 20.40 and was recently off 2.85 to 20.69. VIX is sometimes called the market's “fear gauge” because it tends to move higher during times of panic and anxiety on Wall Street. Today's weakness in the index reflects a decline in risk perceptions, which was triggered by a rebound in Europe's equity markets along with positive economic data in the US and China.