Transcontinental Flight to Safety 06-15-2011

Cusick's Corner
Well, we just took a ride on the transcontinental flight to safety and for some of us this has been neither a cheap nor enjoyable flight, especially with the Euro dumping over 2% against the Buck. There was a small lift after the lows on the close but we are at critical levels on all indices, at the longer term support of the 200-Day Moving Average. I have few words about today's action other than it was on strong volume and the psyche of the Bull is in flux and skepticism grows. The Claims and Housing data that comes out tomorrow premarket at 8:30 am ET could have a decent impact, especially if this data follows suit from past releases and disappoints.

Worries about the European Debt Crisis and bearish domestic economic news sent stocks skidding Wednesday. Clashes between protestors and police in Greece over austerity measures are raising concerns that the country's debt problems could spiral out of control. As a result, the debt crisis is once again in focus and the euro gave up 1.8 percent against the US dollar. The domestic economic news wasn't much better. NY Empire State Index, a gauge of regional manufacturing activity, unexpectedly plunged to -7.8 in June, down from 11.9 the month before. Economists were expecting 14.0. Meanwhile, the Consumer Price Index [CPI] edged up .2 percent last month. Economists were looking for no change in the gauge of inflation at the consumer level. Industrial Production edged up just .1 percent in May, and half as much as expected. Finally, the NAHB Homebuilders Index is down to only 13 in June, its lowest levels since September and well below economist estimates of 16. At the same time, crude oil tumbled $4.02 to $95.35 in volatile trading. Gold slipped early, but caught a flight-to-safety bid and added $7.6 to $1,532 an ounce. On Wall Street, bonds finished higher and the yield on the ten-year dipped back below 3 percent. But the Dow Jones Industrial Average lost 179 points and the tech-heavy NASDAQ gave up 47.3.

Bullish
Visa (V) was caught in the downdraft. Shares of the credit card company lost $1.09 to $74.84. The options action was a bit less bearish. 18,000 calls and 17,000 puts traded in Visa Wednesday. The top trade of the day was a spread, in which the investor bought 5,000 July 80 calls at $1.27 and sold 5,000 July 85 calls at 32 cents. The spread, for a net debit of 95 cents, appears to be a bullish play. A similar July 82.5 - 85 call spread traded 5000X Tuesday and open interest data indicate that 10,000 were opened (in both contracts). The bullish spread trading might be a play on Fed rules for Interchange credit card fees. A Wall Street analyst was out with a note Tuesday morning saying they expect a decision in June, possibly before June 21.

Bullish trading was also seen in Yahoo (YHOO), General Dynamics (GD), and Arcelor Mittal (MT).

Bearish
H&R Block (HRB) shares lost 36 cents to $15.42 and are down 14.3 percent from the 52-week high of $18 per share set a little over two months ago. Options volume was interesting, as 8,810 puts and only 31 call options traded in H&R Block today. July 16 calls, which are 3.8 percent in-the-money, were the most actives. 6,770 traded and, with open interest of 842, it looks like buyers were taking new positions in anticipation of additional losses for HRB in the weeks ahead. July 15 and Jan 12.5 puts saw interest as well. No news on the stock today. The bearish trading might be a play on earnings. The tax preparation company announced yesterday that it will report on June 23rd.

Bearish flow also surfaced in Cheesecake Factory (CAKE), Deutsche Bank (DB), and Newell Rubbermaid (NWL).

Index Trading
Volume and volatility are increasing in the index market heading into the expiration. June (March, Sep, and Dec) is a quarterly expiration. So, not only are stock, index and ETF options expiring this week, but so are futures, single stock futures, and futures options. It's likely to be very busy Thursday and Friday. Volume picked up noticeably yesterday and again today. 1.09 million calls and 1.48 million puts traded across the S&P 500 Index (.SPX), S&P 100 (.OEX) and other cash indexes Wednesday, which is about twice the recent average daily volume, according to Trade Alert data. The S&P 500 gave up 22.45 points to 1,265.42 and the CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, jumped 3.06 points to 21.32. VIX closed at its highest levels since March 18.

ETF Action
While VIX jumped today, the iPath S&P 500 VIX Short-term Futures ETF (VXX) gained $1.91 to $24.43. Shares of the exchange-traded fund, which are designed to track market volatility through VIX futures, have rallied nearly 15 percent since May. VXX options action also picked up today. 118,000 calls and 112,000 puts changed hands. The biggest trade was an 11,000-contract block of August 18 puts on the 31 cent bid. At the end of the day, 16,228 traded against 6,588 contracts of open interest. The contract is 26.3 percent out-of-the-money. Some investors might have been selling the contract on the view that shares of the volatility ETF will hold above that ($18) level through the August expiration in 65 days.