Market on a Sugar High 08-23-2011

Cusick's Corner
Market bounces after DC evacuated! The market got a Sugar high, SGG, and finished on the highs (Thanks Ned for the sugar insights, and a little tongue and cheek never hurts). Individual sectors, XLY/QQQ/XLF/XLI, and Stock, AAPL/CAT/LULU, leaders were all up which could be a product of a squeeze on those who were selling and now questioning why they were selling, forced to cover when positions just do not continue to the downside. While some market watchers, tape readers and technicians would like to have seen one more challenge to the downside, say 1100 on the S&Ps, before they testing the waters, the early momentum into the Midday got buyers to bite for fear missing a potentially "stimulated" leg up. I continue to keep the risk/reward quotient on the lighter side until the market can break some critical upside resistance, 1160 on the S&Ps with volume. Watch the Orders data due out pre-open, any reduced consumption or demand by the consumer could challenge the action today. See you Midday.

Stock market averages rallied and finished near session highs Tuesday. Before the opening bell on Wall Street, Hong Kong's Hang Seng rose 2 percent and Japan's Nikkei gained 1.2 percent on better-than-expected economy data. At the same time, trading was orderly across the Eurozone and the action overseas seemed to help set a positive tone for early trading - heading into a report on New Home Sales at 9:00 central time. The data showed a decline to 298K in July, which was down from 300K in June and also below economist estimates of 310K. The worse-than-expected data didn't move the market. Instead, the Dow Jones Industrial Average was in positive territory at midday, with some traders pointing to Fed Chairman Ben Bernanke's speech to Central Bankers as a possible catalyst for today's optimism. The head of the Fed is due to speak Friday and outlined theQE2 strategy at the same meeting a year ago. For whatever reason, bulls stampeded in the final hour and the Dow closed up 322 points. The NASDAQ closed up 110.7 points and at session highs as well.

Bullish
Sprint (S) shares rallied 33 cents to $3.59 after a published report indicated that the phone company could begin selling the iPhone in October. According to the Wall Street Journal, the wireless carrier will offer both the current iPhone and the soon-to-be-released iPhone 5. Trading in Sprint options was brisk as well. 62,000 calls and 14,000 puts traded in the name today. September 3.5 calls, which are now 9 cents in-the-money and expire in 24 days, were the most actives. 15,043 traded against 8,588 in open interest. September 4, October 3.5, and October 4 calls were actively traded as well. Some players were apparently buying at-the-money and out-of-the-money Sep and Oct calls on Sprint on hopes today's news will help lift shares in the days/weeks ahead.

Bullish trading was also seen in ARM Holdings (ARMH), Vishay Intertechnology (VSH), and Las Vegas Sands (LVS).

Bearish
Goldman Sachs (GS) shares came under pressure late-Monday on reports the company's Chief Executive Lloyd Blankfein hired one of the same high profile attorney that defended Enron and Worldcom executives. The news triggered a flurry of speculation and a big drop in the share price. GS was relatively weak again today and fell to new intraday 52-week lows. However, thanks to a rally in the final hour, shares added 25 cents to $106.86 on the session. Meanwhile, 61,000 calls and 87,000 puts traded on the investment bank today. Among the top trades included a spread, in which the investor bought 1,000 Weekly 105 puts on GS at $2.99 and sold 1,000 Weekly 95 puts at 99 cents. In other words, they paid $2 for the Weekly 105 - 95 put spread. Excluding commissions, the position has a downside breakeven at $103 at expiration, which represents a 3.6 percent decline before the weekend.

Bearish flow also surfaced in Gap Stores (GPS), Temple Inland (TIN), and Lincare Holdings (LNCR).

Index Trading
CBOE Volatility Index (.VIX) lost 6.17 to 36.27 after the S&P 500 Index (.SPX) rallied 38.53 points to 1,162.35. VIX, which tracks the expected volatility priced into S&P 500 Index options, is now 24.4 percent below the 52-week high of 48 set on August 8. Options action in the VIX pit remains brisk despite the index's recent tumble. 307,000 calls and 163,000 puts traded in the product today. The big trade of the day was an October 22.5 - 25 call spread, which was sold at $1.85, 50000X. The massive sale of premium is possibly a closing trade on the view that the recent spike in the VIX has run its course. That is, they're closing the position now rather than run the risk of having VIX fall below 22.5 through the October expiration.

ETF Action
Select Sector Technology (XLK) shares added 83 cents to $23.47 and options volume in the ETF was 2.5X the average daily, with 54,000 puts and 2,800 calls traded in XLK today. The top trades of the day were part of a spread, in which the investor apparently bought 17,000 September 21 puts at 31 cents and sold 17,000 September 20 puts at 18 cents. This Sep 20 - 21 put spread for a 13-cent net debit appears to be a bearish play, as it makes its best profits if shares fall to $20 or less through the September expiration, which represents a 14 percent decline over the next three-and-a-half weeks. XLK is a fund that holds all of the technology-related names from the S&P 500.