Tough Environment for Swing Traders 12-28-2010

Cusick's Corner
The market continued to whip around unchanged to slightly positive levels for the remainder day -- the March S&P settled at 1254.25. This type of action can be expected for a holiday week, plus throw in the snowstorm out East which left many traders at home. It's been a tough environment to be trading stocks and for swing traders, it's been a difficult range, just too tight. There is no economic data due out until Thursday, but a few stocks are going ex-div, like KFT tomorrow which is the most active, could create an early, momentary lift in the morning. See you Midday.

Stocks finished mixed in another day of slow trading Tuesday. Economic data was in focus early after the Conference Board reported that its index of Consumer Confidence fell to 52.5 in December, from 54.3 the month before. Economists were looking for an increase to 56.1. The Dow Jones Industrial Average had fallen into the red prior to the data and showed little reaction to the report. The Dow then started a steady grind higher through midday and into the second half of trading. Chevron Texaco (CVX) was the Dow's best gainer after crude oil rose towards $91.50 a barrel. Gold was shining as well and rallied beyond $1,400 an ounce. Meanwhile, the Dow traded in a narrow 50-point range and finished up 21 points points. Trading has practically stalled and, after an 18-poinit loss yesterday, the industrial average has now added just 3 points on the week.

Bullish Flow
Popular (BPOP) shares gained a nickel to $3.08 and options volume hit 3X the recent average daily after 12,000 calls and 175 puts traded on the San Juan, Puerto Rico bank. February $3 calls were the most actives. 7,680 traded. Most of the action was in smaller lots. The top trade was 638 contracts at 25 cents each and traded on the International Securities Exchange, where sentiment data indicate that a customer bought-to-open a new position. April 3 calls were busy as well, with another 3,380 traded. No news on the stock, but the flow seems to reflect expectations that, after about seven months of mostly sideways trading, BPOP shares are due to rally in the months ahead.

Bullish order flow was also seen in Pfizer (PFE), Education Management (EDMC), and GM.

Bearish Flow
MannKind (MNKD) moved up 26 cents to $8.23 and options volume jumped after the FDA delayed a decision on the company's Afrezza treatment, which was due December 29. The decision was delayed about four weeks. The news triggered a flurry of options activity, as some investors closed out positions in January options and opened new ones in February. The top trades were an apparent liquidation, in which an investor sold 3,800 January 9 calls at 45 cents each. The next biggest trade was apparently a roll of January 5 calls to February 5 calls, with an investor collecting 13 cents, 3323X, and rolling a position in short calls out an additional month, into the now-delayed FDA decision.

Bearish flow also picked up in Career Education (CECO), Lincoln Education Services (LINC), and Martin Marietta (MLM).

Index Trading
Volume remains very light in the index market, as many institutional players are away for the holidays and others are still digging out from the massive snowstorm in the Northeast. One index that will be worth watching heading into 2011 is the CBOE Ten-Year Rate Index (.TNX). It saw an impressive rally Tuesday, gaining 1.30 to 34.81. The gain in TNX happened as the ten-year Treasury note had a rough day and lost 1 5/32nd. In the past, selling in Treasurys can spill over into the equity market, as the fear of higher rates sends investors fleeing out of riskier assets. However, there was little reaction to the spike in bond yields today, but that will likely change if the trend continues into early 2011.

ETF Trading
Market Vectors Russia Fund (RSX) saw more interest than usual today. Shares gained 7 cents to $37.44 as the Russian ruble hit two-month highs against the dollar. Investors are showing interest in Russia's currency and equity markets as crude oil prices have been strong and about one quarter of the Russian economy is driven by energy. Meanwhile, in the US, investors were snapping up call options on the Russia Fund. 15,000 contracts traded, which is almost 10X the typical activity and more than 5X the day's put volume. January 38 calls traded almost 15,000X. February 37 puts were actively traded as well, with 2,715 changing hands.