Financials Show Strength 11-15-2010

Cusick's Corner
Strength showed up in the Financials, XLF, and their leadership has pulled the market into the green. I mentioned in the Corner last week to keep an eye on the short-term moving averages as a possible signal for a potentially deeper pullback -- the S&P and NASDAQ have held their 20 EMA. The bond markets are also exhibiting some strength on the yield side, which could be another catalyst for equities and a positive for the economy as well. See you After Hours.

Major averages are higher with help from positive economic data Monday. A report released before the opening bell showed total Retail Sales up 1.2 percent in October, which was significantly better than the .7 percent increase that economists had expected. Excluding autos, sales rose .4 percent and in-line with expectations. However, the rest of the day's data wasn't as strong. The Empire Manufacturing Index showed an unexpected drop to –11.14 in November, which was significantly worse than the +11.7 that economists had predicted. A separate report showed business inventories up .9 percent and in-line with economist estimates. The major averages traded mixed on the data in early action and then gathered some strength by mid-morning. At midday, the Dow Jones Industrial Average is up 73 points and near session highs. The NASDAQ is up 7. The CBOE Volatility Index (.VIX) lost 1.36 to 19.25.

Bullish
Investors are revved up about Ford Motor (F). Early Monday, the automaker reported that its Super Duty has captured half of the heavy duty truck market. In addition, CNBC Mad Money host Jim Cramer said he likes Ford ahead of GM's public offering later this week. According to Cramer, what is good for GM is good for Ford. Some investors appear to agree, as Ford shares are notching fresh 52-week highs today and are up 87 cents to $17.17. Trading in the options market is brisk as well. Volume in the Ford November 17 calls is approaching 50,000 contracts. More than 40,000 November 18 calls have also changed hands.

A large block of puts traded in Nokia (NOK) Monday morning. Shares are up 8 cents to $10.36 and a block of 10,311 December 10 puts traded at 25 cents when the market was 25 to 28 cents. Since volume exceeds the existing open interest in the contract, this looks like an opening put seller. They might be looking for shares of the Finnish phone company to hold above $10 through the December expiration. If not, they're possibly willing buyers of the stock at $10 per share. In other words, by writing $10 puts, they're stating that they're willing buyers at that price.

Bearish
A massive combination trade in drug maker Novartis (NVS) Monday morning. The company was highlighted in the latest issue of Barron's and the article noted that the company still faces many challenges, including expiring patents and its acquisition of Alcon (ACL). Yet, Barron's says the stock is cheap. One strategist seems somewhat defensive, however, and initiated a January 50 – 60 risk-reversal at a dime, 29,100X. In this trade, they apparently bought 29,100 Jan 50 puts at 55 cents each and sold 29,100 Jan 60 calls at 65 cents. Shares are up 79 cents to $56.43 and, while this options combo was tied to a block of 1.17 million shares of stock, it seems to be a play on increasing volatility in NVS shares.

Marvell Technology (MRVL) calls are seeing heavy trading ahead of earnings which is Thursday at the close. Shares are off 54 cents to $19.30 and the December 20 calls are the most actives. 5,400 traded and 68 percent hit on the bid. Another 5390 Nov 19 calls changed hands, and 79 percent traded on the bid. Since a large percentage of the volume is on the bid, it looks like call writing (selling) in the chipmaker and somewhat bearish action ahead of the earnings news.

Unusual Volume Movers
Chevron Texaco (CVX) options volume is running 5X the usual, with 110,000 contracts traded and call volume accounting for 95 percent of the activity, according to data from website WhatsTrading.com.

Natural Fuel Gas (NFG) options activity is running 50X the usual, with 30,000 contracts traded and call volume representing 100 percent of the volume.

Exco Resources (XCO) options volume is 5X the typical levels, with 22,000 contracts traded and call volume accounting for 78 percent of the activity.
Increasing volume is also being seen in Ingersoll Rand (IR), Allegheny Tech (ATI), and MELA.

Implied Volatility Movers
Human Genome Sciences (HGSI) continues to see high implied volatility and active trading ahead of a key FDA panel review for the company's Benlysta Lupus drug due Tuesday. Shares, which rallied 8.8 percent Thursday and plummeted 12 percent Friday, are up $1.11 to $24.71 in volatile trading Monday. Meanwhile, another 15,000 calls and 9,100 puts traded in the biotech. The market is pricing in the possibility for a big move, as implied volatility in HGSI options is up to 170 percent ahead of the news.