Technical Set-Up - Death Cross 08-12-2011

Cusick's Corner
This has been one volatile week. There was a negative technical set-up that has not been discussed, the 50-Day finished the day below the 200-Day Moving Average, which is a potential Death Cross. Now this signal came at the end of the week with the potential EU short ban and French/German meetings (holy 2008!), so I take this flag with a grain of salt but I am not going to ignore it. Take a rest this weekend and talk to you soon.

Stocks are broadly higher with help from in-line retail sales data and solid gains in Eurozone markets. A report released before the opening bell Friday showed Retail Sales up .5 percent in July, which matched economist estimates. Excluding autos, sales rose .5 percent and .3 percent more than expected. However, the University of Michigan Consumer Sentiment Index, which was released during market hours, was much weaker-than-anticipated. It fell to 54.9 in early-August, from 63.7 in late-July and well below estimates of 63.7. Yet, stock market averages are holding gains through midday and being helped higher by diminishing concerns about the European Debt Crisis. The Dow tumbled 520 points Wednesday after stock indexes in Germany and France fell more than 5 percent on worries about problems in the French banking sector. Today, however, Germany's DAX rallied 3.5 percent and France's CAC 40 surged 4 percent. The underlying tone on Wall Street is positive for a second day as well. After rallying 423 points Thursday, the Dow Jones Industrial Average has added another 156 points through midday. The tech-heavy NASDAQ gained 19 points. CBOE volatility Index lost another 4.28 to 34.72. Trading in the options market has slowed a bit, with about 6.2 million calls and 6million puts traded across the exchanges so far.

Bullish Flow
A substantial call spread trades in Ford Motor (F) midday Friday. The automaker's shares are up 18 cents to $11.12 and have now rallied 12.7 percent off the 52-week lows of $9.87 seen Monday. Yet, while Ford has been rolling over the past few days, shares are down 21.3 percent in the past five weeks. One player in the options market appears to be adjusting a sizeable position in the automaker after the recent slide, and bought the September 12 - 13 call spread at 21 cents, 34,400X on the ISE. Data from the exchange hints at a roll down in strikes. That is, the investor is closing out a position in the 13s and opening in the 12s. Since the $13 strike is 17 percent out-of-the-money and expires in 35 days, they might think a move beyond $13 is becoming less likely. However, they're opening a new position on the view that Ford could potentially rally back beyond $12 during that time.

Alcoa (AA) adds 2 cents to $12.27 and is one of twenty-six Dow stocks trading higher today. In recent options action, an August - September 16 call spread trades on the aluminum maker at 7 cents, 24000X. The strategist apparently bought 24,000 September 16 calls at 9 cents and sold 24,000 August 16 calls at 2 cents. The spread looks like a roll, or closing out August to open a new bullish position in out-of-the-money September calls. By doing so, the strategist is probably looking to buy an additional month for the trade to play out. $16 calls on Alcoa are 30.4 percent out-of-the-money after a three-week 22.5 percent dive in the stock price.

Bearish Flow
Options on the iShares Emerging Markets Fund (EEM) remain actively traded. 287,000 puts and 91,000 calls traded on the ETF so far. Shares are up a dime to $41.39 on a day of gains for most global equity markets. However, EEM is down 12.1 percent month-to-date and the recent uptick in volatility has sparked a lot of interest in puts on the fund. Today, for example, two of the top trades were part of a spread, in which the investor apparently bought 42,000 September 38 puts on EEM at $1.05 and sold 42,000 September 33 puts at 40 cents. The Sep 33 - 38 put spread, for a 65-cent net debit, is a bearish play. The position offers its best profits if shares fall to $33 through the September expiration, which represents a 20.3 percent decline over the next five weeks.

ARM Holdings (ARMH) has added 39 cents to $25.48 despite a broker downgrade today. BofA/Merrill analysts lowered their rating on the stock to Underperform. Yet, while the stock is up, options action seems somewhat bearish. 13,000 puts and 3,080 calls traded on the chipmaker so far. August 25 puts, which are 1.9 percent out-of-the-money and expire at the end of next week, are the most actives. 4,845 traded. August 23 and August 26 puts are busy as well.

Unusual Volume
Alcoa (AA)options volume is running 3X the (22-day) average, with 174,000contracts traded and putactivity accounting for 51 percent of the volume.

NVidia (NVDA) options volume is 3X the average daily, with 123,000 contracts traded and call volume representing 76 percent of the activity.

Allstate (ALL) options volume is running 5X the average daily, with 54,000 contracts traded and call volume representing 99 percent of the total volume.

Increasing options activity is also being seen in Intuit (INTU), SLM, and SPDR Homebuilder ETF (XHB).

Implied Volatility Mover
SPDR Financials (XLF) are holding steady and implied volatility in the options on the ETF has eased significantly in recent days. XLF is up 3 cents to $12.89 Friday and 7.1 percent off the 52-week lows seen Monday. Options on the fund, which holds all of the S&P 500 financial-related names, remain actively traded. 258,000 puts and 83,000 callsin the XLF so far. Some of the flow seems to include some unwinding or closing of bearish trades. As a result, implied volatility in XLF options is down 13 percent to 47 and well below the levels seen Monday, when vols on the fund surged 80 percent to 70.5.