Resistance is Former Support Level 05-24-2011

Cusick's Corner
Some readers have asked me what sparked my skepticism last week. Answer: Europe -- specifically the PIIGS. While Greece is that ugly sore that just won't go away, the revelations that Italy may be in trouble has rocked the market since Italy has had the best performing market in Europe -- yes, better than Germany. This market is not looking healthy and stiff upside resistance, 1325 on the June S&P, is the former support level. Fixed income, TLT, is on the move and the recent auctions, the 2yr, are the strongest in over 4 months. See you After Hours.

Stock market averages have given up early gains and are modestly lower, as the cautious underlying tone continues through midday. After a 131-point slide Monday, the Dow Jones Industrial Average opened steady and was in positive territory after a report showed New Home Sales improving to an annual rate of 323,000 in April; which was up from 301,000 in March and better than the 300,000 that economists had predicted. Steady trading in Europe and a rebound in crude oil seemed to help keep a floor under the equity market as well. Crude is up 70 cents to $98.40. Exxon Mobile (XOM) and Chevron (CVX) are the best gainers in the Dow Jones Industrial Average. However, the early advance didn't stick and notable weakness in JP Morgan (JPM), American Express (AXP), and GE is weighing on the Dow through midday. The Industrial Average is down 16 points. The tech-heavy NASDAQ lost 9.8. The CBOE Volatility Index (.VIX) edged down .24 to 18.03. Overall options volume is light, with 4 million calls and 3.5 million puts traded through 12:30om ET.

Bullish Flow
Office Depot (ODP) is up and calls are active after the company announced that interim CEO and long-time chairman Neil Austrian will become the chain's permanent Chief Executive Officer. Investors seemed to like the news, as shares gained 15 cents to $4.17. Meanwhile, options volume in Office Depot includes 5,770 calls and just 7 puts. Blocks of October 5 call options were apparently bought at 35 and 40 cents per contract. The Oct 5 call is now roughly 10 percent out-of-the-money and more than 3,000 contracts have traded. July 4.5 calls are the second most actives. 2,205 contracts have changed hands.

Saks (SKS) loses 13 cents to $10.79 and options volume is running 13X the average daily after a large block of August 10 puts traded in the retailer. 25,000 contracts hit on the 40-cent bid. The market was 40 to 50 cents the time and open interest in the contract is 3,611. So, this appears to be an opening put seller and a bet that shares will hold above $10 through the August expiration. If not, the strategist will be on the hook to buy 2.5 million shares at $10 each. An institutional investor willing to take ownership of SKS at $10 probably initiated the trade.

Bearish Flow
Cisco Systems (CSCO) touched a new 52-week low of $16.22 yesterday and is down 6 cents to $16.29 midday Tuesday. Shares have now lost 8.3 percent since earnings were reported two weeks ago. Cisco's woes continue. Meanwhile, options volume in the networking giant through is 50,000 calls and 67,000 puts. January 12.5 and 16 puts are seeing noteworthy action. More than 20,000 traded in both contracts, as some investors might be rolling down hedges from the 16 to the 12.5 line following Cisco's recent decline.

Cracker Barrel (CBRL) shares are taking a hit after the company reported third quarter earnings that fell short of expectations and then also lowered guidance for the fourth quarter. Shares are down $5.23 to $47.92 and options volume is 8.5X the recent average daily levels. 2,070 puts and 500 calls traded in the restaurant chain so far. June 45 puts, which are now 6.1 percent out-of-the-money, are the most actives. 1,340 traded, as some speculators might be taking positions on the view shares will continue falling through the June expiration; which is in 24 days.

Unusual Volume
Arcelor Mittal (MT) options volume is running 3X the (22-day) average, with 19,000 contracts traded and call volume accounting for about 96 percent of trades.

Gamestop (GME) options volume is 2.5X the average daily, with 16,000 contracts traded and call volume representing for 83 percent of the activity.

China Biotics (CHBT) options volume is running 2.5X the average daily, with 16,000 contracts traded and put volume accounting for 53 percent of the activity.

Increasing options activity is also being seen in ITT Industries (ITT), Pulte Group (PHM), and Hovnanian (HOV).

Implied Volatility Mover
China Biotics (CHBT) implied volatility remains elevated, as shares lose another $1.37 to $7.87 and have now tumbled 35.7 percent since Wednesday. The volatility in the shares seems to reflect general concerns about shares of US-listed Chinese companies after several recent blowups, including China MedicalExpress (CCME) and China Agritech (CAGC). CHBT is reeling and today's options volume includes 7,650 calls and 8,630 puts, which is 2.5X the average daily. Implied volatility jumped another 14 percent to 210.