Buyers Flexing Muscles 05-09-2011

Cusick's Corner
Buyers are flexing their muscles into the Midday after what seemed to be a potentially shaky open with the Dollar firming and the S&P downgrade of Greece. While the commodity sector will need some more economic confidence building before Funds and Specs come back into those markets after last week's hit, Equities have bounced off the critical support, 134 on the SPY and 1335 on the June future. It will be worth watching the action to the upside to see if we cannot break resistance, 1350 on the June future. If the market pulls back down or consolidates, this could be worrisome for the longs.

Stock market averages are holding gains through midday Monday. After last week's sharp declines in oil and silver, the action in the commodities markets continues to get a lot of attention. Crude oil has recaptured $3.67 to $100.85 a barrel and silver jumped $2.11 to $37.04. Gold gained $16.30 to $1,507.9 an ounce. The rebound is helping to lift shares of some of the commodity-related names on Wall Street. Meanwhile, the euro is also holding steady around 1.43 against the buck. The European currency came under fire last week on concerns about Greece and those worries persist today after Standard & Poor's lowered Greece's credit rating. European stock markets closed broadly lower. However, with no economic data to guide the action, the focus in the US seems to be on the rebound in metals and oil. Some positive earnings and merger news (see Bullish Flow) seems to be lending the market some support as well. Through midday, the Dow Jones Industrial Average is up 68 points and the tech-heavy NASDAQ gained 19. The CBOE Volatility Index (.VIX) lost 1.12 to 17.29. Trading in the options market is very slow, with 3.8 million calls and 3.3 million puts traded through 12:45pm ET.

Bullish Flow
Dollar Thrifty (DTG) shares are trading up 13 percent to $78.72 after Hertz (HTZ) made another bid for its rival. Hertz is now offering $57.60 per share in cash plus .8546 HTZ shares to acquire DTG. While the deal values Dollar Thrifty at about $72, the stock is trading well above that price. In addition, some out-of-the-money DTG calls are seeing interest Monday. For example, June 80 and 85 call options are among the most actives. Avis Budget (CAR) has also recently shown interest in DTG. The fact that Dollar Thrifty shares are trading well above the most recent Hertz takeover offer price, and that DTG out-of-the-money call are busy, might be a sign that some investors expect the bidding war to continue.

Sysco Corp. (SYY), the Houston, TX food wholesaler, is trading 11.7 percent higher to $31.83 after the company reported earnings that topped Street estimates. Options volume is running 6.5X the average daily. 18,000 calls and 4,765 puts traded so far. May 30 calls, which are now $1.83 in-the-money, are the most actives. Some investors might be exiting positions on the rally. May 29, May 31 and May 32s are seeing brisk trading as well.

Bearish Flow
H&R Block (HRB) shares are seeing some volatility today. HRB lost 5.6 percent to $16.25 and options volume is running 4X the average daily. 20,000 puts and 1,050 calls traded in the tax preparation company so far. May 16 puts, which are now 25 cents out-of-the-money, are the most actives. More than 7000 traded. May 14, May 15, and June 15 puts are also seeing active trading today. The volatility in the stock and the heavy interest in OTM puts are possibly related to reports that a group of bond investors is going after a defunct H&R Block subprime lending unit related to soured mortgages.

Tyson Foods (TSN) is trading down and options are actively traded today after the company reported disappointing earnings results. TSN traded down 5.1 percent to $17.92 on the news. Options volume includes 4,120 puts and 2,110 call options. July 16 puts, which are 10.8 percent out-of-the-money, are the most actives. 1,550 traded. May 18 puts are busy as well and might be seeing some closing trades. The contract was active ahead of the results. 4,400 traded Friday and the contract is now 8 cents in-the-money.

Unusual Volume
Green Mountain Coffee Roasters (GMCR) options volume is running 2.5X the (22-day) average, with 30,000 contracts traded and put volume accounting for about 72 percent of trades.

Dollar Thrifty (DTG) options volume is 8X the average daily, with 28,000 contracts traded and call volume representing for 77 percent of the activity.

Applied Materials (AMAT) options volume is running 2X the average daily, with 28,000 contracts traded and call volume accounting for 91 percent of the activity.

Increasing options activity is also being seen in Mannkind (MNKD), Sysco (SYY), and MBIA (MBI).

Implied Volatility Mover
Longtop Financial (LFT) is back under fire. Shares are down 12.8 percent to $17.63 following another negative newsletter mention (unconfirmed). The stock tumbled a couple of weeks ago after Citron Research wrote a bearish note about the Chinese software developer. The stock is seeing renewed selling pressure Monday and 15,000 puts / 5,270 calls traded in the name through midday. Implied volatility jumped 16.5 percent and remains elevated at 128.