Sellers Were In Control 11-14-2011

Cusick's Corner
Sellers were in control for most of the session, taking us to critical lows, 1242 on the S&Ps, but never mustering the strength to wind out the longs in spite of the headlines out of the EU, the ESM/EFSF. The Euro Currency, FXE, showed late day strength and the Dollar, UUP, pulled back in the later part of the afternoon session, allowing the bulls to breathe. The real issue at this stage is not can the bid hold (it has proven that) but rather what will be the potential catalyst to get through some hefty upside resistance, most notably 1280 and 1300 on the S&Ps. This is a market that could be in for a potentially grinding range for the foreseeable future, 1215-1285 on the S&Ps. Watch the PPI and Retail sales tomorrow, plus comments from two Fed Governors, Evans and Fisher, who will be presenting before or shortly after the open. See you Midday.

Stock market averages moved lower on a relatively quiet day of trading Monday. With no domestic economic data to guide the morning trading, the underlying tone on Wall Street was cautious following a round of losses across Eurozone equity markets. A 1.3 percent drop in France's CAC 40 Index helped pace the decline, and the euro lost .9 percent against the dollar, after data showed September Industrial Production across Europe falling the most since 2009. Signs of weakening economic activity add to recent worries about the debt crisis as Greece and Italy scramble to forge new governments to stave off the crisis. In the US, morning trading was sluggish and stock market averages fell to session lows through midday. From there, trading was choppy and uninspired. At the closing bell, the Dow Jones Industrial Average was down 75 points and 52 points off session lows. The tech-heavy NASDAQ gave up 21.5.

Bullish
Boyd Gaming (BYD), a Las Vegas, NV casino operator, lost 19 cents to $6.33 and options order flow was interesting, as 6,210 calls and 43 puts traded on the stock today. December 8 calls, which are now 26.4 percent out-of-the-money with 32 days of life remaining, were the most actives. 3,000 traded. Another 2,894 January 7.5 calls traded on the stock. Most of the flow traded at the offer and volume exceeds open interest in both contracts. So it appears that upside call buyers were dominating the action in Boyd Gaming options today and implied volatility was up 4 percent to 71.5. It's not clear what's driving the bullish trading in the stock, as there have been no recent headlines on the ticker and shares have been trading sideways in a narrow range since earnings were reported three weeks ago.

Bullish trading was also seen in Home Depot (HD), Staples (SPLS), and OfficeMax (OMX).

Bearish
Frontier Communications (FTR), a Stamford, CT domestic telcomm services company, lost 13 cents to $5.56 and options volume on the stock was 5X the daily average after 11,000 puts and 800 calls traded in the name today. January 5 puts, which are 10.1 percent out-of-the-money and expire in 67 days, were the most actives. 5,271 traded. Another 5,000 February 5 puts traded on the stock. 100 percent of the flow traded at the offer and volume is greater than open interest in both contracts, indicating opening buying interest. Players in the options market are buying downside puts on the stock after a grueling stretch for shareholders. FTR fell 7.6 percent on November 3 after earnings were reported and is now down 37.2 percent since May. Today's put buyers might be bracing for additional losses through yearend.

Bearish trading was also seen in Carnival Cruise (CCL), Las Vegas Sands (LVS), and Approach Resources (AREX).

Index Trading
Volume is picking up in the index market heading into the expiration. 581,000 calls and 764,000 puts traded on the S&P 500 Index (.SPX), NASDAQ 100 Index (.NDX) and other cash indexes today, according to Trade Alert data. The S&P 500 Index (.SPX) traded in a 17-point range and lost 12.07 points to 1,251.78 on the day. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 Index options, added 1.09 to 31.13. Today's most actively traded index contract was the VIX December 20 put. 42,382 traded. Some investors might be taking positions in these deep out-of-money puts on the view that VIX will begin a descent from current levels. November options on VIX are likely to see heavy trading tomorrow. Since the contract expires Wednesday, Tuesday will be the last day to trade the VIX November options before the expiration. November, equity and ETF options cease trading Friday.

ETF Action
A noteworthy trade surfaced in the SPDR Financials (XLF) late-Monday. Shares lost 26 cents to $12.97 and a December 11 - 13 put spread was sold on the ETF at 53 cents, 217,000X. In this massive spread, the strategist sold 217,000 December 13 puts on XLF at 70 cents and bought 217,000 December 11 puts for 17 cents. They might expect shares of the fund to hold above $13 through the December expiration. Or, the position might offset a position opened Friday when the same spread traded multiple times and the action included a buyer of 200,000 at 42 cents. In other words, they opened the bearish position Friday and then closed the spread at a 26 profit after the slide in XLF shares Monday.