Small Caps Adding Support 07-26-2010

Cusick’s Corner
The market is stuck in a grind that’s in the green. There’s no definitive push either way going into the After Hours. The strength of this market is still in the small caps, IWM, which is always encouraging and is adding to support, 1100 on the S&P, to the current uptrend. Watch the Crude markets, CLU10, which have been flat the past few sessions, any break in a consolidation could be leading the general market into its next leg. See you After Hours.

Stock market averages are higher Monday with help from FedEx (FDX) earnings guidance and better-than-expected new home sales numbers. The table was set for morning gains after FedEx said that it expects first quarter earnings of $1.05 to $1.25 per share, better than the $1.01 that analysts had expected. The company also raised its full year forecast. The early advance on Wall Street then gathered some additional momentum after a report showed New Home Sales improving to annualize rate of 330,000 in June, up from 267,000 the month before and better than the 310,000 that economists had expected. The Dow Jones Industrial Average has been able to hold most of the morning gains and is up 60 points midday, down 15 points from its best levels at 10,500. The NASDAQ is up 15. Meanwhile, the CBOE Volatility Index (.VIX) slipped .37 to 23.10 and overall options volume is on the light side, with about 3.3 million calls and 2.8 million puts traded through 11:30 ET.

Bullish
The SPDR Homebuilders Trust (XHB) has seen some well-timed trades over the past two days. This past Friday, some players snapped up September 16 calls. More than 20,000 traded, including a buyer of 10,000 at 45 cents each, according to a source on the floor. On Monday morning, about 10 minutes before the home sales numbers hit the wires, another buyer (or maybe the same) bought 10,000 at 64 cents each. XHB, which is an exchange-traded that holds shares in America’s leading homebuilders, is up 36 cents to $15.78 and the Sep 16 calls are now bid at 74 cents.

Activision Blizzard (ATVI), the Santa Monica, CA video game maker, is up 25 cents to $11.98 and options volume is running 5X the average daily after one strategist apparently bought 7,800 February 14 calls and sold 7,800 February 11 puts. They collected a penny on this bullish “risk-reversal” and might be looking for shares to continue a recent rally in the months ahead. ATVI shares are up 14.2 percent so far in July.

Bearish
Software maker Symantec (SYMC) lost 23 cents to $14.96 and January 14 puts have traded 8500X through midday. 99 percent of the volume has been at the ask or offer, suggesting that buyers are dominating the action. In addition, implied volatility is up 5.5 percent to 37 and some investors might be buying puts after Oppenheimer issued cautious comments about the company’s earnings release. The firm says results might be hurt due to recent euro weakness. Symantec is scheduled to release results Wednesday.

Schlumberger (SLB) shares slumped in early trading and are down 73 cents to $58.62 after Raymond James analysts cut the stock to Neutral from Buy. In the options market, one player appears to have entered a bearish position as shares of the oil driller drifted lower in morning trading after 2,000 September 57.5 puts traded at the $2.99 asking price and 2,000 September 50 puts traded mid-market at 92 cents. This spread, at a $2.07 net debit, is a bearish play. It makes its best profits if shares fall to $50 or less by the September expiration.

Unusual Volume Movers
Sprint (S) options volume is running 3.5X the usual, with 75,000 contracts traded and call volume accounting for about 75 percent of the activity.

US Airways (LCC) options activity is running 6X the usual, with 65,000 contracts traded and call volume representing 98 percent of the volume.
AIG options volume is running 2.5X the usual, with 43,00 traded and call volume representing 74 percent of the activity.

Unusual volume is also being seen in Activision Blizzard (ATVI), Rambus (RMBS), and TEVA.

Implied Volatility Movers
Genzyme (GENZ) options are actively traded and implied volatility is easing on reports Sanofi Aventis is ready to acquire the biotech company. GENZ is up 7.2 percent to $67 and options volume is 5.5X the average daily. 37,000 calls and 10,000 puts traded in the name so far. Meanwhile, implied volatility, which saw a spike Friday when the takeover talk started making the rounds, is down 13 percent to 46.