US Stock Market Rally Continues In After Hours Trading

The market rallied into the close with Financials (XLF) giving that extra boost, pushing the S&Ps through the resistance of 827, settling at 832, and keeping the bulls in control. The day’s choppy trading action did make it hard to position long or short with any conviction. But the close above resistance 827 on the S&Ps, the batch of surprisingly better earnings reports Best Buy (BBY), and the late day surge in the financials left the market in a positive mood by the after hours. The Financials (XLF) and the Energies (USO) will continue to be the harbingers of the strength of any move in these current markets, keep an eye on them. Two economic numbers to watch tomorrow 8:30 ET Personal Income for Feb, 8:30 ET Personal Spending for Feb. See you After Hours.

After Hours

Stocks moved broadly higher Thursday. The major averages opened steady after earnings from Best Buy (BBY) and Conagra (CAG) surpassed analyst estimates and after the latest round of economic news held no unpleasant surprises.

A report released before the opening bell showed fourth quarter GDP falling at a 6.3 percent annualized rate in the final months of 2008. While poor, the number was not as bad as economist forecasts for a 6.6 percent decline. A separate report showed weekly jobless claims increasing by 8,000 to 652,000 in the week ended March 21. With no major disappointments in the economic or earnings news, stocks drifted higher throughout most of the morning and into midday.

A rally surfaced late following a successful auction of Treasury notes. Volatility in the equity market picked up the day before following poor results from an auction of 5-year Treasury notes. Since Thursday’s bids were better, bonds moved higher and the benchmark ten-year Treasury closed the day with gains. Stocks followed bonds in late-day action and the Dow Jones Industrial Average finished up 175 points.

The NASDAQ rose almost 4 percent. The CBOE Volatility Index (^VIX) made a run back towards 40 and finished down 1.91 to 40.34. Approximately 7.3 million calls and 6.3 million puts traded across the exchanges.

Bullish

Sprint Nextel (S) call options were actively traded Thursday. Shares finished the day up 21 cents to $3.91 and trading was busy in April 4 calls. 17,600 contracts traded, compared to open interest of 7,133. In addition, with 81 percent of the volume hitting ask-side of the bid-ask spread, it appears that some investors were buying premium on hopes shares of the telephone company will make a move above $4 by the April options expiration (22 days). Bullish trading was also seen in Novellus (NVLS), Ciena (CIEN), and Elan (ELN).

Bearish

US Steel (X) gained $1.27 to $24.74, but sentiment in the options market seemed somewhat cautious amid increasing interest in May 20 puts. More than 7000 traded and nearly all of that volume traded ask-side of the bid-ask spread. Existing open interest is 561; suggesting opening put buyers were dominating the action. April 22.5 and 25 puts also saw action. Meanwhile, it appeared that April 25 calls were being sold. Bearish trading also surfaced in American Electric Power (AEP), Tyco Electronics (TEL), and L1 Identity Solutions (ID).

Index Trading

The CBOE Volatility Index (^VIX) is down every day this week and has given up about 5.5 points since Friday. VIX hit a low of 40.17 and appears set to test the 40 “psych” level. It dipped below 40 last week and found a floor around 39. Investors will be watching the 38-40 level to see if it holds, as other recent stock market rallies have petered out when VIX reaches that range. In the options market, VIX options remain actively traded, with 53,000 calls and 22,000 puts traded Thursday. The S&P 500 (^GSPC), the Russell 2000 (^RUT), and the Dow Jones Industrial Index (^DJI) also had among the more actively traded contracts. Approximately 418,000 puts and 329,000 calls traded across all index products.

ETF Trading

Put volume picked up in the iShares Mexico Fund (EWW) Thursday. Shares finished up 46 cents to $28.43 and some investors bought June puts at the $35 strike. Almost 18,000 contracts traded, compared to just 174 contracts of open interest. The apparent buying interest comes amid escalating violence and unrest in Mexico. Secretary of State Clinton is currently visiting the country and warned in a CBS interview that the violence could soon “mushroom”. The Select Sector Financials (XLF), the SPDR Trust (SPY), and the PowerShares QQQ (QQQQ) also had among the most actively-traded ETF options. Trading volume picked up, with 2.5 million puts and 2.2 million calls traded across all exchange traded funds.

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