Jobs Number Not Big Enough for Bulls 01-07-2011

Cusick's Corner
The employment number didn't look big enough to keep all the bulls happy, so there's been some small profit taking. The EU is weighing down the market and the Euro. I'll be watching the Euro's close today to see if it cannot break and settle above 1.30, the currency could continue its pullback. Also want to see if the market can hold the lower end of today's range of 1262 on the SPX. If not, looks like we could have some more potential volatility hit the market. See you After Hours

Stocks are trading broadly lower following a mixed jobs report Friday. The headline number showed the US economy adding 103,000 jobs in December. Economists were looking for an increase of 150,000. However, November numbers were revised up (to 71,000 from 39,000) and the rate of unemployed fell to 9.4 percent from 9.8 percent. Economists were looking for a decline to 9.7 percent. Hourly earnings increased by .1 percent, which was in-line with expectations. Trading was steady on the heels of the data, but volatility picked up midday. The European Debt Crisis is causing some concern, as yields rose on Portuguese debt Friday and the euro made a run back below 1.29 against the buck. Meanwhile, JP Morgan (JPM) is down 3.7 percent and the biggest loser in the Dow Jones Industrial Average on a day of relative weakness in the financial sector. The Dow is off 86 points and the NASDAQ has lost 29. The CBOE Volatility Index (.VIX) added .63 to 18.03 and session highs. Trading in the options market is active, with 5.9 million calls and 4.9 million puts traded through 12:30pm ET.

Bullish
A couple of transportation names are seeing relative strength and bullish flow Friday. AMR calls are actively traded. Shares of the airliner are up 16 cents to $8.61 and today's options volume includes 64,000 calls and 2,400 puts. May $11 calls, which have traded 24,800X, are the most actives. August 10 and Jan2012 $15 calls are seeing busy trading as well. AMR saw heavy trading yesterday as well, with 48,000 calls and 3,440 puts traded in the name. The company is in the midst of a battle with online travel agents Orbitz and Expedia. The call buying might be in anticipation of a positive outcome in the matter. December traffic statistics were also reported this week.

Norfolk Southern (NSC) shares are up and call options are actively traded. Shares of the railroad company touched a new 52-week high and are up 91 cents to $64.71 midday Friday. Meanwhile, options volume is 7X the average daily, with 12,000 calls and 2,000 puts traded on the day. March 70 calls, which have traded 8,000X, are the most actives. In addition, with 91 percent trading at the ask and open interest of 1,145 contracts, it looks like some investors are buying to open new positions and looking for NSC to run beyond $70 by the March expiration.

Bearish
Wells Fargo (WFC) shares are trading down after a Massachusetts Supreme Court ruled against the company in a mortgage case. The court upheld a ruling against WFC and US Bancorp (UBS) in a matter related to how banks transferred mortgages into securitizations. WFC is down $1.08 to $31.07 and options volume is 3X the average daily. 120,000 calls and 79,000 puts traded. The biggest trades of the day are blocks of more than 9,000 January 29 and 35 calls, apparently sold at $2.50 and 11 cents, respectively.

Supervalu (SVU) is under pressure and puts are actively traded. Shares came under pressure in morning action and are down 52 cents to $8.68 midday. Options volume is 9X the average daily after 46,000 puts and 5,440 calls traded on the grocery chain. January 7.5 puts, which have traded 23000X, are the most actives. Feb 7 and 8 puts are active as well. The volatility in shares and increasing put volume is probably related to concerns about earnings after a couple of brokerage firms issued cautious commentary on SVU this week.

Unusual Volume Movers
JP Morgan (JPM) options volume is running 2X the usual, with 220,000 contracts traded and call volume accounting for 50 percent of the activity, according to data from website WhatsTrading.com.

Verizon (VZ) options activity is running 2.5X the usual, with 92,000 contracts traded and call volume representing 65 percent of the volume.

AMR options volume is 3X the typical levels, with 67,000 contracts traded and call volume accounting for 96 percent of the activity.

Increasing volume is also being seen in KB Homes (KBH), SPDR Retail Trust (XRT), and Basic Material Select Sector Fund (XLB).

Implied Volatility Movers
Financial Select Sector (XLF) implied volatility is moving higher amid relative weakness in the sector after a high court ruled against WFC and USB in mortgage case (see Bearish Flow). XLF is down 1.9 percent to $16.05 and today's trades include large blocks of March 17 calls, which appear to be liquidating trades on the news. Meanwhile, implied volatility has risen 8.5 percent to 25.