Rally Stuck at S&P 1300 Highs 02-02-2011

Cusick'sCorner
Well, the weather in Chicago did turn into a snownami and the market is moving like a car on Lakeshore Drive here in Chicago -- nowhere! The S&P 500 trading range over the last 5 sessions has been 1265-1306, but this latest rally has just stuck to the highs, 1300 on the S&Ps. From a technical perspective this is a potential red flag and this consolidation may be a point where the hapless bear gets some footing. The volatility during the recent move has heightened the shorts interest and has left some latecomers to the long side fretting if they will get a chance to grab some upside (yes, there are still some of those out there). If you are looking for entry to the upside, consider purchasing bull call spreads rather than outright purchase of stock and/or calls. I have voiced this in the past and the rationale is that volatility is on the move, the market has been in a volatile consolidation and lastly the geo-political climate is in flux as well. See you After Hours.

Stock market averages are little changed following a strong reading on January hiring and mixed earnings news Wednesday. The domestic economy was in focus early after ADP reported that 187,000 private sector jobs were created during the first month of 2011. Economists were looking for an increase of 145,000. Meanwhile, the earnings news included disappointing results from Genworth (GNW) and Broadcom (BRCM). However, Electronic Arts (ERTS), Time Warner (TWX), and MEMC (WFR) are seeing post-earnings strength. Still, the overall tone of trading is cautious after the Dow Jones Industrial Average reclaimed the 12,000 level yesterday. Traders are also keeping an eye on escalating civil unrest in Egypt and other parts of the Arab world. The Dow Jones Industrial Average is up a few points and the tech-heavy NASDAQ is flat. Probably due to the massive storm in Chicago and elsewhere, trading is much slower than yesterday, with 4.7 million calls and 3.5 puts traded through 12:30pm ET.

Bullish Flow
JA Solar (JASO), a Shanghai, China alternative energy company, is trading up 46 cents to $46 and options action includes 13,000 calls and 300 puts, or 2.5X the recent average daily for the name. March 8 calls are the most actives and have traded more than 3,900. The top trade is a block of 2,000 June 9 calls at 40 cents. Another block of 1,670 March 7 calls traded at 70 cents. The overall flow seems to include a mix of call buyers and sellers, but given the strength in the underlying stock, there seems to be some bullish sentiment in JASO building after a nearly 30 percent loss in the share price since mid-October. Some investors might be looking for a rebound heading into earnings, which are expected around February 10.

A noteworthy spread trades in GE Wednesday morning. Shares hit a new 52-week high early, but have drifted lower and are off 4 cents to $20.76 at midday. Meanwhile, the spread involved the sale of 20,000 March 20 calls at $1.10 and the purchase of 20,000 January 22.5 calls at $1.11. The spread, for a net debit of a penny, is probably a roll – or closing out a winning position in March 20 in-the-money-calls and opening a new bullish position in January 22.5 out-of-the-money calls.

Bearish Flow
Costco (COST) is trading down and puts are being bought ahead of monthly same store sales numbers, due Thursday morning. Shares are trading down $1.18 to $71.25 and the focus is on the March 70 puts. The top trade is a block of 19,490 contracts at $1 on the ISE, which was an opening buyer, according to data from the exchange. 25,340 contracts have traded through midday. Another 2,385 March 72.5 puts have changed hands, as some investors might be hedging their bets ahead of the report.

Genworth (GNW), the mortgage insurance company, is reeling after its earnings fell short of expectations. Shares are down $1.40 to $12.54 and options volume is running 4.5X the average daily. 24,000 calls and 20,000 puts traded. March 11 calls are the most actives. 6,430 traded and, with 100 percent trading on the bid, it looks like call sellers are possibly liquidating positions on today's news. Jun 10 puts, Jun 12 puts, and Jun 12 calls are seeing brisk trading as well.

Unusual Volume
Electronic Arts (ERTS) options volume is running 6X the average daily, with 443,000 contracts traded and call volume accounting for 78 percent of the volume, according to data from WhatsTrading.com.

Broadcom (BRCM) options volume is 4X the average daily, with 62,000 contracts traded and call volume representing for 58 percent of the activity.

Nokia (NOK) options volume is running 3X the average daily, with 57,000 contracts traded and put volume accounting for 54 percent of the activity.

Increasing options activity is also being seen in Time Warner (TWX), Target (TGT), and MEMC (WFR).

Implied Volatility Mover
Eagle Bulk Shipping (EGLE) options are active and implied volatility is higher amid increasing levels of call activity. Shares are trading up 17 cents to $4.31 and trying to rebound from a 15-percent nosedive suffered over three days, from January 20 top January 24. Meanwhile, options volume is running 8X the average daily, with 17,000 call sand only 155 puts traded on the shipping company. Meanwhile, implied volatility is up 40 percent to 45.