Bears Spotted Going to Sizzler 10-03-2011

Cusick's Corner
The market reached a tipping point and has shifted to continued distribution in the equities and commodities space. There are numerous headlines crossing the wires that have impacted this downside move and bearish psyche, but the reality is that the market has been in a bear trend since coming off the July highs. The S&Ps have broken the 1100 level, at 1087 as I write this; I am looking for the lows around the 1060/1050 level that I discussed last week -- I am seeing any bounce at this stage being met with strong selling. See you Midday.

Trading was steady early Monday on better-than-expected economic data, but another wave of selling surfaced and sent stock market averages sharply lower through midday. The latest ISM Index of manufacturing activity was released early and was up to 51.6 in September, from 50.6 the month before and better than the 50.5 that was expected. Meanwhile, Construction Spending rose 1.4 percent in August. Economists were looking for a decline of -.5 percent. Yet, although stock market averages ticked higher on the data, domestic news continues to take a backseat to events in Europe. The euro fell to 8 month lows against the buck and to decade lows on the yen amid ongoing concerns about the European Debt Crisis. European stock market averages also finished with losses and the volatility in the Eurozone once again spilled over onto US shores. At the closing bell, the Dow Jones Industrial Average was down 258 points and near session lows. The tech-heavy NASDAQ lost almost 80.

Bullish
Eastman Kodak (EK) rebounded and recovered some of the big losses suffered last week. Shares tumbled 91 cents to only 78 cents per share Friday after Bloomberg reported that the company is exploring options, including a possible bankruptcy. EK added 54 cents to $1.34 Monday, however, after the company said after the closing bell Friday that it is not considering bankruptcy. Meanwhile, the top options trades on Kodak today was a 20,000-contract block of January 2013 $2 puts at $1.39. It might be a closing trade and/or a bet that shares will recover the $2 level through January 2013. January 2012 $3 and $3.5 calls on EK were actively traded today as well.

Bullish trading was also seen in Chico's (CHS), Yahoo (YHOO), and Louisiana Pacific (LPX).

Bearish
Bank of America (BAC) saw a day of heavy trading today. Shares lost 9.6 percent to $5.53 and were the biggest percentage losers in the Dow Jones Industrial Average after the bank's web site had technical difficulties for a second day. The problems started Friday, the same day Bank of America said it was imposing a $5 monthly fee for debit card users. The stock fell below its previous $52-week low of $6 in midday trading Monday and the decline gathered additional momentum in afternoon action. At the same time, options on the bank were heavily traded. 443,000 puts and 260,000 calls traded in BofA today. October 4 puts, which are now 27.7 percent out-of-the-money and expiring in 18 days, were the most actives. October 5 puts, October 6 puts, and October 7 calls on the stock were heavily traded as well.

Bearish trading was also seen in Freescale Semiconductor (FSL), Brunswick (BC), and GE.

Index Trading
Overall options volume and volatility picked up in the index market. About 1 million puts and 640,000 calls traded across the S&P 500 Index (SPX), CBOE Volatility Index (.VIX) and other cash indexes today. The S&P 500 Index kicked off the month of October with a 32.19-point slide. Meanwhile, VIX, which tracks the expected volatility priced into SPX options, jumped 2.49 points to 45.45. The index is now 5.6 percent below the 15-month highs of 48 set on August 8. Some player seem to expect the rally to continue as one of the top options trades in the VIX today was an October 50 - 55 - 60 call butterfly spread. The strategist paid 40 cents for this advanced options strategy and seems to be looking for VIX to settle in the mid-50s at the October expiration, which is 15 days for options on the volatility index.

ETF Action
SPDR Consumer Discretionary ETF (XLY) puts were busy for a second day. A large purchase of December 27 - 33 put spreads was highlighted in Friday's market wrap. Shares, which hold names like Home Depot, McDonald's and Comcast, lost $1.02 to $33.84 today. Meanwhile, 69,000 puts and 15,000 calls traded on the fund today. The top trade is a 22,000-contract block of October 29 puts, which traded at 20 cents on the ISE. An investor bought-to-open a new position in these puts, according to data from the exchange. The Oct 29 put on XLY is 14.3 percent out-of-the-money and today's buyer seems to be bracing for another round of losses for the consumer discretionary in the weeks ahead. October options expire in 18 days.