US Dollar Keeps Slipping And Overseas Gains Set Positive Tone For Wall Street

Cusick’s Corner
The Dollar just keeps slipping and this really should not come as a surprise following comments from the G-20 and the fact that the Treasury does not seem to mind the weak Dollar. After this most recent leg up it is hard to say which market sectors or names look appealing to pick up at this stage to potentially ride higher. Traders seem to be keeping the winners that they have and are looking for names that either are technically over extended, whether over bought, (5 higher closes in a row) CEPH/SYNA, or have indecision technical setups like dojis, (open and the close of the day same or almost the same) HES/AIG. See you Midday.

Gains in overseas markets set the tone for a positive open on Wall Street and, with no economic data or earnings of broad market significance, the major averages were able to build on early gains to close broadly higher Monday. Overseas markets were mostly stronger after G-20 finance ministers met over the weekend and pledged to continue economic stimulus programs. In a meeting in Scotland, the Group of 20 said economic stimulus measures will remain in place “until the recovery is assured.” In the US, the day’s stock and economic news were lacking. Kraft (KFT) was in focus early after making a formal bid for UK’s Cadbury, which was dismissed by Cadbury as worse than the initial offer. Kraft was the only Dow component to finish with a loss. 29 Dow stocks moved higher and the industrial average added more than 200 points. The NASDAQ gained 41.6.

Bullish
Sprint Nextel (S) saw a late day spike on heavy volume and closed the day up 58 cents to $3.43 after the company said it was taking actions to cut labor costs by at least $350 million on an annualized basis. Shares surged on the news late Monday and options activity picked up to 2X the average daily levels. 36,000 calls and 6,130 puts traded on the session. November and December $3 and $3.5 calls were the most actives.

Bullish trading also surfaced in Dell Computer (DELL), JDS Uniphase (JDSU), and MBIA (MBI).
Bearish
Hasbro (HAS) headed higher after Stifel Nicolaus analysts upgraded the stock to Buy from Hold and set a $40 price target on the toy maker. Shares finished up 84 cents to $28.75 and options activity hit 8X the average daily levels. Most of the activity hit on the put side of the options chain after 6,390 contracts traded (1,220 calls). While some investors were likely selling puts on the news, data from WhatsTrading.com indicate that 43 percent of the puts traded ask-side of the bid-ask of the spread, suggesting that put buyers were responsible for some of the activity in Hasbro Monday.

Options activity also picked up in oil Supertex (SUPX), Hospitality Property Trusty (HPT), and Validus Holding (VR).

Index Trading
The CBOE Volatility Index (.VIX) suffered its sixth consecutive loss. VIX fell everyday last week and lost 1.04 to 23.15 Monday. At least one investor seems to expect the decline to continue in the short-term. The top trades in the volatility index Monday included a November 20 - 22.5 put spread, which was bought at a 50 cent debit, 25000X. This might be a closing trade because significant open interest exists in both contracts. However, it might also be a new position and a bet that volatility will continue falling over the next 7 trading sessions. VIX November options expire next Wednesday.

ETF Trading
The iShares Emerging Markets Fund (EEM) added $1.46 to $41.11 after the Group of 20 pledged to help the global economy with additional fiscal stimulus. Shares of the emerging markets fund rallied along with global equity markets. In the options market, trading seemed somewhat defensive, however. 141,000 puts traded on the emerging markets fund, which represents about 2X the number of calls. In addition, on the ISE, where 45 percent of the options traded, sentiment data indicate that 64,000 EEM puts were bought-to-open Monday.

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