Small Caps Missing Bounce 06-15-2010

Cusick’s Corner
The market has bounced nicely into the Midday, with Finance, XLF, and Energy, XLE, sectors leading the advance in challenging the longer-term resistance represented by the 200 Simple Moving Average [SMA]. What is concerning about this rally is that we are not getting bullish confirmation from the small caps, IWM and the RUT, leaving this upturn suspect to a possible attack by the shorts. What could possibly trump the small cap camp would be some decent volume on a breakout of the resistance, SPX 1108. The action into the After Hours could get whippy, so keep your powder dry if you do not have a clear trading plan.

Stocks are higher on strengthening euro and mixed economic news Tuesday. European markets traded mostly higher and the euro recaptured the 1.23 handle against the dollar following a successful round of eurozone debt auctions. The domestic news was mixed. Data released before bell showed import prices falling .6 percent in May, suggesting low inflation/low interest rate environment remains. Separate data showed the NY Empire State Index (of regional manufacturing activity) improving to 19.57 in June, from 19.11 in May and not far from economist estimates of 20. However, the latest NAHB Homebuilders Index disappointed, falling 5 points to only 17 in June. The market showed little reaction to the HMI, however, and the Dow Jones Industrial Average is up 130 points. The CBOE Volatility Index (.VIX) sank another 2.49 to 26.09. Options volume is running about typical levels, with about 3.5 million calls and 3 million puts traded at 12:30 ET.

Bullish
Green Mountain Coffee Roasters (GMCR) shares rallied on news it is selling some of its assets to Pine State Trading. The transaction is expected to close in September. Shares are up $1.40 to $26.50 on the news and options volume is 2.5X the recent average daily, with about 20,000 calls and 5,950 puts traded so far. July 30 calls are the most actives. 4400 traded and, since existing open interest is 990, it looks like some investors are opening new positions and hoping shares can rally beyond $30 through the July expiration.

CBOE Holdings (CBOE) made a successful debut Tuesday morning. To celebrate this IPO listing, the CBOE invited many dignitaries to the floor of the exchange and optionsXpress’ Education team was there too, spread out amongst the crowd, waving arms and white baseball caps through the balloon drop and ticker tape. Shares of the options exchange were priced at $29 in the Initial Public Offering and are trading up 40 cents to $33.20 midday. There are no options listed on the exchange yet, but that will likely change in the near future. The CBOE is one of eight options exchanges. It is among the largest and handles more than 1/5th of the overall options volume each day.

Bearish
GameStop (GME) shares are under pressure and options are actively traded after electronics retailer Best Buy (BBY) announced plans to let customers trade in used video games. The threat of increased competition from Best Buy has GME down $1.82 to $20.06 and options volume is 6.5X the average daily, with about 15,000 calls and 23,000 puts traded so far. June 20 puts are the most actives, with 4,360 contracts traded.

One of the top trades so far today is in the Select Sector Financials (XLF). Shares are up 13 cents to $14.58 and, in morning trading, one investor bought the June – July 15 put spread at 32 cents, 26500X. The spread looks like a position adjustment or roll out of June 15 puts and into the July 15s. This investor is probably looking to extend a hedge an extra months. The spread has now traded more than 50000X.

Unusual Volume Movers
Allstate (ALL) options volume is running 12X the usual, with 76,000 contracts traded and call volume accounting for about 98 percent of the activity.

Best Buy (BBY) options activity is running 3X the usual, with 49,000 contracts traded and put volume representing 53 percent of the volume.

AK Steel (AKS) options volume is running 2X the usual, with 38,000 traded and call volume representing 86 percent of the activity.

Unusual volume is also being seen in US Airways (LCC), A123 (AONE), and Aruba Networks (ARUN).

Implied Volatility Movers
BP implied volatility is easing a bit, as shares hold steady and gain 85 cents to $31.52 Tuesday. Oil executives are facing a grilling before Congress following the massive spill in the Gulf. Lawmakers said the major oil companies’ plans to handle the deepwater disaster were “virtually worthless.” The hearings are seen as a significant risk to BP. However, shares had suffered a 28 percent month-to-date loss prior to today and are seeing a modest bounce. Meanwhile, implied volatility is down about 5 percent, but remains elevated around 95.