One Side of Market May Tip Hand 03-09-11

Cusick's Corner
Timing is everything, but so is patience. For a lot of traders and investors patience is being tested. The critical point at this juncture is not to overreact or over trade. This is easy to type but sometimes not easy to follow. Especially when we see things like today's decent 10 yr bond offering, grains, JJG, pulling back, but gasoline, UGA, running to the upside. While the speculation in these markets has heightened, the reality is the fundamentals have not changed from where they were 30 days ago. Staying the course is the key until someone shows their hand. The claims data due out premarket could force one side of the market to tip their hand, so keep an eye out on those numbers. See you Midday.

Stock market averages finished with modest losses on a slow news day. Much attention remains on crude oil, with WTI April Crude trading higher early on reports that Libyan forces hit storage tanks at terminal town Es Sider. However, crude, which had moved towards $107 Monday, is trading down 62 cents to $104.40 a barrel late Wednesday. Beyond that, there wasn't much news to drive the market. A report released at 10:00am ET showed Wholesale Inventories up 1.1 percent in January, which was in-line with expectations and not a market mover. IBM added 2.2 percent and was the best gainer in the Dow Jones Industrial Average on the heels of its analyst day and positive broker commentary. However, seventeen Dow stocks moved lower and the industrial average finished the day with a one-point loss. The tech-heavy NASDAQ gave up 14.

Bullish
Star Scientific (CIGX) has seen some wild action in recent days. Shares of the cigarette-maker added 33 cents to $2.38 today and have been smoking since the FDA decided that menthol does not increase smoker risk on March 1. CIGX is up 32.3 percent since February 28. Meanwhile, today's options volume included about 15,000 calls and 430 puts, which is 8X the typical volume for the name. March 2 calls, which are now 33 cents in-the-money and expire at the end of next week, were the most actives. Some investors might have been closing positions before the expiration. August 2.5 and January 2.5, which are 12 cents out-of-the-money, saw heavy trading as well.

Bullish trading was also seen in Coinstar (CSTR), Kroger (KR), and Autodesk (ADSK).

Bearish
Glaxo Smithkline (GSK) puts were active for a second day. March 37 puts were actively traded Tuesday. Today, shares gained 42 cents to $38.48 and the March 38 puts were the most actives. 5,775 contracts traded. Open interest is 1,913 and 94 percent of today's volume was at the asking price, which indicates that investors were buying to open new positions. March 37 puts traded another 512 contracts. The two days of buying of GSK March puts is likely a short-term play, and possibly hedging of shares, ahead of an FDA decision on lupus drug Benlysta. Glaxo is a partner with Human Genome Sciences on the drug and a decision is expected tomorrow.

Bearish flow also surfaced in Lam Research (LRCX), TCF Financial (TCB), and Hertz (HTZ).

Index Trading
It was a very quiet day in the index pits Wednesday. 356,000 calls and 563,000 puts traded across the S&P 500 Index (.SPX) and other cash indexes, which is only about 75 percent the recent average daily volume, according to Trade Alert data. SPX traded in an 11-point range and lost 1.8 points on the session. Meanwhile, the CBOE Volatility Index (.VIX) gained .40 to 20.22 and the top index options trade of the day was a 6,850-block of VIX March 19 puts at 30 cents per contract. It might be a closing trade, as March VIX options expire next Wednesday, which is in 6 days.

ETF Action
SPDR Financial ETF (XLF) saw interesting trading activity today. Shares, which represent ownership in all of the financial names from the S&P 500, finished flat at $16.77. Meanwhile, large blocks of January 18 calls traded in morning action. One player bought a massive position at 31 cents per contract, according to a source on the exchange floor. At the end of the day, 135,584 contracts had changed hands. Open interest is 53,178 and so this looks like new positioning, perhaps reflecting expectations for a rally in the financials through January 2012.