Classic Down Day 09-28-2011

Cusick's Corner
This was a classic down day, Tech (XLK), Energy (XLE), & Industrials (XLI) were the worst performers but there was some opportunity in this pullback to pick up some Finance (XLF) exposure. The downside has the momentum at this stage and I am still looking at the metals as a potential candidate to position bearishly on bounces. Claims data comes out tomorrow pre market, could potentially see additional stress to sectors that lagged today due to greater concerns that the consumer is on the defensive. See you Midday.

Trading was slow through midday, but then sellers surfaced in the second half and sent stock market averages sharply lower Wednesday. After two days of gains, trading on Wall Street was off to a slow start after data showed orders for Durable Goods falling .1 percent in August. Economists were looking for an increase of .1 percent. Yet, with not much other news to guide the action, the Dow Jones Industrial Average was flat at mid-session. It was mostly downhill from that point forward. There didn't seem to be one specific catalyst for the late-day selling and the action seems driven by ongoing worries about the ongoing European Debt Crisis after German Chancellor Angela Merkel indicated that the second round of bailouts to Greece might be renegotiated. Plunging commodities prices add to the economic uncertainty. Crude oil lost $3.61 to $80.84 per barrel and gold gave up $37.4 to $1,613.20 an ounce. At the closing bell on Wall Street, the Dow Jones Industrial Average was down 180 points and back near the 11,000 level. The tech-heavy NASDAQ lost 55.

Bullish
Interdigital (IDCC) bucked the bearish trend today. Shares added $1.74 to $53.23 and have staged a two-day 7.5 percent gain after the company said yesterday that its review of strategic alternatives is ongoing. The stock was highlighted again today in a Forbes article titled "Interdigital: Confusion Reigns Over Potential Consortium Bids". Suffice it to say, buyout speculation is rampant. IDCC is moving higher and today's options volume in the name included 10,000 calls and 2,850 puts. Ambitious traders were active in the October 70 calls, which are 31.5 percent out-of-the-money and expiring in 23 days. 2,600 traded. October 60 and 90 calls on Interdigital saw interest as well.

Bullish trading was also seen in Teekay Corp (TK), Barrick Gold (ABX), and Integrated Device Technology (IDTI).

Bearish
First Solar (FSLR) came under pressure after a Wall Street analyst cut earnings estimates and reiterated a Sell rating on the stock. Shares lost $7.52 to $64.75. Meanwhile, options volume in the solar energy company hit 2.5X the daily average. 21,000 calls and 46,000 puts traded on the stock. The top trades of the day were part of a spread, in which the strategist apparently bought 4,600 October 60 puts at $3.80 and sold 4,600 October 50 puts at $1.43. The spread, for a $2.37 net debit, surfaced when the stock was trading at $65.72. FLSR is down 1 percent since that time and the market on the spread is $2.46 to $2.61. It will be worth $10 if shares fall to $50 or less through the October expiration, which represents a 22.8 percent drop over the next 23 days.

Bearish trading was also seen in Mattel (MAT), Interoil (IOC), and International Game Technologies (IGT).

Index Trading
Overall options volume remains relatively light despite the volatility today, with 614,000 puts and 300,000 calls traded across the S&P 500 Index (.SPX), the CBOE Volatility Index (.VIX) and the other cash indexes, which is only about 68 percent of the recent average daily volume, according to Trade Alert data. After a 12.43 point gain yesterday, the S&P 500 Index tumbled 24.32 points to 1,151.06 Wednesday. Meanwhile, VIX, which tracks the expected volatility priced into S&P 500 Index options, jumped 3.37 to 41.08. The top index options trades were in the S&P after one player apparently sold 10,000 SPX Oct 1,170 puts at $51 and bought 10,000 Oct 1,150 puts at $42. The spread, for a $9 net credit, is possibly a closing trade after the index made a decisive move towards the lower strike (1150) of the spread.

ETF Action
Powershares Commodity ETF (DBC), which tracks the price action of various commodities like wheat, oil, and aluminum, was trading down 43 cents to $26.66 at midday. It fell another 30 cents and closed at $26.36. Options volume hit 5.5X the daily average for the product. The bulk of the activity was in the January 20 puts, which are 24.1 percent out-of-the-money and expiring in 114 days. 10,790 traded against 296 in open interest. The top trade is a block of 7370 contracts at the 25-cent asking price. Looks like an opening put buyer and perhaps a bet that a weakening global economy will continue to take a toll on worldwide commodities prices in the months ahead.