Midday Update for February 1, 2011

S&P 500 Index (.SPX) 1,306.96 +20.84
CBOE Volatility Index (.VIX) 17.65 -1.88
DJIA 12,036.56 +144.63
NASDAQ 2,752.37 +52.29

Stocks are rallying around earnings news and economic data Tuesday. Pfizer (PFE) gained 5.8 percent and is leading the Dow Jones Industrial Average higher after reporting fourth quarter profits that topped Street estimates. BP, Archer Daniels Midland (ADM), and McKesson (MCK) are also up on earnings news. Meanwhile, the day's economic data included the ISM Manufacturing Index, which showed improvement to 60.8 in January, from 58.5 in December and significantly better from what economists had expected (58.4). Stocks rallied around the data and the Dow Jones Industrial Average is up 120 points midday. The tech-heavy NASDAQ added 51 and has now recovered almost all of Friday's 62-point loss. Trading is very active, with 5.9 million calls and 4.6 puts traded through 12:30pm ET.

Bullish Flow

After a two-day 7.4 percent run higher, the US Oil Fund (USO) is flat at $38.61 midday Tuesday. A noteworthy options trade is in the January 2012s. In this "risk-reversal", the strategist sold a block of 5,000 January 35 puts at $2.85 and bought 5,000 January 45 calls at $2.15. They collected 70 cents on the combination. It has traded 12,000X total and appears to be a bullish play on oil through 2012. USO is an exchange-traded fund that tracks crude oil through futures contracts. By selling $35 puts (to buy the $45 calls), the strategist is taking a bullish position calls and also saying that they are willing to buy (have put) USO shares at $35 through the January 2012 expiration.

Homebuilder Hovnanian (HOV) shares are trading up 29 cents to $4.71 and options volume is running 20X the average daily, being driven by put selling. The focus is on the January $2.5 puts. One investor sold 12,000 at 25 cents. Another 8,000 were later sold, also at 25 cents. Volume is now 20,003 contracts, compared to 7,398 in open interest. These put sellers appear to be opening new positions and are probably looking for shares to hold above $2.5 through January 2012. If not, they could face assignment and be asked to buy shares (20000X100) at $2.50 each.

Bearish Flow

The biggest trades so far today are in the SPDR 500 Trust (SPY). The so-called Spyders are trading up $2.11 to $130.79 and their best levels since September 2008. Meanwhile, in options action, a block of 50,000 February 130 puts traded at $1.62 and a block of 50,000 February 121 puts traded at 24 cents. Both traded this morning on the CBOE and were part of a spread purchase. The investor paid $1.38 for the spread, according to a source on the CBOE, and is probably setting a short-term hedge. February options expire in two and half weeks and (excluding commissions) this spread pays off if shares fall below $128.62 through the expiration.

Riverbed Technologies (RVBD) is trading down and options volume is up after being mentioned negatively at a Stansberry Research newsletter (per Fly on the Wall). Shares are down 16 cents to $35.71 and options volume is 2.5X the average daily, with 51,000 puts and 6,050 calls traded in the name. March 34 puts are the most actives. More than 43,000 have changed hands so far.

Implied Volatility Movers

The CBOE Volatility Index (.VIX) is easing. The market's "fear gauge" closed above 20 Friday, but is down 2.05 to 17.48 midday Tuesday. The S&P 500 has rallied 21.7 points with help from better than expected stock news and a strong reading on manufacturing. GM and Ford (F) are also trading higher on monthly auto and truck sales numbers. The day's domestic news seems to have overshadowed recent concerns about civil unrest in the Arab world. VIX has now retraced two-thirds of the 3.89-point spike on Friday.

Pfizer (PFE) options volume is running 5.5X the average daily, with 443,000 contracts traded and call volume accounting for 86 percent of the volume, according to data from WhatsTrading.com.

Baidu.com (BIDU) options volume is 2X the average daily, with 155,000 contracts traded and call volume representing for 58 percent of the activity.

Genzyme (GENZ) options volume is running 2X the average daily, with 62,000 contracts traded and call volume accounting for 65 percent of the activity.

Increasing options activity is also being seen in Riverbed Tech (RVBD), UPS, and Archer Daniels Midland (ADM).

 

Major Corporate & Economic Events, Feb 2 to Feb 4

WEDNESDAY, Feb. 2

Extended-Hours Earnings: NDN, ACE, ADEP, AFFX, AGYS, AGN, AFOP, ALVR,
UHAL, AMP, ARW, AIZ, ATMI, BYI, BBVA, BMC, CELL, CACI, CAM, CDNS, CMO,
CSII, CNQR, CGX, CVG, CNW, CACC, CUTR, CYMI, EW, ENTR, EQR, EXPO, FBN,
GNW, GMCR, SOLR, HIG, HIT, HSP, IACI, INSP, ICO, ISIL, LAZ, LVLT, LZ,
MGIC, MMP, MAN, MRO, MKTX, MAT, MTSN, MEAS, MKSI, NCI, NSTC, NETL, NSR,
NEWP, NWS, NVO, NUS, ODFL, OTEX, PC, PARL, PCCC, SFLY, SPTN, SU, SPF,
TSO, TTEK, HSY, NDAQ, TMO, THQI, TWX, UNM, VLNC, V, VMC, WRB, WHR, XATA,
YUM.

Economic Data: 7 a.m. MBA Mortgage Purchase Index; 7:30 a.m. Challenger
Job Cuts; 8:15 a.m. ADP Employment Change; 10:30 a.m. Crude Inventories.

