Short-Term Technicals Extended 02-17-2011

Cusick's Corner
The S&P is up 4% so far this month and it's on a 9 session winning streak of finishing in the green. This leaves short-term technicals a little extended but it looks like there are no signals of this developing into pressure on the current bullish trend. If you watched the overnight and the open today, things have been on the quiet side even after worse than expected data (higher initial & continuous claims). Geopolitical events have led to a slightly weaker tone but these headlines seem to be giving the bulls a dip for buying. The first support level that could provide a read is the 1330 area in the S&P 500 cash with resistance 1342. See you After Hours.

Major averages are holding slim gains following a round of mixed economic news Thursday. Market action was sluggish early after the Labor Department reported that the Consumer Price Index [CPI] rose .4 percent in January, which was .1 percent more than expected. Separately, the Labor Department reported that weekly jobless claims increased by 25,000 in the period ended February 12, which was roughly in-line with expectations. Later, the List of Leading Indicators came in at .1 percent for January and below economist estimates of .3 percent. However, the Philadelphia Fed Survey of manufacturing activity was a bright spot. It surged to 35.9 in February, from 19.3 last month and significantly better than the 21.0 that economists had expected. Meanwhile, the corporate news is light today. A handful of second tier names, including Weight Watchers (WTW), NVidia (NVDA), Barrick Gold (ABX), and Williams Companies (WMB), are up on earnings. Netapp (NTAP) and Agnico Eagle Mines (AEM) are seeing post-earnings weakness. The Dow Jones Industrial Average has added 8 points and the NASDAQ gained 4. The CBOE Volatility Index (.VIX) edged up .12 to 16.84 midday. Options trading volumes are running about the typical levels, but will likely pick up this afternoon and tomorrow due to the expiration. 4.9 million calls and 3.5 puts traded through 12:15pm ET Thursday.

Bullish Flow
Nabor's Industries (NBR), an oil and gas drilling company, is up $1.23 to $27.97 and notched a new 52-week high today. Shares have been rallying since the company reported earnings late-Tuesday and are up 7.9 percent over the past two days. Options action is interesting as well. 18,000 calls and 3,270 puts traded so far, or 3X the recent average daily. The top trade is a lot of 556 March 27 calls at the $1.14 asking price just after the opening bell. It seems to be a well-timed call buy, as the contract is now bid at $1.70. Volume is approaching 8,000 contracts.

Family Dollar (FDO) calls are busy, the day after shares rallied on news Nelson Peltz's investment firm made a bid for the retailer. Shares surged 21.1 percent yesterday and are down 50 cents to $52.75 today. Options volume in the retailer is 12,000 calls and 2,850 puts. March 50 calls, which are already in-the-money, are the most actives. 3,575 traded and, with 98 percent trading at the ask, it appears that buyers are dominating the activity. Similar action is being seen in the April 49 calls.

Bearish Flow
Human Genome Sciences (HGSI) is flat at $26.17 and noteworthy options action is being seen in the company's March 22 puts. 6,300 contracts changed hands so far. 81 percent trading at the ask and open interest is only 468. Some investors or shareholders might be buying puts as a bearish play or to hedge stock ahead of an FDA decision regarding the company's Benlysta lupus drug. The decision was recently delayed from December to March.

Basic Materials Select Sector Fund (XLB) shares are trading up 22 cents to $40.56 and notched a new 52-week high today. XLB holds all of the material companies from the S&P 500, which includes metal, chemical and mining names. In options action, one investor bought a block of 25,500 XLB June 41 puts at $2.51 per contract midday today. An institutional investor looking to hedge that sector of the market might have initiated the hefty premium purchase.

Unusual Volume
NVidia (NVDA) options volume is running 2X the (22-day) average, with 143,000 contracts traded and call volume accounting for 67 percent of the volume.

Williams Companies (WMB) options volume is 3.5X the average daily, with 142,000 contracts traded and call volume representing for 79 percent of the activity.

AK Steel (AKS) options volume is running 4X the average daily, with 53,000 contracts traded and call volume accounting for 92 percent of the activity.

Increasing options activity is also being seen in NetApp (NTAP), Brocade (BRCD), and Nabor's (NBR).

Implied Volatility Mover
Brocade (BRCD) implied volatility is on the move ahead of earnings. Shares have added 32 cents to $6.04 and options volume is triple the recent average daily. 27,000 calls and 12,000 puts traded in the chipmaker. February at-the-money $6 puts and calls are the most actives. Meanwhile, implied volatility has increased by 14 percent to 64.5 ahead of the results, which are due out after the closing bell.