Leadership Shifting from Commodities to Tech 01-06-2011

Cusick's Corner
The market continues to consolidate, but it's still not exhibiting clear signs of any directional bias. This is not stating that the rally is over, it's a sign that leadership is shifting out of Commodities (thanks to the Dollar move) and more into Tech (XLK). All eyes will be on the employment report, ADP and Claims data have really raised the bar and as I stated in the Corner yesterday, also raised the potential of a sell-the-news reaction. It will be a busy morning, so be ready for some potential volatility early on. See you Midday.

Stocks finished mixed in cautious trading ahead of key jobs data due tomorrow morning. The underlying tone of trading early Thursday was cautious after data from the Labor Department showed weekly jobless claims increasing by 18,000 to 409,000 in the period ended January 1st. Economists were looking for an increase of about 14,000. The disappointing reading weighed on early trading, as it comes ahead of key monthly jobs numbers tomorrow. Meanwhile, Walmart (WMT) lost 45 cents to $53.96 and was one of many retailers trading lower on disappointing December sales numbers. The SPDR Retail Trust (XRT), which tracks the share price action of leading retail names, finished off 68 cents to $47.08. Meanwhile, the Dow Jones Industrial Average lost 26 points on the session, but the tech-heavy NASDAQ finished with a 7.7-point gain.

Bullish Flow
Kimberly Clark (KMB) saw interesting options action Thursday. Shares of the food company lost 9 cents to $63.02 and options volume included 15,000 calls along with 1,240 puts. April 62.5 calls were the most actives. 10,540 traded on the day. Morning trades included blocks at $1.90 per contract, which were being bought-to-open, according to sentiment data. The contract traded at $2.05 later in the day. February and July 62.5 calls saw interest as well, with 2,881 and 476 traded, respectively. The heightened activity is interesting because there's been no recent news on the ticker. It might be a play on earnings, due later this month.

Bullish order flow was also seen in Interpublic Group of Companies (IPG), Time Warner (TWX), and Aetna (AET).

Bearish Flow
Put volume picked up in Synaptics (SYNA). Shares of the Santa Clara, CA computer component maker finished the day down 58 cents to $30.93 and options volume included 3,695 puts and just 68 call options. Most of the activity was in smaller lots. The top trade was 150 June 31 puts at $3.60 when the market was $3.40 to $3.60. At the end of the day, 2,210 traded. Open interest is 1,299 and so it appears that some investors are opening new positions on concerns about weakness in the stock from now through June. SYNA is up about 20 percent since earnings were last reported in late October and a shareholder looking to protect recent gains might have initiated some of today's bearish trades.

Bearish flow also picked up in Covidien (COV), China Green Agriculture (CGA), and Marriott (MAR).

Index Trading
The PHLX Semiconductor Index (.SOX) saw more options volume than usual. This cash-settled index tracks the share price of leading chip-making companies. SOX rallied 7.68 to 424.77 on a day of relative strength in the semiconductor sector. 4,035 puts and 1,725 calls traded on the index, which is more than 10X typical volume. The top trades were in the February puts and appear to be part of a butterfly spread, in which the strategist sold 2000 Feb 390 puts at $4.30 to buy 1,000 Feb 365 puts at $2 and buy 1,000 Feb 415 puts $11. The 390s are the body of the fly. The 365s and the 415s are the wings. The total fly, at a net debit of $4.40, is a bearish play, as it makes its best profits if SOX moves back to 390 by the February expiration.

ETF Trading
CurrencyShares Euro Trust (FXE) saw increasing put volume today. Shares, which track the euro/US dollar currency pair multiplied by 100, lost $1.40 to $129.64 after the euro made another run below 1.30 against the buck. Put volume jumped to 25,000 contracts, or 3X the average daily and 7.5X the day's call volume. January and February 127 puts were the most actives, as some players were buying puts concerns about additional euro weakness in the days ahead. These puts would pay-off if the euro makes another run below 1.27 before the expiration.