Earnings Mixed 01-19-2011

Cusick's Corner
Looks like the market is following that short-term trend I have been discussing in the last few Corners: challenge to the upside on good/great earnings, pulling back now at 1283 on SPX and on the way to mid month lows, then on to possibly consolidate for a period until longs can muster a resumption bid. I would not be surprised if we have some additional challenge to the downside today and going into this expiration week. The Financials have been a catalyst for the market's recent trend and their outperformance needs to continue if this major trend is going to build to the upside going forward – Goldman reported on the top end of expectations. Watch the banks and specifically BAC, the earnings in this segment have been mixed. If you have January index positions, remember that they cease trading at the close of tomorrow, so manage your risk. See you After Hours.

Stocks fell on mixed earnings news and disappointing Housing Starts numbers Wednesday. Data released before the bell showed builders breaking ground at an annual rate of 529,000 homes in December, which was down from 553,000 the month before. Economists were looking for a decline of only 3,000. Meanwhile, the day's earnings news was decidedly mixed. While IBM and Apple Computer (AAPL) are seeing post-earnings gains, the Financials are being weighed down by disappointing news from Wells Fargo (WFC) and JP Morgan (JPM). A 14.1 percent post-earnings drop in Cree Inc. (CREE) seems to be weighing on sentiment as well. Consequently, the Dow Jones Industrial Average has given up early gains and is down 20 points midday. The tech-heavy NASDAQ is getting hit for a 32-point loss. The CBOE Volatility Index (.VIX) rallied 1.03 to 16.90. Trading in the options market remains active, with 5.8 million calls and 4.9 puts traded through 12:30pm ET.

Bullish Flow
IBM is trading up and helping the Dow Jones Industrial Average. IBM reported a quarterly profit of $4.18 per share, which was dime better than Street estimates. Revenues also topped expectations and the company reaffirmed its full year outlook. IBM touched a new 52-week high and is up $4.85 to $155.50. Options volume is running at 3X the recent average daily. 54,000 calls and 33,000 puts traded so far. January 150 and 155 calls, which expire at the end of the week, are the most actives. Some investors are likely closing position, as both contracts are now in-the-money.

Bank of America (BAC) January 15 calls are the most actively traded stock options contract through midday Wednesday. Shares lost 50 cents to $14.50 and more than 66,000 contracts traded. Open interest is more than 270,000 and so some of today's action might be closing. The contract is now 50 cents out-of-the-money with less than three days of life remaining. However, others might be taking positions in these calls in anticipation of earnings, which are due out Friday morning before the expiration.

Bearish Flow
Goldman Sachs (GS) is trading down $5.23 to $169.45 and options volume is running 2X the average daily after the investment bank reported a quarterly profit of $3.69 per share, which was three cents better than analyst estimates. However, revenues totaled $8.64 billion and fell short of the $9 billion that was expected. Shares are down and January 170 and 175 calls are seeing heavy selling. Players are likely exiting bullish positions, as these calls fall out-of-the-money and are due to expire at the end of the week.

Bearish trading is being seen in the iShares Emerging Markets Fund (EEM) today. Shares have lost 39 cents to $47.47 and the top trades are part of a three-way spread. In this trade, the strategist apparently sold 15,000 February 52 calls at a nickel each and bought the February 47 – 43 put spread at 77 cents, 15000X. This investor might hold shares of the fund and is looking for a short-term hedge. By selling Feb 52 calls, they're helping to finance the bearish put spread and also stating that they are willing to sell EEM shares at $52 each through the February expiration.

Unusual Volume
Technology Select Sector ETF (XLK) options volume is running 4.5X the average daily, with 117,000 contracts traded and call volume accounting for 95 percent of the volume, according to data from WhatsTrading.com.

CREE options volume is 7X the average daily, with 115,000 contracts traded and call volume representing for 60 percent of the activity.

IBM options volume is running 3X the average daily, with 89,000 contracts traded and call volume accounting for 62 percent of the activity.

Increasing options activity is also being seen in Corning (GLW), Mosaic (MOS), and Schlumberger (SLB).

Implied Volatility Mover
MannKind (MNKD) is trading down, options are heavily traded and implied volatility is moving higher today. Shares are down 72 cents to $9.11 ahead of an expected FDA decision related to the company's Afrezza. Shares were halted today, as exchanges investigated potentially erroneous trades. Meanwhile, options action is brisk, with 47,000 calls and 20,000 puts traded on the biotech through midday. Implied volatility is up 7 percent and elevated at 285 ahead of the FDA news.