Blue Chips Picking up Slack 01-24-2011

Cusick's Corner
This week starts off with a change at the helm. Small Caps, RUT, have lost all momentum and the Blue Chips, DJX, are picking up the slack early in this earnings season. The S&P and NASDAQ are in a consolidation at this stage, most likely because the heavy data and earnings releases are not out until mid-week and the Fed Meeting is two days with the decision due Wednesday. This leadership change and consolidation does nothing more than just switch the offensive players at this stage of this market rally. One market that is under pressure is Crude, CLH11, watch support at the $88 level, if this breaks could look to challenge $85. Just keep an eye on oil as a potential barometer that the expansion is still growing at the pace that we have been seeing over the last four quarters. See you After Hours.

The Stocks are broadly higher on a relatively slow news Monday. The economic calendar holds no data and the earnings news was light as well. McDonald's (MCD) is up 31 cents to $75.32 and one of 23 Dow stocks trading higher after reporting in-line profits for the most recent quarter. Alcoa (AA) gained more than 3 percent and is the best gainer in the Dow Jones Industrial Average. AA is higher amid relative strength in some of the cyclical names after a report from the National Association for Business Economics indicated that economists are becoming more upbeat about the prospects for jobs and the economy. Meanwhile, JC Penney (JCP) gained 7 percent after announcing job reductions and other cost-cutting measures. The Dow is up 86 points and the tech-heavy NASDAQ has added 25.5. The CBOE Volatility Index (.VIX), which rallied 17 percent last week, lost .55 to 17.92. Trading in the options mart remains active, with 4.7 million calls and 3.5 puts traded through 12:15pm ET.

Bullish Flow
AMD has added a nickel to $7.59 and trying to battle back from a 6 percent post-earnings loss suffered Friday. Meanwhile, trading in AMD options is very active. 61,000 calls and 2,280 puts have traded on the chipmaker through mid-session. The top trade is a block of 16,400 AMD March 8 calls at the 34 cents. Meanwhile, February 8 calls are the most actives. Several large blocks traded at the 19-cent asking price in morning trading. 32,250 contracts have now changed hands and it appears that some investors are taking bullish position, looking for a move beyond $8 by the February options expiration.

RadioShack (RSH) trades down $1.86 to $15.75 after the electronics retailer guided its fourth quarter earnings below expectations and also announced that Julian Day would retire as chairman. Shares are reeling on the news and options volume is up. 7,820 calls and 8,045 puts changed hands in RSH so far which is 6X the average daily. Not all of the options action is bearish, however. In fact, the top trade of the day is a block of 2,048 April 17 calls at 64 cents each on the International Securities Exchange [ISE], which was an opening customer buyer, according to ISEE data.

Bearish Flow
TIVO adds 21 cents to $9.77 after the company announced a deal with Charter Communications to deliver on-demand services. In options action, a noteworthy trade Monday is a March 9 – 12 risk-reversal bought at 28 cents, 8000X. In this play, the strategist bought 8,000 March 9 puts at 93 cents and sold 8,000 March 12 calls at 65 cents. This options combination might be a straight bearish bet or possibly a hedge (collar) around an existing stock position.

Basic Materials Select Sector Fund (XLB) adds 55 cents to $38.03 and options volume is running 2X the average daily, driven by increasing action in February 36 puts. 44,560 contracts have changed hands. The action includes blocks at the 41-cent asking price in morning action and appears to be opening put buying. An institutional investor seeking to hedge their exposure to the materials sector might have initiated the trades. Or, it might be straight bearish trading.

Unusual Volume
Halliburton (HAL) options volume is running 5X the average daily, with 79,000 contracts traded and call volume accounting for 74 percent of the volume, according to data from WhatsTrading.com.

AMD options volume is 2.5X the average daily, with 63,000 contracts traded and call volume representing for 97 percent of the activity.

Clinical Data (CLDA) options volume is running 11.5X the average daily, with 55,000 contracts traded and call volume accounting for 90 percent of the activity.

Increasing options activity is also being seen in First Solar (FSLR), JC Penney (JPC), and SPDR Regional Banking ETF (KRE).

Implied Volatility Mover
Clinical Data (CLDA), a Newmont, MA biotechnology company, is trading up $9.27 to $24.30 and options volume surged after the FDA approved the company's antidepressant. Shares jumped and options volume is running 12X the average daily. 53,000 calls and 5,900 puts traded in the name so far. Implied volatility is down 65 percent to 70 now that this company event risk has passed.