Thursday, June 24, 2010

Stocks End Mixed Following Bleak New Home Sales Report

The market finished the day below long-term moving averages, both the SPX and the INDU closed below the 200-Day MA, so there is some work if the upside has any legs. The data tomorrow will be telling, especially if the claims come in higher, above 460K, which is potentially indicating that businesses are concerned that consumer spending is continuing to drop. Keep an eye on the XLY and XRT to track consumer discretionary spending, which is estimated to make up 2/3 of the GDP. Watch the Durable Goods number as well as pre-open, again giving use a glimpse of the consumer. See you Midday.
Stocks finished mixed following bleak New Home Sales data and after the FOMC signaled no change in monetary policy at the conclusion of its meeting Wednesday. Trading was slow early and then the major averages faced some pressure mid-morning after data released 30 minutes into the session showed New Home Sales falling 33 percent to record lows of 300K in May, down from 446K in April and much worse than the 430K economists had expected. With not much other news to guide the action, the major averages fell on the numbers and market action was mixed into the FOMC’s rate announcement. As expected, Fed officials left rates alone and, in the post-meeting statement, rehashed the same concerns about the economy. The knee jerk reaction was a modest rally and then a move lower. At the end of the day, not much had changed, however. The Dow Jones Industrial Average added 4 points, the tech-heavy NASDAQ lost 5.
Bullish Flow
(T: 25.44 0.00 0.00%) was one of 16 Dow stocks finishing with gains Wednesday. Shares edged up 8 cents to $25.44 and noteworthy action was seen in the January 2012 calls. It appears a bullish longer-term play was initiated when an investor bought 5900 January 22.5 calls at $3.75 while selling 5,900 January 30 calls at 65 cents. This vertical spread, at a $3.10 net debit, offers a $4.40 pay-off (excluding commissions), if shares of AT&T rise to $30 or more by the January 2012 options expiration.
Bullish order flow was also seen in Research In Motion (RIMM: 59.64 0.00 0.00%), CBS (CBS: 14.47 0.00 0.00%), and Lennar (LEN: 14.74 0.00 0.00%).
Bearish Flow
Apollo Group 
(APOL: 46.33 0.00 0.00%), a Phoenix-based education company, fell to new 52-week lows and finished the day down 22 cents to $46.33. In options action, it looks like one investor is bracing for additional downside in shares and bought the August 45 - 40 put spread at $1.75, 2000X. The strategist bought 2,000 August 45 puts at $3.35 and sold 2,000 August 40 puts at $1.60, creating a bearish spread at a $1.75 net debit. This spread offers at $3.25 pay-off (excluding commissions), if shares fall to $40 or less by the August expiration. The spread might be a hedge ahead of the company’s June 30 earnings release.
Bearish flow also picked up in Sherwin Williams (SHW: 74.14 0.00 0.00%), Lexmark(LXK: 36.77 0.00 0.00%), and Nike (NKE: 72.52 0.00 0.00%).
Index Trading
Trading was very slow in the index market again Wednesday. 306,000 calls and 343,000 puts traded across all the cash indexes, which is slightly more than half the recent average daily levels. Many institutions are probably reluctant to pay rich premiums for portfolio protection heading into the summer doldrums, which is often a period of quiet trading. That psychology might change over the next two months and as attention begins to shift to the historically volatile months of September and October. Until then, trading might remain light. Meanwhile, volatility eased a bit Wednesday. The CBOE Volatility Index (.VIX) hit a high of 28.55 in morning trading, but finished the day down .14 to 26.91.
ETF Trading
Put volume picked up in the SPDR Homebuilders Trust 
(XHB: 15.41 0.00 0.00%)following two days of disappointing housing numbers. Data released Tuesday showed existing homes falling to an annual rate of 5.66 million in May, down from 5.79 million in April and much worse than the 6.10 million that economists had predicted. New home sales numbers released Wednesday were even worse (see Intro). Yet, despite the bad news, XHB finished the day up 18 cents to $15.41. Options action was mixed. 26,000 puts and 21,000 calls traded on the fund. September 15 puts were the most actives, with 9,260 contracts traded. August 16 and 17 calls saw interest as well. Homebuilder Lennar releases earnings Thursday morning.

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