Techs Drag 05-17-2011

Cusick's Corner
The Bulls have the Buck, UUP, finishing the After Hours at the worst levels of the day. Tech, QQQQ, was the drag as earnings came in strong but forecasts were guided down for future quarters. Finance, XLF, finished the day at its best levels, taking some of the pressure off of the big banks, for now. So the market firmed into the After Hours but I am still skeptical, and I will be watching the crude inventories out after the open to see if the Energies and Crude will continue the recent downside push. Note, I did not get filled on my 1X2 spread I discussed at the Midday, never hit my price and I am not one to chase a market. See you Midday.

Stocks battled back from early losses and finished mixed Tuesday. Trading was somewhat volatile at the opening bell after a report showed Housing Starts falling to an annual rate of 523K in April, which was down from 585K the month before and significantly worse than the 563K that economists had expected. A separate report released later showed Industrial Production unchanged in April. Economists were expecting an increase of .5 percent. Meanwhile, Hewlett Packard (HPQ) shares shed 7.3 percent and weighed down the Dow Jones Industrial Average after the company reported second quarter profits that beat Street estimates, but then offered lower guidance for the third quarter and full year. Walmart (WMT) also slipped on profit news, but Home Depot (HD) saw post earnings strength. At the end of the day, HP's big percentage loss was too much to overcome and the Dow finished down 68 points. However, the industrial average finished 101 points off session lows and the tech-heavy NASDAQ erased early losses to close with a .9-point gain.

Bullish
BB&T (BBT), a Winston-Salem, North Carolina regional bank was the subject of an interesting spread trade today. Shares added 42 cents to $57.09 and one strategist apparently bought 7,000 January 2013 $30 calls at $2.29 per contract and sold 15,000 January 2013 January 35 calls at $1. This looks like a call spread at a ratio of a little more than 2-to-1 and a bet that shares will rally through January 2013, but not necessarily beyond $35. US Bancorp (USB) saw a similar ratio spread in the January 2013 call options. An investor apparently bought 10,000 January 2013 $30 to calls at $1.58 and sold 20,000 January 2013 $35 calls at 65 cents. USB added 54 cents to $25.59 on the session.

Bullish trading was also seen in Jack In the Box (JACK), Kinross Gold (KGC), and Steel Dynamics (STLD).

Bearish
The woes continue for United Rentals (URI). Shares of the Greenwich, CT rental and leasing services company lost 89 cents to $25.06. Shares are on a five-day losing skid and have now tumbled 28 percent from the 52-week high set on April 6. Some investors seem concerned about additional downside in URI before the weekend. 4,000 puts and 250 calls traded in the name today. May 24 puts, which are 4.2 percent OTM and expire at the end of the week, were the most actives. 2,545 traded and, with 85 percent trading at the ask, it appears that put buyers were driving the flow. May 25 and 26 puts were busy as well. It's not clear what was driving the increased short-term bearish trading in United Rentals today. Earnings were last reported on April 19.

Bearish flow also surfaced in Chesapeake (CHK), Ciena (CIEN), and CIT Group (CIT).

Index Trading
Trading volume picked up in the index market Tuesday. 708,000 calls and 808,000 puts traded across the S&P 500 Index (.SPX), S&P 100 Index (.OEX) and other cash indexes, which is 1.4X the recent average daily volume for the index market, according to Trade Alert data. The S&P 500 finished little changed around 1,329. Meanwhile, the CBOE Volatility Index (.VIX) lost .69 to 17.55 and might have been distorted a bit by the options expiration. VIX May options expire tomorrow and the last day to trade the May contract was today. A settlement value will be computed Wednesday morning. Meanwhile, 334,000 calls and 126,000 puts traded on the volatility index. May 19 calls and May 17 puts, which are expiring worthless, were the day's most actives. More than 50,000 contracts traded in each.

ETF Action
iShares Emerging Markets Fund (EEM) battled back from morning losses to close the day up 15 cents to $47 even. 49,000 calls and 193,000 puts traded in the ETF. One noteworthy spread surfaced in morning trading when an investor bought 50,000 July 45 puts at $1.35 and sold 50,000 July 40 puts at 35 cents on the fund. They paid $1 per spread for the massive position and are possibly anticipating increased volatility in the emerging markets in the weeks ahead. The breakeven of the position (excluding commissions) is at $44 or 6.4 percent below current levels. The potential pay-off is $4 if shares fall $40 or less through mid-July, which represents a decline of 14.9 percent over two months.