Investors Digesting Economic News 01-20-2011

Cusick's Corner
The market has held up well in this “sell the news” situation and with the continued concerns over China's inflation and the potential implications to economic growth. Watching critical technical levels, 1276 on the SPX, in the short-term you could use the 20-Day SMA to spot any momentum to the downside. I want to keep an eye on how the market reacts to the earnings from BAC and GE -- these are the two big names reporting. Tomorrow is also Expiration for all stock options, so monitor the open and make sure that you have a plan in place, especially if volatility creeps into the market. See you Midday.

Stock market averages finished with losses after investors digested a heavy dose of economic and stock news Thursday. Data released before the bell showed weekly jobless claims down 37,000 to 404,000 in the period ended January 15. Economists were looking for a drop to 425,000. Existing Home Sales increased to an annual rate of 5.28 million in December, from 4.7 million the month before and much better than the 4.8 million that economists had expected. The List of Leading Indicators increased by 1 percent in December, which was .4 percent better than expectations. The Philadelphia Manufacturing Survey fell short of estimates, however, after dipping to 19.3 in January, from 20.8 in December and below economist estimates of 20.0. Bonds slid on the strong economic numbers and the yield on the benchmark ten-year Treasury moved back beyond 3.45 percent. Meanwhile, volatility was seen in the commodities markets as well. Crude oil lost $2.45 to $89.36 a barrel and gold gave up $22.2 to $1,348 an ounce. Disappointing earnings from F5 (FFIV) weighed on the cloud/networking stocks. The Dow Jones Industrial Average gave up just 2 points, but the tech-heavy NASDAQ lost 21.

Bullish
Options activity is picking up in EMC ahead of the storage device maker's earnings release. Shares finished the day down 40 cents to $23.84 and options volume included 20,000 calls and 12,000 puts. Most of the action was in the February options and was mostly in smaller sizes. The top trade was a lot of 400 February 22 puts traded on the 23-cent bid. However, February 25 calls were the most actives. 9,200 traded and 70 percent of the volume was at the ask. Another 4,675 February 24 calls changed hands (79 percent Ask). The overall flow seemed somewhat bullish, as some investors might be buying calls and looking for the stock rally around earnings, due the morning of January 25.

Bullish trading was also seen in William's Companies (WMB), National Bank of Greece (NBG), and New York Times (NYT).

Bearish
A number of solar names saw increasing interest in deep out-of-the-money puts Thursday. Yingli Energy (YGE) was mentioned in the midday report. Meanwhile, JA Solar (JASO) added 11 cents to $7.51 and options volume included 9,780 puts and 1,420 call options. June 4 puts were the most actives. 6,030 traded, including a block of 1,250 at 20 cents per contract. It looks like a buyer initiating a new position, even as these calls are $3.50 (or 46.7 percent) out-of-the-money. A shareholder looking for some “disaster insurance” might have initiated this somewhat unusual trade.

Bearish flow also surfaced in Yingli Energy (YGE), and RenaSolar (SOL) and Riverbed Technology (RVBD).

Index Trading
Trading was active in the index market, as some investors squared positions due to the expiration. Options on the S&P 500 Index (.SPX) and many other cash indexes settle using Friday morning prices and the last day to trade the contracts is on the Thursday before expiration. 613,000 calls and 795,000 puts traded across all index products on this Thursday, which is 1.5X the recent average daily, according to Trade Alert data. The top trade of the day was in the CBOE Volatility Index (.VIX) after a block of 10,000 March 30 calls traded at the 80-cent asking price. VIX added .68 to 17.99 and this investor might have bought March 30 calls on the index on concern about increasing levels of market volatility between now and mid-March.

ETF Action
US Natural Gas Fund (UNG) added 16 cents to $6.37 after natural gas bucked the bearish trend and traded higher Thursday. Bullish weekly inventory data fueled a 13 cent gain in natural gas, to $4.69. Meanwhile, options volume in UNG, which is an exchange-traded fund that tracks the commodity through futures contracts, hit 2X the average daily. 123,000 calls and 53,000 puts traded on the ETF. January 6 and February 5 calls were the most actives, as some investors were apparently closing out positions in the January contracts, which expire after tomorrow, and opening new positions in the February calls, which expire in 29 days.