S&P Ends Below The Key 850 Level On Morgan Stanley Loss

The market broke 850 on the S&Ps and the financials broke down ending the day lower with Morgan Stanley (MS) -2.21, leading the way. As I mentioned in the Midday breaking that 850 mark and the weakness in the financials open the door for the shorts to take the market down into the After Hours. One could argue that the market is just over done to the upside and needs to take a breather, others that focus on the banks may be scaling back in anticipation of the Stress Test and disappointing earnings results. Either way we with earnings in full swing, and some key economic reports out for the remainder of the week, most notably Existing Home sales or Initial Claims, suggests that the market will continue to stay volatile. Watch the 850 and 861 mark as upside resistance and 837 and 831 as downside support on the S&P 500. See you Midday.

After Hours

Stocks gave up midday gains to close mostly lower Wednesday. The Dow Jones Industrial Average (^DJI), which hit morning highs around 8,050, fell into the red during the final hour of trading with BofA (BAC) pacing the decline. BAC hit a high of $9.24 midday, but suffered a late-day sell-off to close down 5.7 percent and near session lows. It isn’t clear what motivated the turnaround, but seems to be a reflection of the ongoing uncertainty and worries about problems in the financial world. The Select Sector Financials (XLF), which had moved into positive midday, fell 38 cents to $10.22. The CBOE Volatility Index (^VIX) moved up from session lows near 36 to finish up .76 to 37.90 ahead of this week’s first batch of economic data: weekly jobless claims and existing home sales Thursday morning. The Dow Jones Industrial Average lost 83 points to 7,887. The NASDAQ was helped higher by better-than-expected earnings from Yahoo (YHOO) and Gilead Sciences (GILD). The NAZ gained 2.3 points. Trading in the options market was on the light side, with approximately 8.3 million calls and 7 million puts traded across the exchanges.

Bullish

Interpublic Group of Companies (IPG), a New York-based advertising company, saw increasing options activity Wednesday. Total options volume rose to 4X the usual, with 2,193 calls and 170 puts traded. Shares finished down 15 cents to $5.26 and most of the order flow was in July 7.5 calls. 2,144 traded, compared to open interest of 1,096. In addition, with 100 percent of the volume trading ask-side of the bid-ask spread, it appears that premium buyers were taking positions in anticipation of gains in IPG shares between now and July options expiration., Bullish trading was also seen in Red Hat (RHT), Akamai (AKAM), and Healthnet (HNT).

Bearish

The Limited (LTD) rose 7 cents to $10.73 and options activity increased to 7X the normal levels Wednesday. The top trade of the day was 15,000 August 10 puts traded at the offer for $1.25 on the AMEX, which was a customer buy order, according to a contact on the exchange floor. Since existing open interest is 1,266, the position is likely to create a new sizeable bearish position in LTD. At the end of the day, 17,840 LTD August 10 puts had traded. Bearish trading also surfaced in Kohl’s (KSS), Keycorp. (KEY), and General Motors (GM).

Index Trading

Trading was relatively uneventful in the index options pits Wednesday. 386,000 puts and 310,000 calls traded across all index products. The S&P 500 (.SPX), the CBOE Volatility Index (^VIX), and the Russell 2000 (^RUT) had among the most actively traded contracts. The ISE Yen Index (^YUK) saw a bit more volume than usual. YUK tracks the Dollar/Yen currency pair (X 100) and finished the day down .78 to 97.95. Options volume rose to 5X the normal levels, with December 82.5 puts leading the order flow. Looks like buyers dominating the action, perhaps taking positions in anticipation of further dollar losses against the yen.

ETF Trading

The Direxion 3X Financial Bear Fund (FAZ), an exchange-traded fund designed to move 3X (300 percent) the inverse of the Russell 1000 Financial Services Index, saw heavy trading Wednesday. Shares hit a low of $8.58, but bounced back as the financials faltered late in the day. FAZ closed up 76 cents to $9.91. In the options market, volume rose to 2X the normal levels, with 92,000 calls and 17,000 puts traded. Some investors bought May calls at the 9, 10, 11, 12.5, 14, and 15 strikes–betting that financials might falter and FAZ will move higher over the next two and half weeks. Outside of that, the SPDR Trust (SPY), the PowerShares QQQ (QQQQ), and the Select Sector Financials (XLF) had among the most actively-traded ETF options. Approximately 2.4 million puts and 2.1 million calls traded across all exchange traded funds.

Subscribe by RSS Subscribe by Email