Three Sectors That Have Stalled 09-22-2010

Cusick's Corner
The market has pulled back into the Midday on the heels of an impressive 8-10% run up over the last 11 sessions in multiple indices. With the Fed not throwing in any surprises like QE, the market has now stalled in 3 offensive sectors -- Finance (XLF), Energy (XLE), and Housing (XHB), all three pulling back from their 200 Moving Average. If there is further upside to be had, the market needs at least 2 of these sectors to break this ceiling and move higher. Also keep an eye on the long-term Bond yields, they have based at the moment after initially pulling back post the Fed announcement. One note, there has been some interesting action in the currency markets, Aussie/Yen pair has been on the move down, potentially indicating the Risk On trade is quieting down. See you After Hours.

Major averages are modestly lower on a slow news day. With no economic news or earnings to drive the early action, investors didn't find much to work with. There seems to be a modest increase in risk aversion. While the Dow Jones Industrial Average is down 25 points midday, gold is rallying to record highs near $1,300 an ounce and bonds are also seeing strength. The benchmark ten-year Treasury bond is up 14/32nd and its yield has fallen to 2.52 percent. Investors are showing interest in safe havens like bonds and gold rather than stocks, which is a sign sentiment is somewhat cautious and that there is less appetite for risk today. Meanwhile, the CBOE Volatility Index (.VIX), the market's “fear gauge”, is up .50 to 22.85. Trading remains active, with about 4 million calls and 3.5 million puts traded by 12:30 ET.

Bullish
Sears Holdings (SHLD) shares are up $3 to $71.15 and options are actively traded Wednesday. Shares hit a morning high of $74.22 after Restoration Hardware (RTCO) announced plans for an IPO in the first half of 2011, raising speculation Sears might liquidate its position in RTCO. However, while Sears did have a large stake in RTCO in 2007, recent filings indicate that it already liquidated its position in 2008. Consequently, while Sears shares rallied at the open, they have come off their best levels. Nevertheless, options on the retailer remain actively traded. About 8,000 calls and 4,000 puts traded so far.

Brocade (BRCD) is seeing a surge in call activity Wednesday. Shares rallied 52 cents, or 9.2 percent, to $6.17 and call volume is approaching 100,000 contracts through midday. By way of comparison, only 3,000 puts traded. October 6 calls are the most actives. More than 50,000 contracts have changed hands. Speculative call buying on unsubstantiated talk that IBM might be interested in BRCD is driving the activity.

Bearish
EBAY shares are under pressure after the online auctioneer offered a lukewarm outlook for the third quarter and announced the resignation of Lorrie Norrington, the head of the company's core auction business. Shares are down 64 cents to $24.10 and options volume is 3X the average daily, with 29,000 calls and 27,000 puts traded so far. The action includes a block of 6,400 Nov 27 calls apparently sold at 25 cents. Another investor apparently sold the Jan 22.5 put – 25 call strangle at $2.49, perhaps liquidating a neutral trade after today's move lower.

Software maker Adobe (ADBE) is taking a hit after missing on earnings. Shares gapped lower, touched a new 52-week low, and are down $6.55 to $26.39 midday. Options volume is running 10X the normal. 82,000 calls and 49,000 puts traded through midday. October 26 and 27 puts and calls are seeing heavy trading, as players scramble to adjust positions after today's volatile move in Adobe shares.

Unusual Volume Movers
Hartford (HIG) options volume is running 2X the usual, with 34,000 contracts traded and call volume accounting for about 58 percent of the activity.

Western Union (WU) options activity is running 15X the usual, with 28,000 contracts traded and put volume representing 96 percent of the volume.
Biogen Idec (BIIB) options volume is 13X the typical levels, with 23,000 contracts traded and put volume accounting for 72 percent of the activity.

Increasing volume is also being seen in DirectTV (DTV), Bed, Bath and Beyond (BBBY), and Computer Associates (CA).

Implied Volatility Movers
Biogen Idec (BIIB) shares are under pressure and implied volatility is up after Swiss drug maker Novartis received backing from US regulators for its Multiple Sclerosis treatment, which raises a competitive threat to Biogen's Tysabri. BIIB is down $3.41 to $54.82 and options volume is 13X the average daily, with 17,000 puts and 7,000 calls traded so far. Implied volatility jumped about 7 percent to 32.