Market Holds Gains 06-01-2010

Cusick's Corner
The market has held its gains into the Midday in spite of a pounding early after the open. The short term market has been holding key support, SPY 108.50, at this stage supporting an argument for a potential run to the upside. As I stated last week, we continue to see a strong correlation with the performance of the Euro currency and this is still intact. The currency popped after hitting its lows pre-market, EZM10 1.21, to close to breakeven, EZM10 1.23, into the Midday. See you After Hours.

Stocks opened broadly lower after overseas markets fell Tuesday, but trading turned mixed following a round of better-than-expected economic data. Equity markets fell across the Asia/Pacific after data showed slowing economic activity in China, the area's largest economy. Meanwhile, European markets were also lower amid ongoing worries about the credit crisis and the falling euro. The European currency fell to levels not seen since April 2006 against the dollar. The global equity market weakness set the table for losses on Wall Street, but the major averages battled back to positive territory after the ISM Index of manufacturing activity proved a bit better-than-expected. The data, released at 9:00 a.m. Eastern Time, showed ISM slipping to 59.7 in May; which was down from 60.4 in April, but not as bad as the 59.4 expected by economists. Separate data showed Construction Spending up 2.7 percent in April, which was significantly better than the .1 percent increase economists had predicted. Through midday, the Dow Jones Industrial Average is holding a modest 19-point gain. The NASDAQ is down 3.00. Options volume is on the light side, with about 3.2 million calls and 2.9 million puts traded at 12:30 ET.

Bullish Flow
Newell Rubbermaid (NWL) shares are up 34 cents to $17.00 and options volume is running 6X the average daily on takeover chatter. It's unsubstantiated, but did trigger a reaction. Shares hit a morning high of $17.50 and 12,000 calls traded so far. The volume represents 14X the expected for midday and almost 10X the number of puts. July 15 calls are the most actives. 6,930 traded. Speculators are also eying the June and July 20 calls.

Corinthian Colleges (COCO) shares lost 37 cents to $13.02 and options volume is running 3X the average daily, led by buyers of June and July 15 calls. June 15s are the most actives. 6,320 traded and, with about 60 percent traded at the asking price, it appears that buyers are dominating the action. Another 2,830 July 15s traded (72 percent Ask). Meanwhile, 3333 August 10 puts changed hands, with 100 percent traded on the bid. Overall, the flow seems to reflect some bullish sentiment in the Santa Ana, CA training and education company.

Bearish Flow
Dow Chemical (DOW) is the subject of bearish spread trading. Shares are down 67 cents to $26.24 and 7,420 puts traded total. One strategist apparently bought the September 25 - 20 put spread at $1.43, 1320X (bought 1,320 Sept 25 puts at $2.20 and sold 1,320 Sep 20s at 77 cents each.) Another was focused on the September 27 - 22 put spread, apparently bought at $1.93, 1245X (bought 1,245 September 27 puts at $2.19 and sold 1,245 September 22 puts at $1.26 apiece.) Both of these positions are bearish, as the first spread makes a max profit if DOW falls to $20 by September and, in the second, the max gain is at $22.
Williams Sonoma (WSM) shares are down 63 cents to $29.25 and increasing volume is being seen in August 30 puts. 2,825 contracts traded through midday. 89 percent traded on the Asking price and open interest is 585, suggesting buyers are opening new positions. 3,400 puts and 800 calls traded total.

Implied Volatility Movers
Schlumberger (SLB) implied volatility is moving to new 52-week highs, as shares fall on concerns about the impact of the Gulf spill on the drilling industry. Shares are down $3.69 to $52.46 and options action is brisk. 33,000 calls and 14,000 puts traded so far. Implied volatility is up about 16.5 percent to 56.

Unusual Volume
Anadarko (APC) options volume is running 3X the usual, with 62,000 contracts traded and call volume accounting for about 57 percent of the activity.

Frontier Communications (FTR) options activity is running 16X the usual, with 14,000 contracts traded and call volume representing 90 percent of the volume.

Diamond Offshore (DO) options volume is running 2X the usual, with 12,000 traded and call volume representing 57 percent of the activity.

Unusual volume is also being seen in Terex (TEX), General Mills (GIS), and NRG.