THURSDAY, Feb. 3

Extended-Hours Earnings: ABMD, AATI, ALEX, ALKS, ATK, AMB, AFG, AINV,
ABFS, ARTX, AN, AVNR, AWRE, BEAV, BEBE, BDC, BBBB, BRKS, CALX, CALD, CPT,
CAH, CBG, CME, CI, CDXS, CSTR, CNMD, CTCT, CVS, CYS, DWCH, DB, DO, RDEN,
EMKR, FISV, GSK, GR, HAIN, HAR, HLIT, HI, IN, IP, IVC, ITG, ITT, XXIA,
JDSU, K, KEM, LB, LTRX, LVS, LIFE, LPTH, LQDT, MHO, HZO, MA, MMS, MXL,
MDU, MRK, MF, MTX, MSW, MPWR, MCO, MOSY, MTSC, MFLX, LABL, MGAM, NOV,
EGOV, OCLS, ONNN, OPWV, OPXT, PTEN, PENN, PKI, PLNR, POL, POWI, PWER,
QSFT, RDWR, RAI, RSTI, RTIX, R, SIMG, SNA, STLY, HOT, SRCL, SUN, TSYS,
BX, DOW, EL, NYT, TM, TZOO, TRMB, GROW, UL, UTI, VRTX, VIA, WHG, YDNT,
ZRAN.

Economic Data: 8:30 a.m. Initial Claims; 10 a.m. Factory Orders; ISM
Services.

FRIDAY, Feb. 4

Extended-Hours Earnings: ACET, AET, ABC, AON, AIV, AVID, CLX, FO, MGI,
CHUX, BPOP, PHM, SIRO, SRI, TSN, WY, YRCW.

Economic Data: 8:30 a.m. Unemployment Data.

===================================

GLOBAL SENTIMENT

Hang Seng up 0.15%
Nikkei up 0.36%
FTSE up 1.62%

UPSIDE MOVERS

PFE beats with Q4 results.
AMD upgraded.
BIDU beats with earnings, guidance.
BP profits miss, resumes dividend.

DOWNSIDE MOVERS

OREX down as FDA requests new trial for Contrave.
VVUS following OREX lower.

MARKET DIRECTION

Stock averages hold solid gains through to today's final bell, landing
the Dow Jones Industrial Average above 12,000 for the first time since
June 19, 2008 and the S&P 500 north of 1,300 for the first time since
August of that year. Mostly upbeat earnings and more signs of
manufacturing sector improvement, as well as easing concerns surrounding
the spread of Egyptian unrest buoyed Wall Street.

Stock averages began the new month where January left off. Upbeat
earnings from Pfizer (PFE) and UPS (UPS) lifted the Street's mood. Baidu,
the Chinese internet firm also traded on Nasdaq, jumped 9% on strong
earnings, lifting the broader tech space.

Economic news also supported stock gains. Activity at the nation?s
manufacturers in January accelerated to the fastest pace since May 2004.
The Institute for Supply Management index rose to 60.8% in January from
58.5% in December. It marked the 18th straight month of expansion in
factory activity

Commerce Department reported that construction spending fell 2.5% in
December.

Oil prices, which had jumped in the past couple of days, fell 0.9% to
$91.38 a barrel. The dip reflected easing worries about supply problems
in the Middle East as Egyptian unrest continues.

Airline stocks were mixed as airlines cancelled flights at certain major
airports due to weather.

Pfizer (PFE) said Q4 sales were $17.6 billion, above the Thomson Reuters
mean for $16.96 billion. Adjusted EPS were $0.47, a penny ahead of
estimates. 2012 adjusted EPS are seen between $2.25 and $2.35. Sales are
seen between $63.0 and $65.5 billion, compared with the previous target
of between $65.2 and $67.7 billion. 2011 reported sales are seen between
$66.0 to $68.0 billion and adjusted EPS are seen between $2.16 to $2.26.

General Motors (GM) reported 178,896 total sales in January, a 23%
increase from a year ago for the company's four brands. The gain was
driven by solid retail sales which were 36 percent higher than a strong
January a year ago.

BP (BP) reported a Q4 net profit of $5.57 billion, up from year ago
levels of $4.3 billion. Replacement cost profit was $4.36 billion, about
flat with year ago levels and south of the Street view of $4.87 billion,
according to Dow Jones Newswires.

Archer Daniels Midland (ADM) reports Q2 EPS of $1.14 per share, up from
year ago levels and better than the Street view of $0.78 per share. Sales
were $20.9 billion, vs. the analyst consensus of $17.4 billion on Thomson
Reuters.

Lexmark (LXK) reported Q4 revenue of $1.11 billion, just ahead of the
Street view of $1.10 billion on Thomson Reuters. EPS was $1.29, vs.
expectations of $1.12 per share. In Q1, the company currently expects
about 1 percent revenue growth year on year and GAAP earnings per share
to be around $1.08 to $1.18, or $1.18 to $1.28 excluding $0.10 per share
for restructuring-related and acquisition-related adjustments. The Street
is at 1% revenue growth and EPS of $1.14 per share.

Corinthian Colleges (COCO) reported that its Q2 met or exceeded guidance
for revenue and earnings per share, but fell slightly below guidance for
new student enrollment. The company took a $206.0 million impairment,
facility closing and severance charge in the second quarter.

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