Sectors to Watch into 2011 12-30-2010

Cusick's Corner
With the markets winding down and a lot of year-in-review going on, it is worth pointing out a couple of markets that we need to keep an eye on going into 2011. 1). Currencies: the Dollar and Euro continue to dominate headlines but the Yen needs to be monitored too. The Yen has recently been on the move, there is no reason for it and that spells potential intervention by the BOJ to slow the pop in this currency so that the economy does not stagnate, specifically exports. 2). Metals: Gold and Silver are bumping at resistance but the real mover is Copper. Copper continues to scream higher and is a decent barometer of potentially growing inflation and infrastructure expansion. While these markets are not windows into the future of direction in the market, they do help gauge the sectors and segments that we should be looking at for potential opportunities. We will take a look at some of those in the After Hours.

Major averages are lower despite a round of positive economic news Thursday. Data released before the opening bell showed weekly jobless claims falling by 34,000 to 388,000 in the period ended December 25. Economists were looking for a decline of only 6,000. Separate data released later showed the Chicago PMI gauge of regional manufacturing activity up to 68.6 in December, which was up from 62.5 last month and much stronger than the 61.5 that economists were looking for. Finally, Pending Home Sales showed an increase of 3.5 percent in November; which was not as strong as the 10.1 percent in October, but much better than the 3 percent drop that economists were expecting. Yet, trading is sluggish despite the good economic news. Falling commodities prices are getting some attention. Crude oil lost $2 to $89.21 a barrel and gold gave up $9 to $1,404.50 an ounce. Slumping agricultural commodities, weakness across Europe, and another dip in bonds seem to be weighing on sentiment as well. However, there's not much volatility. The Dow Jones Industrial Average has traded in a 42-point range and is down 22 points midday. The NASDAQ lost 2.7. The CBOE Volatility Index (.VIX) edged up .52 to 17.80. Options volume remains light, with 2.9 million calls and 2.3 million puts traded through 11:30 ET.

Bullish
BJ Wholesale (BJ) is rallying for a second day. Shares rose more than 7 percent yesterday after the New York Post reported that Leonard Green and Partners is possibly looking to make a hostile bid for the retailer. Shares are up another 93 cents to $48.55 and options volume is running 2.5X the average daily, with 6,660 calls and 630 puts traded through midday. February 50 calls have traded 2,150X and are the most actives. February 55 and March 50 calls are seeing increasing interest as well.

Cinemark (CNK) loses 2 cents to $17.21 and one investor buys 6,000 Jun 20 calls at 60 cents each. It was tied 168K shares at $17.26. A block of 2,000 Mar 17.5 calls was also bought at 90 cents each and tied to 100K shares at $17.30. Both are likely closing, as these are the two of the largest open interest positions in the name, with 6,117 and 2,257 contracts of OI, respectively. Shares of the cinema company have been relatively weak lately, down 7.6 percent since December 3, and the strategist is likely taking money of the table in positions in (short) call options.

Bearish
Bearish spreads in the PowerShares QQQ (QQQQ) for a second day. As noted in yesterday's midday report, the March 48 – 54 put spread traded at $1.23, 30000X Wednesday morning. The Qs are trading down 17 cents to $54.62 and a similar spread trades Thursday after one strategist bought 39,000 April 54 puts at $2.16 and sold 39,000 April 49 puts at an average of 83.5 cents. The spread, at a net debit of $1.325, is a bearish play and possibly a hedge, as it makes its best profits if shares fall to $49 (-10.3 percent) or less by the April expiration.

14,000 puts and 1,145 calls traded on NetApp (NTAP) through midday. Shares are up 17 cents to $54.88 and the top trades are part of a spread, in which an investor apparently bought 3,000 January 2012 $50 puts at $5.90 and sold 3,000 March $50 puts at $1.95. This calendar or time spread might reflect the view that shares will hold above $50 through the March expiration, but then run into trouble during the remainder of 2011. The strategist is basically selling the March 50 puts to help finance a bearish position in the Jan 2012s.

Unusual Volume Movers
Anadarko Pete (APC) options volume is running 7.5X the usual, with 75,000 contracts traded and call volume accounting for 79 percent of the activity, according to data from website WhatsTrading.com.

Rare Element (REE) options activity is running 3.5X the usual, with 49,000 contracts traded and call volume representing 74 percent of the volume.

MBIA (MBI) options volume is 5X the typical levels, with 45,000 contracts traded and call volume accounting for 79 percent of the activity.

Increasing volume is also being seen in Kinross Gold (KGC), iShares Hong Kong Fund (EWH), and Verigy (VRGY).

Implied Volatility Movers
MBIA (MBI) implied volatility is elevated following another day of heavy trading Thursday. Shares are up $1.34 to $11.71 and have added 23 percent since Tuesday after a court filing yesterday indicated that Barclay's and JP Morgan have dropped opposition to the company's plans to restructure its businesses. 36,000 calls and 9,500 puts have traded through midday Thursday. Meanwhile, implied volatility is up to 80, from about 60 two days ago.