Sectors Showing Intraday Weakness 12-13-2010

Cusick's Corner
The market hit resistance late in the day, broke it for a short time but pulled back to breakeven for the day. Now this is just a plateau that at this stage might be a healthy rest in a bigger uptrend. Tech (SMH), Transports and Retail (XRT) all showed intraday weakness. Retail, XRT, has been a leader with very little pullback, which could have been contributing factors to the weakness into the end of the day but as long as Finance leads, XLF, this current trend is definitely intact. With the Fed meeting tomorrow, there could be a little profit taking before the decision due out at 2:30 ET.

Stocks finished mixed on a relatively slow news Monday. With no earnings of broad market significance and no data on the economic calendar, merger and acquisition was in focus early. GE announced plans to buy Britain's Wellstream for $1.3 billion and DELL made a firm $960 million bid for Compellent Tech. Hopes that policy makers in Washington could reach a compromise on tax cuts also seemed to help keep a floor under stock prices through midday. However, some selling pressure surfaced late in the session and, although the Dow Jones Industrial Average added 19 points on the day, breadth was poor. 1,582 stocks declined and 1,435 advanced on the New York Stock Exchange. Meanwhile, the NASDAQ lost 12.6 and the S&P 500 finished flat.

Bullish Flow
A number of consumer goods stocks saw large blocks of calls traded in their longer-term 2013 options Monday. Clorox (CLX) is an example. Shares lost 3 cents to $62.43 and a block of 4,123 Jan13 $75 calls was bought at $1.90. In Heinz (HNZ), shares lost one-cent to $49.85 and a block of 7,524 Jan13 $55 calls was bought at $2.10. Kellogg's (K) cracked 44 cents higher to $50.22 and one player apparently bought-to-open a position in 3,231 Jan13 $60 calls at $1.60. All of these trades (and similar action in the three names mentioned below), seem to have been initiated by the same investor – probably buying longer-term calls rather than shares to play the consumer products sector.

Bullish order flow was also seen in Conagra (CAG), Campbell's (CPB), and Chubb (CB).

Bearish Flow
Masco (MAS), which rallied 10.4 percent last week, lost 28 cents to $13.25 today and options volume hit 9X the average daily, led by two blocks of April $13 puts. The market was $1.20 to $1.30 at the time and 15,000 traded at $1.32 per contract and another 15,000 at $1.33. It's not clear why the investor paid more than the asking price for these puts, but the action looks like bearish put buying (or maybe hedging recent gains) in the Taylor, MI wood and lumber company for the home improvement industry. 32,000 puts and 2,435 calls traded in MAS total. The biggest call option trade was a block of 1,000 April 14 calls on the 95-cent bid, which was apparently sold and possibly closing out a bullish trade after the recent run higher.

Bearish flow also picked up in Gap Stores (GPS), Safeway (SWY), and Yingli Energy (YGE).

Index Trading
Options volume is picking up in the index market ahead of the December expiration. December is a quarterly “quadruple witch” expiration, which sees futures, futures options, index, single stock and stock options come off the board. 635,000 calls and 594,000 calls traded across the S&P 500 (.SPX) and other cash indexes today. The top index trades of the day were in the CBOE Volatility Index (.VIX), which finished down .06 to 17.55. Two blocks of 20,000 (40,000 total) VIX February 35 calls traded at 64 and 65 cents when the bid-ask was 55 to 65 cents. Looks like bullish trading on the VIX and possibly a bet that the index will rally beyond 35 by the February expiration.

ETF Trading
Call volume picked up in the iShares Taiwan Fund (EWT) after news that China decided not to raise its interest rates sparked gains across Asia's equity markets Monday. EWT touched a new 52-week high Monday, but finished up just one penny to $14.99. Meanwhile, options volume jumped o 4.5X the average daily after 12,000 calls and 675 puts traded on the exchange-traded fund. The biggest trade was a block of 2,056 March 14 calls at the $1.10 asking price. 6,079 traded total, as it appears some investors were buying to open and taking positions in anticipation of strength in Taiwan's equity markets. Dec 12, Dec 13, and Jan 16 calls were busy as well.