Gold Bugs on the Watch

Cusick’s Corner Tuesday Jan. 15th

While we will watch the earnings in the Financials, XLF, today the moves to watch were in the Transports, IYT, and the Metals, specifically Platinum. Now I mention the precious metals because Platinum has been moving to the upside, hitting price levels that we have not seen in months. Gold has been lagging this latest move and these two metals have had a history of moving in conjunction with each other. A break of resistance in Platinum, $1735, could be the catalyst Gold traders have been waiting for the last few weeks. One other potential catalyst for Gold is the move to the upside of the Miners, GDX/GDXJ; if they continue to buck the trend of earlier this month then Gold Bugs could be in for some potential upside.

Market Recap

Stock market averages opened lower following a round of mixed economic data and ahead of key earnings reports, but finished well off session lows Tuesday. Data released early showed Retail Sales up .5 percent in December, which was .3 percent better than expected. Separately, the Producer Price Index [PPI] fell .2 percent in December. No change was expected. A third report on regional manufacturing was the NY Empire State Index falling to -7.8 in January and well below expectations of 2.0. Trading was sluggish around the data and pre-earnings jitters is probably a factor affecting sentiment in the equity market ahead of key results from the banking sector over the next few days and GE reporting Friday. Of course, a lot of focus remains on Apple Computer (AAPL), which has continued its fall and dipped below the $500 level in active trading after Nomura Securities slashed its price target on the stock. AAPL shed another $15.83 to $485.92. Elsewhere, Asia’s equity markets were mixed and European stock market averages finished mostly lower. The euro extended its slide this afternoon after EU’s Junker said the currency exchange rate is getting dangerously higher. The euro is down .5 percent to 1.331 against the dollar. Crude oil dropped 69 cents to $93.45 per barrel, but gold is up $9.5 to $1679. On Wall Street, the Dow Jones Industrial Average was modestly lower at midday, but finished up 28 points. The NASDAQ lost 6.7 points.

Today’s Bullish Trading

Symantec (SYMC) opened higher this morning on positive analyst commentary and then extended the gains in afternoon trading on news it is looking to sell its Altiris unit, a business it bought in 2007 for $800 million. The stock is up 92 cents to $20.82 and new 52-week highs on heavy volume of 13.8 million shares. Meanwhile, 23,000 calls and 2,985 puts traded on the security software-maker. February 22 calls are the most actives in SYMC today. 6,190 traded against 5,247 in open interest. January 20 calls, January 20 puts, April 23 calls, January 21 calls, and February 10 calls on Symantec are busy as well.
Bullish trading was also seen in Kinross Gold (KGC), Spectra Energy (SE), and Morgan Stanley (MS).


Today’s Bearish Trading

Yelp shares dropped this afternoon after Facebook (FB) unveiled a new social search tool that could, among other things, find restaurant recommendations – which is Yelp’s bread-and-butter. The stock is down $1.43 to $20.54 in heavy trading of 3.1 million shares on the news. Meanwhile, 9,777 puts and 3,779 calls traded in Yelp today. January 20 puts, which are now 54 cents out-of-the-money and expiring at the end of the week, are the most active in the name. 4,089 now traded against 246 in open interest. Jan 21 calls and Apr 5 puts are the next most actives in YELP and implied volatility was up 6.5 percent to 74.
Bearish trading was also seen in Wellcare Health Plans (WCG), Jabil Circuits (JBL), and Health Net (HNT).

Index Recap

CBOE Volatility Index (.VIX) dropped .17 to 13.35 and is at the lower end of its recent range heading into expiration Wednesday. Unlike most other contracts, VIX options expire on Wednesdays instead of the Saturday following the third Friday of the expiration month. Trading in the options is active, with about 372,000 calls and 338,000 puts in the product so far. Today will be the last day to trade VIX January options before the settlement value is computed tomorrow morning. As of this writing, there were 2.83 million calls and 1.14 million puts of open interest in the VIX Jan options. A stunning 2.79 million contracts, or nearly all, of the call options have strike prices of 14 or greater and would expire worthless if VIX settles at these levels (below 14) at the expiration Wednesday. On the flip side, only 7,842 contracts of the January puts have strike prices of 13 or less. So, most of the put options are in-the-money heading into the expiration.

Analyzing the ETF Market

SPDR Financials (XLF) is ticking 7 cents higher to $17.13 and a few noteworthy trades surfaced on the ETF today. The largest trade was a block of 45,000 January 20 calls that expire in 2014 for 26 cents per contract when the market was 26 to 29 cents. Open interest is 95,000 and so the activity might be a closing sale. Beyond that, big trades in XLF included a buyer of 35,000 April 16 puts for 29 cents and, separately, 20,000 March 17 puts for 44 cents. Another investor bought 7,500 March 17 straddles (both puts and calls at the Mar 17 line) for 98 cents per straddle. Implied volatility in XLF options is falling below 16 and the lower end of the recent range. Some investors are possibly buying premium on the view key earnings from the sector this week could potentially send volatility higher in the days/weeks ahead. XLF is a fund that holds all of the financial names from the S&P 500.

Joe Cusick

Read more: