Correlation Between Euro & SPY Intact Today 10-27-2010

Cusick's Corner
As I have stated in past Corners, as the Euro Currency goes so does the market -- that correlation between FXE and SPY is still intact today. The Euro FXE pulled back in the last week from the $1.40 to the $1.37 and the SPY has been in lock step with this move. Both markets are holding key intraday supports, 117 on the SPY & 137 on the FXE. If there's momentum into the After Hours below these levels, the bid may wait to jump in, which would be uncharacteristic of these pullbacks and would be a potential short-term red flag. See you After Hours.

Stocks are broadly lower on mixed earnings and economic news Wednesday. Economic data was in focus early after a report showed orders for Durable Goods up 3.3 percent in September, which was better than the 1.8 increase that economists had expected. However, excluding transportation, orders fell .8 percent and below expectations for an increase of .2 percent. Separate data showed New Home Sales up to an annual rate of 307K last month, which was slightly better than economist estimates (299K). Nevertheless, stocks slumped in morning trading. A number of companies like Sprint (S), Conoco (COP), and Dr. Pepper (DPS) are lower on earnings. Meanwhile, there seems to be growing concern that the Federal Reserve's plans to add liquidity and buy bonds, isn't moving as fast as expected. Meanwhile, a strengthening dollar, along with falling crude oil and gold prices, is weighing on commodity-related names. The Dow Jones Industrial Average has lost 120 points and the NASDAQ is down 12.8 midday. The CBOE Volatility Index (.VIX) is up another 1.75 to 21.97. Trading in the options market is active and seems a bit more defensive than in recent days with 3.8 million calls and 3.2 million puts traded by 12:00 ET.

Bullish
Monsanto (MON) is up and calls are busy Wednesday. Shares added $1.21 to $60.19 amid takeover chatter. It's unsubstantiated, but the talk appears to have motivated a rally in the shares and heavy trading in the options. More than 39,000 calls traded on the chemical company through midday. November 55, 60 and 65 calls are the most actives. December 65 calls and January 55 puts are seeing interest as well.

MEMC (WFR) is seeing relative strength and increasing call volume as well. Shares are up a nickel to $12.69 and a block of 11,000 January $15 calls traded at 35 cents per contract when the market was 33 to 35 cents. Open interest in the contract is 10,488 and so this looks like an opening buyer. This investor might be looking for the stock to run higher from now through January and is also taking the position ahead of a November 1 earnings release.

Bearish
XL Capital (XL) puts are seeing increasing action. Shares of the insurance company lost 48 cents to $21.47 and 4,600 contracts traded, which is 6X the typical volume and more than 10X the day's call volume. January 16 puts are seeing brisk trading. 3,400 changed hands and, with 80 percent trading at the ask, it appears that put buyers are dominating the action. It might be a play on earnings, due November 2.

A large block of Ford Motor (F) calls was sold in morning trading. Ford shares revved higher yesterday on better-than-expected earnings and are up more than 25 percent since August. However, shares lost 22 cents to $14.14 today and one player apparently unloaded 32,520 November 15 calls at 21 cents per contract. 68,470 now traded and with 90 percent hitting on the bid, it appears that premium sellers are dominating the action in those call options, perhaps throwing in the towel on hopes for a move beyond $15 by the November expiration.

Unusual Volume Movers
Sprint Nextel (S) options volume is running 5X the usual, with 108,000 contracts traded and call volume accounting for 68 percent of the activity, according to data from website WhatsTrading.com.

Brocade (BRCD) options activity is running 2X the usual, with 55,000 contracts traded and call volume representing 68 percent of the volume.

Broadcom (BRCM) options volume is 5X the typical levels, with 54,000 contracts traded and call volume accounting for 50 percent of the activity.

Increasing volume is also being seen in Marvell Tech (MRVL), Avon (AVP), and Altera (ALTR).

Implied Volatility Movers
CBOE Volatility Index (.VIX) is on the move. VIX, which added 7.7 percent Monday and Tuesday, is up another 1.78 to 22. The rally in the VIX comes ahead of key events next week, including a Federal Reserve Open Market Committee meeting on interest rates and November elections. Monthly retail sales and payroll data could stir up some market volatility next week as well.