Resistance Around 1250 11-04-2011

Cusick's Corner
The employment reports came within expectations, so there was no catalyst from that perspective. What has come into play is the over head resistance, 1250 on the S&Ps, and the fact that we have the G20 meeting in which a headline could potentially turn this market. The trillion dollar question is which way? At this stage the Bulls have the momentum (yes, in spite of today's pullback), but the continued uncertainty of Greece and Italy has many traders and investors flat or not actively in this market. If we can hold 1240 on the S&Ps into the close, the longs have held their territory and the weak tone that has been prevalent for most of the Midday session will not bother me as much going into the weekend. I have noticed a pickup in volatility in the Computer/Technology, Medical, and Utilities, where you may find a few interesting stocks that are in the midst of earnings. Hit the Screener if you want to look for some potential ideas in different sectors. See you After Hours.

Stock market averages sank on disappointing jobs numbers Friday. Data released before the opening bell showed the US economy added 80,000 jobs in October, which was 5,000 less than expected. However, September numbers were revised up to 158,000 from 103,000 and the rate of unemployed dipped to 9 percent, from 9.1 percent in September. Economists were looking for the rate of unemployed to hold at 9.1 percent. Nevertheless, stock market averages fell at the open and were also weighed down by a day of losses across Eurozone equity markets. Germany's DAX paced the decline with a 2.7 percent loss amid ongoing uncertainty about the European debt mess. Meanwhile, the Dow Jones Industrial Average is down 101 points, but more than 90 points off session lows. The NASDAQ gave up 14.7. CBOE Volatility Index (.VIX) edged up .27 to 30.77. Overall options volume is light, with 3.8 million calls and 3.9 million puts traded across the exchanges through 12:45pm ET.

Bullish Flow
The LEDs space is shining today. Strength in the group comes amid reports that China is phasing out the use of translucent bulbs, which is seen as a positive for companies that manufacture light emitting diodes, or LEDs. Cree Research (CREE), for example, hit a morning high of $31.34 and was recently up $2.03 to $29.91. Options volume in CREE is running 3.5X the daily average, with 73,000 calls and 9,600 puts traded in the name so far. November 30 and 35 calls, which expire in two weeks, are the most actives. More than 22,000 traded in both contracts. November 32.5, December 26, and Weekly (11/11) 30 calls are also busy, as today's news has triggered a flurry of buying and selling of CREE options.

Meanwhile, Veeco Instruments (VECO), which also makes High Brightness LEDs, added $2.49 to $29 per share Friday. Options volume in VECO is running 6X the daily average, with 12,000 calls and 4,500 puts traded on the stock so far. November 28 calls, which are now $1 in-the-money, are the most actives. November 29 and 30 calls, as well as November 30 puts, are seeing high volume. Like CREE, players are active in VECO options on the news from overseas - as shares rally and order flow turns bullish amid hopes the latest industry trends will drive shares higher in the weeks ahead.

Bearish Flow
Central European Distribution (CEDC), which saw bearish trading yesterday ahead of its earnings release (see Thursday's After Hours for details), is down $1.84 to $3.20 and falling to new 52-week lows today after the company reported a quarterly profit of 6 cents per share, which was 11 cents worse than expectations. The company is facing tough business conditions in key European markets and negative foreign exchange rate movements. Options on CEDC remain actively traded for a second day. 25,000 puts and 3,210 calls traded on the stock so far. December 2.5 puts, which are now 21.9 percent out-of-the-money and expire in six weeks, are the most actives. 11,300 traded, as some investors might be taking positions in these downside puts on concerns about the risk of additional losses in CEDC shares.

Three of the top trades on a relatively slow day of market action today are in the iShares Small Cap Fund (IWM). Shares are down 52 cents to $74.45 and in mid-morning trading, one investor sold 35,000 December 80 calls on the ETF at $1.17 to buy the December 73 - 68 put spread for $1.47, 35,000. They paid 30 cents for this massive three-way spread and appear to be bracing for additional losses in the small caps between now and mid-December. An institutional investor probably initiated the trade to hedge a position in small cap stocks.

Unusual Volume
Chesapeake (CHK) options volume is running 3X the (22-day) average, with 87,000 contracts traded and call activity accounting for 56 percent of the volume.

AMR options volume is 2.5X the average daily, with 57,000 contracts traded and put volume representing 97 percent of the activity.

Jefferies (JEF) options volume is running 7X the average daily, with 56,000 contracts traded and put volume representing 74 percent of the total volume.

Increasing options activity is also being seen in Hartford (HIG), Finisar (FNSR), and Starbucks (SBUX).

Implied Volatility Mover
Implied volatility in Jefferies (JEF) remains elevated amid active trading in the options on the New York-based investment firm. The stock has been volatile this week amid concerns about the company's exposure to the now bankrupt MF Global and troubled European sovereign debt. Shares are down 50 cents to $11.51 and have given up 21.8 percent on the week. Meanwhile, trading in the options in JEF remains brisk. Another 14,000 calls and 41,000 puts traded on the stock today. Implied volatility is up another 4 percent and at relatively high levels of 121.