Market Re-Run 01-20-2011

Cusick's Corner
Here's the long and short of this market action -- profit taking. While this has not violated the larger uptrend, this is a distribution that we have not seen in over a month. Right now the market looks and feels a lot like last spring, where after a nice run up, consolidation, pullback, violent consolidation and then late year resumption of trend. I am not suggesting that this will be a carbon copy of the spring action; we need to concede that the market might be entering a longer term consolidation phase, testing the discipline of the bulls, especially the late comers. Remember, today is the last day you can trade index options that have European Settlement, i.e. SPX, NDX, RUT, etc., and tomorrow all January equity options cease to trade at end of day. Manage your RISK! See you After Hours.

Stocks are broadly lower despite a round of mostly upbeat economic news Thursday. Data released before the bell showed weekly jobless claims down 37,000 to 404,000 in the period ended January 15. Economists were looking for a drop to 425,000. Separate data released later showed Existing Home Sales increasing to an annual rate of 5.28 million in December, from 4.7 million the month before and much better than the 4.8 million that economists had expected. The List of Leading Indicators increased by 1 percent in December, which was .4 percent better than expectations. Finally, the Philadelphia Manufacturing Survey showed a drop to 19.3 in January, from 20.8 in December and below economist estimates of 20.0. Yet, while the economic data was mostly above expectations, falling crude oil and gold prices are weighing on some of the commodity-related names. Bonds are also lower, while yields rose, on the strong economic reports. Networking stocks are trading mostly lower after F5 Networks (FFIV) took a 23 percent post-earnings hit. However, retailers Home Depot (HD) and Walmart (WMT) are helping the Dow Jones Industrial Average through midday. Still, cyclical names like Alcoa (AA), Caterpillar (CAT), and DuPont (DD) are the biggest losers in the Dow and the industrial average is off 40 points. The tech-heavy NASDAQ is getting hit for a 31-point loss. The CBOE Volatility Index (.VIX) rallied 1.12 to 18.43. Trading is very active heading into the options expiration, with 6.1 million calls and 5.8 puts traded through 12:15pm ET.

Bullish Flow
BofA (BAC) is seeing heavy trading, as players take positions ahead of earnings. The bank is one of two Dow components due to release results Friday morning. GE is also slated to announce earnings tomorrow. BAC is up 4 cents to $14.41 and more than 100,000 January 14 puts have changed hands. With 45 percent trading on the bid and open interest of more than 154,000, some investors are probably liquidating positions ahead of the news and before the contracts come off the board at the end of the week. January 15 calls, which were also busy Wednesday, have traded another 68,000 contracts. 68 percent of the volume is trading at the ask, as some investors appear to be buying premium ahead of the news. Jan 15 calls are 59 cents out of the money and due to expire Saturday. So, it would take a big post-earnings move Friday for call holders to make a profit from buying the contract today.

A large block of calls traded on Williams Companies (WMB). Shares are off 13 cents to $25.90 and one investor buys a block of 30,000 February 28 calls at 40 cents per contract. The massive premium purchase might be a play on natural gas, which is trading up 9 cents to 10 cents to $4.66 on bullish weekly inventory data. William's Companies is a Tulsa, OK based natural gas producer.

Bearish Flow
PowerShares QQQQ (QQQ), which is an exchange-traded fund that holds the same stocks as the NASDAQ 100, is trading down 51 cents to $56 and QQQQ February 56 puts are seeing active trading today. More than 70,000 contracts have changed hands, including a morning buyer of 38,000 contracts at $1.04 each. An institutional investor looking for a hedge might have initiated the put purchase. After touching a new 52-week high Tuesday, the Qs have suffered a two-day 2 percent slide.

Yingli Energy (YGE), a Chinese solar energy company, is trading down 11 cents to $11.24 and options volume is running 2X the average daily, driven by buyers of June 6 puts. The contract traded multiple times this morning at the 15-cent asking price. 4,600 have now changed hands. Open interest is only 20 contracts. These puts are cheap because they are more than $5 out-of-the-money. A shareholder looking for some downside insurance might have initiated the buying of these deep OTM put options.

Unusual Volume
Freeport McMoran (FCX) options volume is running 2.5X the average daily, with 104,000 contracts traded and call volume accounting for 52 percent of the volume, according to data from WhatsTrading.com.

Mosaic (MOS) options volume is 2.5X the average daily, with 89,000 contracts traded and call volume representing for 65 percent of the activity.

F5 Networks (FFIV) options volume is running 7X the average daily, with 89,000 contracts traded and put volume accounting for 53 percent of the activity.

Increasing options activity is also being seen in EBAY, Riverbed Technology (RVBD), and JC Penney (JCP).

Implied Volatility Mover
Skyworks (SWKS) options are active and implied volatility is moving higher, as trading turns cautious ahead of earnings. The chipmaker is due to release results after the closing bell. Shares are down $2.16 to $29.75 today ahead of the news. Meanwhile, 16,000 puts and 8,390 calls traded in the name so far. January 29 puts and January 35 calls are the most actives. Implied volatility is up 8.5 percent to 50.