Will Earnings Be a Catalyst?

Cusick's Corner
This has been a fun week, we end the day at critical resistance, 1150 on the S&Ps, and a thrashing of Bonds is beginning. More cash is now on the sidelines and with the in-line data, the market has been choppy going into the earnings season. Over the weekend I am going to look at some names that will be rolling out earnings. I will dig through some Retailers and Consumers, XRT/XLY, and the Industrials, XLI. See you Midday and have a great weekend.

Stock market averages gave up gains and finished with modest losses Friday. The stage was set for morning strength on Wall Street after the Labor Department reported that the US economy added 137,000 jobs in September, which was about 55,000 greater than economists had predicted. As expected, average hourly earnings rose .2 percent and the unemployment rate held steady at 9.1 percent. Stocks moved higher on the headline number, but then fell into the red after three days of solid gains. A Fitch downgrade of Spain and Italy seemed to weigh on sentiment through midday. The decline was orderly, however, and market action then turned choppy in the half of trading. At the closing bell, the Dow Jones Industrials were down 20 points and the tech-heavy NASDAQ lost 27.5.

Bullish
Dell Computer (DELL) options were busy today. Shares of the computer maker lost 27 cents to $15.28, but thanks to strong gains Tuesday through Thursday, added 8 percent on the week. In options action, 26,000 calls and 6,700 puts traded on DELL Friday. November 18 calls, which are now 17.8 percent out-of-the-money and expiring in 42 days, were the most actives. 15,290 traded, including several blocks at 23 cents when the market was 22 to 23 cents. October 16, November 17 and January 21 calls were busy as well. The interest in upside calls on DELL might reflect expectations for strength in shares heading into Dell World 2011, which kicks off Wednesday night and lasts through Friday of next week.

Bullish trading was also seen in Ely Lilly (LLY), CREE, and RSC Holdings (RRR).

Bearish
While the Dow Jones Industrial Average rallied Tuesday through Thursday and added 190 points on the week, one of its components didn't fare so well. Bank of America (BAC) shares tumbled to new 52-week lows of $5.13 Monday and, although it recovered to $5.90 by Friday, BAC gave up 38 cents or 6 percent on the week. Meanwhile, trading in options on the bank remained defensive heading into the weekend. 239,000 puts and 163,000 calls traded on BAC today. The top trades printed in afternoon action on the AMEX when 29,000 October 5 puts traded on the 14-cent asking price while 55,000 October 4 puts traded on the 5-cent bit. The two trades might be part of a ratio spread - buying $5 puts and selling $4 puts - and looking for the stock to continue falling towards $4 through the October expiration - which is two weeks from today.

Bearish trading was also seen in Johnson Controls (JCI), Clearwire (CLWR), and Safeway (SWY).

Index Trading
Trading slowed in the index market ahead of the Columbus Day weekend. Treasury markets are closed and no economic data is scheduled for Monday in observance of holiday. Overall equity and options volume is likely to be light. Today, 425,000 calls and 761,000 puts traded on the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash indexes, which is about 77 percent the average daily volume over the past month, according to Trade Alert data. The S&P 500 Index lost 9.51 points to 1,155.46 and the top index trades were in SPX options when 10,000 December 1,155 puts traded on the $66 bid and 10,000 December 1,155 calls also traded on the $66 bid. The position looks like a massive straddle write for a $132 credit per straddle. Since the contracts are at-the-money, the position might be new one and a bet that volatility will fall - i.e. SPX will hold in a range around the 1,155 level through mid-December.

ETF Action
37,000 calls and 2,000 puts traded on the PowerShares Bullish Dollar Fund (UUP). This exchange-traded fund tracks the performance of the buck against a basket of foreign currencies, but is heavily weighted towards the EUR/USD currency pair. UUP drifted lower Friday morning, but then moved higher and added 6 cents to $22.27 after the euro slipped on a Fitch downgrade of Spain and Italy debt. January 24 calls on the ETF, which are now 7.8 percent out-of-the-money, are the most actives. 20,000 traded, including a large block of 19,600 at the 20-cent asking price. UUP has rallied 5.7 percent since August and today's apparent call buyer might have initiated the position in anticipation of additional gains for the dollar in the months ahead.