Real Estate Sector May Be Poised For Bounce 09-29-2010

Cusick's Corner
The market continued to stay in a tight range into the After Hours, but one key sector, Energy (XLE) was moving today. With the month-end and the breakouts continuing, market watchers and traders are looking for the next sector to join the upside party. It looks like the Real Estate sector could be next, especially since tomorrow is the last day in September and money managers need to get there October positions in place. The Real Estate sector has been lagging this impressive move and may be poised for a bull bounce. Watch the Claims data premarket, this could get the market moving. See you Midday.

Major averages finished with modest losses on a very slow news day. With no earnings of significance or economic data to guide the early action, stocks slumped at the open following a day of losses in Euro-zone equity markets. Benchmarks were under pressure in Europe amid strikes and protests in several countries. Individuals were speaking out against recent measures designed to help ease the European Debt Crisis. The concern is the growing resistance might thwart some of the recent policies designed to ease the crisis. Yet, while stocks slumped, there wasn't much volatility in overseas markets and, after falling in morning trading, the Dow Jones Industrial Average was flat into midday. From there, modest selling pressure surfaced late and, when all was said in done, the Dow Jones Industrial Average had traded in a narrow 70-point range and lost 23 points on the session. The NASDAQ gave up 3.

Bullish Flow
Monsanto (MON) lost another 75 cents to $48 and has now suffered a three-day 31.4 percent slide. The weakness has stirred up a lot of action in the options market. After a day of very heavy trading Tuesday, approximately 30,000 calls and 26,000 puts traded Wednesday. One contrarian-minded investor seems to be looking for a rebound in the weeks ahead, however, and apparently initiated a November 55 – 60 call spread at a 58-cent debit, 5000X in afternoon trading Wednesday. That is, they bought 5,000 November 55 calls for 85 cents and sold 5,000 November 60 calls at 27 cents. The spread is a bullish play, as it makes its best profits if shares rally to $60 or beyond through the November expiration.

Bullish options action was also seen in Blue Coat Systems (BCSI), Hewlett Packard (HPQ), and Schlumberger (SLB).

Bearish Flow
NetLogic (NETL) saw an increase in options activity today. Shares added 48 cents to $28.09 and have now added 10.9 percent over the past four days. Yet, while shares have performed well, the tone of trading in the options market seemed to take a bearish turn after 7,375 puts and 1,695 calls traded on the Mountain View, CA semiconductor maker. October 29 puts were the most actives. 3,677 changed hands and, according to data from WhatsTrading.com, two-thirds (or 66 percent of the volume) traded at the asking price. So, it appears the put buyers were dominating the action and perhaps making bearish bets or taking defensive positions to protect recent gains in the shares.

Bearish flow also picked up in Flour (FLR), Principal Financial Group (PFG), and DineEquity (DIN).

Index Trading
The PHLX Semiconductor Index (.SOX) saw a bit more volume than usual amid relative strength in the chip sector Wednesday. SOX is a cash-settled index that tracks the price action of 21 leading semiconductor and semiconductor equipment companies. The index added 2.33 to 351.79 and options volume rose to twice the average daily, with some players apparently selling October 345 calls. The contract is 6.79 points in-the-money and these investors were possibly banking profits following Wednesday's move. Overall, there hasn't been much noteworthy activity to report from the index pits lately. 337,000 calls and 418,000 puts traded across all products Wednesday, which is only about 71 percent the average daily volume.

ETF Trading
Put volume picked up in the Basic Materials Select Sector Fund (XLB) amid relative weakness in the sector Wednesday. Shares finished down 26 cents to $32.91 and options volume hit 6X the average daily. 43,000 puts and 6,000 calls traded on the exchange-traded fund. One investor was responsible for a large percentage of the flow. They bought a block of 35,000 December 29 at 50 cents per contract. Since XLB holds all of the basic material names from the S&P 500 Index, the massive premium purchase was probably initiated by a portfolio manager looking to hedge his or her exposure to that market sector.