Jan 20th End of Day Wrap Up – Update 2

Consolidation day after yesterdays down trending organized sell, we call these Z Days. It's something I learned reading about Linda Bradford Raschke.  These days typically follow trend days, the morning is characterized by a back and forth action trading the range.

Earnings from select companies are also weighing on the markets.  It's been a mixed bag so far. FFIV got punished for lowering 2011 guidance, Mother Morgan (MS) got rewarded for getting back to basics.  Google Inc. (GOOG) reported good earnings after the the bell, but the /NQ futures didn't seem to react.

Metals got the hammer closing lower in my favorites Gold (/GC) and Silver (/SI). Nymex Crude (/CL) also closed down for the day.  Materials have had quite a run, especially Silver.  A correction is needed and good economic news with strengthen the USD, and thus commodities fall.

We will see if demand for 2011 will increase or if speculation is the play of the year.  Make a note that Silver (/SI) makes for a great mean reversion trade, the 200 day is pretty far down, we were unable to hold the 50 day.

 

Here is a Russell 2000 Futures (/TF) 30 min chart going back to 1/5/2010.  You should notice we are right at support, the GREEN line. There is also some volume profile and the Guppy RIbbon, if you were curious.  It took 7 days to go up the stairs, 2 days to come down the fire escape.

 

I've attached some information on options flow and other notable stock action for the day.

 

Advancing Sectors: Utilities (+0.6%), Financials (+0.5%), Consumer Staples (+0.4%), Consumer Discretionary (+0.2%), Health Care (+0.2%) 
Declining Sectors: Telecom (-0.2%), Industrials (-0.4%), Tech (-0.7%), Energy (-0.7%), Materials (-1.5%)
 

Options Activity

Bullish Flow
 

Options activity is picking up in EMC ahead of the storage device maker's earnings release. Shares finished the day down 40 cents to $23.84 and options volume included 20,000 calls and 12,000 puts. Most of the action was in the February options and was mostly in smaller sizes. The top trade was a lot of 400 February 22 puts traded on the 23-cent bid. However, February 25 calls were the most actives. 9,200 traded and 70 percent of the volume was at the ask. Another 4,675 February 24 calls changed hands (79 percent Ask). The overall flow seemed somewhat bullish, as some investors might be buying calls and looking for the stock rally around earnings, due the morning of January 25.

Bullish trading was also seen in William's Companies (WMB), National Bank of Greece (NBG), and New York Times (NYT).

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.
 

A number of solar names saw increasing interest in deep out-of-the-money puts Thursday. Yingli Energy (YGE) was mentioned in the midday report. Meanwhile, JA Solar (JASO) added 11 cents to $7.51 and options volume included 9,780 puts and 1,420 call options. June 4 puts were the most actives. 6,030 traded, including a block of 1,250 at 20 cents per contract. It looks like a buyer initiating a new position, even as these calls are $3.50 (or 46.7 percent) out-of-the-money. A shareholder looking for some "disaster insurance" might have initiated this somewhat unusual trade.

Bearish flow also surfaced in Yingli Energy (YGE), and RenaSolar (SOL) and Riverbed Technology (RVBD).

 
Implied Volatility Movers
 
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.
 
 
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).
 
 
 
January 20th, 2010 Movers & Shakers
 
Dillard’s Inc.’s (DDS)   shares rallied 12% after the department-store operator said it would create a subsidiary to run a real-estate investment trust. Read more about Dillard’s latest move.
 
Other department stores also climbed after Credit Suisse said Dillard’s announcement could focus attention on the value of retail real estate. Sears Holdings Corp.’s (SHLD)   shares closed up 5.2%.
 
EBay Inc.’s (EBAY)   shares gained 5.8% after the online auctioneer gave an optimistic 2011 profit forecast late Wednesday. Read more about eBay’s results.
 
ITT Educational Services Inc.’s (ESI)   shares rose 11% after the for-profit educator reported fourth-quarter income that topped estimates.
 
Perrigo Co.’s (PRGO)   shares advanced 7.4% after the over-the-counter drug developer said it would acquire generic-drug company Paddock Laboratories Inc. for $540 million.
 
Southwest Bancorp Inc.’s shares (OKSB)   gained 11% after the holding company for Stillwater National Bank & Trust Co. reported fourth-quarter earnings that beat Wall Street’s expectations.
 
Wendy’s/Arby’s Group Inc.’s (WEN)   shares added 6.9% after the company said it might sell the Arby’s portion of its fast-food business.
 
F5 Networks Inc.’s (FFIV)   shares slid 21% after the Internet-traffic software company projected second-quarter revenue below Wall Street expectations. The weak forecast hit others in the network-equipment sector, with shares of Riverbed Technology Inc. (RVBD)   down 4.1% and BlueCoat Systems Inc. (BCSI)   off 5.9%. Juniper Networks Inc.’s (JNPR)   shares closed off 5.2% while Salesforce.com Inc. (CRM)   declined 6.4%. Read more about action in tech stocks.
 
MannKind Corp.’s (MNKD)   shares tumbled 32% after the biotechnology company failed to obtain regulatory approval to market its insulin inhaler. Read more about the action in MannKind.
 
Plexus Corp.’s (PLXS)  shares closed off 5.4% after the electronic-manufacturing-services firm trimmed its sales forecast.
 
Rackspace Hosting Inc.’s (RAX)   shares slid 11% after Piper Jaffray Cos. downgraded the online IT-service provider to neutral from overweight.
 
Seagate Technology PLC’s (STX)   shares lost 5.8% after the computer disk-drive maker reported quarterly profit below estimates.
 
VMware Inc.’s (VMW)   shares fell 3.8% after Collins Stewart PLC started coverage of the maker of programs that lets computers run on multiple systems with a neutral rating.
 
Westell Technologies Inc.’s (WSTL)   shares dropped 18% after the maker of telecommunications equipment reported quarterly results.
 
 
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