News Lifts Major Averages Friday 12-10-2010

Cusick's Corner
Rates at 0%, bond yields plummeting, cash is in the market and the Bull is fully vested at this stage. While you will still hear the word “oversold” for weeks to come, that's positive for the market, especially since we settled at levels not seen since '08. Hit the blog www.xpressblog.com and check out the discussions on bullish opportunities in low implied volatility environments. Have a good weekend and see you Midday.

Upbeat economic news and a dividend increase at General Electric (GE) helped lift the major averages Friday. Data released before the opening bell showed the nation's trade balance narrowing to $38.7 billion in October, from $44.6 billion in September and much better than the $44.5 billion that economists had expected. Stocks posted modest gains on the data at the open and the trading remained orderly after the University of Michigan's Consumer Sentiment Index was released and showed an improvement to 74.2 for December, up from 71.6 late-November and also better than the 72.5 that economists had predicted. Meanwhile, GE helped the Dow Jones Industrial Average, gaining 3.4 percent after announcing plans to raise its dividend. In all, twenty-two Dow stocks moved higher on the day and the industrial average added 40 points. The tech-heavy NASDAQ added 20.9.

Bullish Flow
Call volume surged in GE after the company announced plans to raise its dividend by 17 percent to 14 cents per share. GE said strength in its financing business helped motivate the dividend increase. Shares finished up 59 cents to $17.72 and options volume jumped to 4.5X the average daily levels. 348,000 calls and 105,000 puts traded in GE. December 18 calls, which are 28 cents out-of-the-money and expire at the end of next week, were the most actives. 67,000 traded and some investors were likely closing positions after today's move. January 17.5, January 19 and January 20 calls were among the most actives as well.
Bullish order flow was also seen in CNO Financial Group (CNO), Eastman Kodak (EK), and AIG.

Bearish Flow
CBOE Holdings (CBOE), parent company of the Chicago Board Options Exchange [CBOE], finished the day down 56 cents to $22.97. The selling pressure picked up late in the day on increasing volume. Meanwhile, options activity heated up during the final hour as well. There were no big trades. The biggest was a lot of 103 December 25 puts for $1.85, which traded 45 minutes before the close. At the end of the day, more than 1,000 traded and the price of the contract had increased to $2.05. Dec 22.5 puts saw interest as well. There was no news on the exchange, but the late-day decline in the share price and increasing options activity seemed to reflect some bearish sentiment in CBOE heading into the weekend.

Bearish flow also picked up in Gannett (GCI), Texas Instruments (TXN), and Great Atlantic and Pacific Tea (GAP).

Index Trading
MS Retail Store Index (.MVR) saw more interest than usual. The index, which tracks the price action of Walmart (WMT), Target (TGT) and other leading retailers, finished the day up .98 to 213.41. Meanwhile, some options traders were focused on the June 192.5 put options. A block of 3,000 was bought to open at $8.10 per contract in morning trading on the ISE. At the end of the day more than 4,500 contracts traded. The put buying might be hedging activity or bearish bets ahead of key monthly retail sales numbers, which are due next Tuesday morning before the opening bell.

ETF Trading
The iShares Japan Fund (EWJ) saw an interesting trade Friday. Shares finished down 3 cents to $10.57 and one investor bought a block of 50,000 January 2012 calls at the $11 strike price. They paid 69 cents per contract. A total premium purchase of $3.45 million was paid for these out-of-the-money call options. At 69 cents per contract, the breakeven for an $11 call at the Jan 2012 expiration is at $11.69 per share, which is 10.6 percent above current levels. If shares fail to move beyond $11 and the position is held through the expiration, the calls will expire worthless and the entire debit paid is at risk.