Are Earnings Weighing In? 07-20-2010
Cusick’s Corner
The market overnight did not take the Tech results, IBM & TXN, and it looked pretty bleak premarket, September S&Ps low of 1050, but was able to retrace into the Midday. This has been equally impressive since Financials, XLF, continue to struggle but the bottom lines are continuing to grow while doing it with less. This could potentially point to a continuing slow employment market. Housing starts, weak at best, only helped lend credence to the tough employment market. Bonds, TLT/LQD, are on the rise, Tech is pulling back, QQQQ are in a negative moving average cross, 50-200 SMA cross, which all leads to market participants being leery of potentially adding more risk assets (STOCKS) to their portfolio. Keep an eye on this and I will see you After Hours.
Stocks are broadly lower Tuesday following a round of disappointing earnings and economic news. IBM is the biggest loser the Dow Jones Industrial Average after the company late Monday reported earnings that beat Street estimates, but the results were light on revenues. IBM is down 4 percent. Johnson & Johnson (JNJ), Texas Instruments (TXN), and Zions Bancorporation (ZION) also lower on earnings. Meanwhile, the day’s only economic stat of the day showed Housing Starts falling to an annual rate of 549,000 in June, down from 578,000 the month before and well below economist estimates of 575,000. At the end of the day, the news offered little fodder for the bulls. The Dow is down 63 points and the tech-heavy NASDAQ lost 14. Trading is orderly, however, and the CBOE Volatility Index slipped .57 to 25.40. Overall options volume is about typical levels. 3.2 million calls and 2.8 million puts traded through 12:30 ET.
Bullish
American Tower (AMT), the Boston, MA communications company, is seeing relative strength and bullish order flow. Shares are up $2.19 to $46.32 and options volume is 4.5X the average daily, with 5,935 calls and 1,460 puts traded. October 49 calls are the most actives. 2,328 traded and 92 percent of the volume is at the offer. Open interest is 505 contracts and so it looks like call buyers are initiating the trades and opening new positions. Similar action is being seen in the August 47.5 and October 46 calls. There’s no news on the stock to explain the relative strength in the shares, but the call buying seems to reflect anticipation for additional gains in the months ahead. AMT is due to report earnings on August 3.
Weatherford (WFT) shares are up 47 cents to $15.53 and options volume is running 4X the recent average daily, with 53,000 calls and 13,000 puts traded so far. Shares hit a morning high of $16.04 after the oil driller posted an 11-cent per share quarterly profit, which beat Street estimates by 4 cents. August 15 and 16 calls are busy for a second day, with 15420 and 13105 traded, respectively.
Bearish
MannKind (MNKD) is up 55 cents to $6.67 after the FDA set a December 29 review date for the company’s inhaled insulin drug Afrezza. Noteworthy trades are being seen in the September – January 6 put spread, which was apparently being bought at $1.45 in morning trading – a total of 2500 traded so far. In this strategy, the investor is buying January 6 puts and selling September 6 puts. They might expect the to hold above $6 through September, but then run the risk of falling substantially lower before the January expiration, which is probably related to concerns about the FDA review in late-December.
Live Nation (LYV), the Beverly Hills, CA entertainment company, is flat at $8.83 and options volume is running 5X the average daily, with help of a buyer of 13,700 January 7.5 puts at $1 even. The position was tied to shares, according to a source on the exchange floor, and therefore isn’t a straight bearish bet. Instead, it looks like a volatility play and perhaps in anticipation of a big post-earnings move in AMT. The company is expected to report early August.
Unusual Volume Movers
US Natural Gas Fund (UNG) options volume is running 2X the usual, with 154,000 contracts traded and put volume accounting for about 82 percent of the activity.
IBM options activity is running 2X the usual, with 67,000 contracts traded and call volume representing 60 percent of the volume.
Harley Davidson (HOG) options volume is running 3X the usual, with 26,000 traded and call volume representing 52 percent of the activity.
Unusual volume is also being seen in Zions Bancorporation (ZION), Pepsico (PEP), and Whirlpool (WHR).
Implied Volatility Movers
RadioShack (RSH) implied volatility is moving higher, as shares fall on a Reuters report that Blackstone (BX) and TPG have dropped out of a private equity auction for the electronics retailer. The stock is down $1.50 to $19.96 and options volume is running 6X the average daily. 26,000 calls and 29,000 puts traded so far. Implied volatility is up 7 percent to 58.
