This is frustrating, choppy action in the markets today and when they start acting like this you really want to keep your focus and patience on positioning. Gold traders, GLD, are the most frustrated, this market looks like it should just turn over but just has not turned south, and the bid keeps getting nibbled, especially since there is no impasse on the Debt ceiling issue. Tech, QQQ/XLK, and Consumer Discretionary, XLY, are the backbone of this market but I am leery of the Small Caps, IWM, and Financials, XLF. If the Small Caps become pressured and turn course this could be a red flag that a possible distribution could muster strength, keep an eye on the $82 level in the IWM.
Market action is mixed on earnings news today. Broadcom (BRCM) shares rallied 9.8 percent and are among the best gainers in the NASDAQ 100 after the chipmaker’s profits topped Street estimates. RadioShack (RSH), Weatherford (WFT), and Baidu.com (BIDU) are also up on earnings news today. However, 3M (MMM) is down 4.7 percent and the biggest loser in the Dow Jones Industrial Average after the company posted disappointing results. US Steel (X), Eastman Kodak (EK), and BP are also seeing post earnings weakness. On the economic front, the news was also mixed. While the latest Consumer Confidence report showed a surprise increase to 59.5 in July (from 57.6 in June and compared to 56.0 expected), New Homes Sales fell to an annual rate of 312K in June (from 315K and compared to 320K consensus). At the same time, the underlying tone of trading is cautious amid uncertainty about the implications of a potential US debt default and the ongoing stalemate in Washington over raising the debt ceiling. The Dow is down 63 points, but the tech-heavy NASDAQ added 4.2. CBOE Volatility Index (.VIX) edged up .46 to 19.81. Trading in the options market is relatively light for a second day this week, with 4.3 million calls and 3.5 million puts traded through 12:30pm ET.
US Steel (X) options volume is running 2X the (22-day) average, with 78,000 contracts traded and call activity accounting for 56 percent of the volume.
SPDR Retail Trust (XRT) options volume is 3X the average daily, with 22,000 contracts traded and put volume representing 99 percent of the activity.
Weatherford (WFT) options volume is running 3X the average daily, with 56,000 contracts traded and call volume representing 71 percent of the total volume.
Increasing options activity is also being seen in Juniper Networks (JNPR), AK Steel (AKS), and UPS.
Implied Volatility Mover
Supervalu (SVU) shares are up 68 cents to $9.20 and implied volatility is sharply lower after the grocer reported earnings that topped Street estimates. Options volume is running 4X the average daily, 23,000 puts and 4,570 calls traded in Supervalu so far. The top trade is a 20,000-contract block of SVU August 9 puts sold at 35 cents per contract. It’s possibly a closing trade after shares rallied on the earnings results. Meanwhile, implied volatility in Supervalu options is down 27 percent to 48 now that the event risk has passed.