Is The Winning Streak Over?

The winning streak is over on the DOW (closes on the upside) and large cap tech keep the NASDAQ (11 closes in a row to the upside) in the green into the After Hours. With the push to the upside starting to slow, traders are taking a hard look at the remaining earnings, guidance and economic numbers, to help gauge whether some profit taking might be warranted. Now there was little in the way of selling pressure at this point, but the market has been extended to the upside in the last few sessions, looking a little too heavy on the buy side but has not generated a clear sell signal at this point. The S&P did form a doji, indicating the potential for loss of momentum, so watching support (952) in this index could be warranted. I took a look at some sentiment indicators through the Dragon screens, specifically high Put/Call ratios where more puts were being bought vs. calls and names like Dean Foods (DF) and Comcast (CMCSK) came up. While some might feel this is contrarian, it still might give a signal that with the volatility in the market coming down, some longs might be looking for some cheap protection or there is a potential sentiment shift. Tomorrow is chalk-filled with earnings and one economic report, Crude inventories for 7/17 at 10:30 ET. Keep your eyes on that and I will see you Midday.

After Hours

Stocks opened lower, but battled back to finish mixed Wednesday. With no economic data scheduled on the day, the focus was on earnings. Disappointing results from the financial industry set the stage for early weakness after seven days of gains. Morgan Stanley (MS) and Bank of New York Mellon (BK) were among the losers. The financial sector was also weighed down by Wells Fargo (WFC), which reported better than expected earnings per share numbers for the most recent quarter, but also saw an increase in troubled loans. However, Boeing (BA) helped support the Dow Jones Industrial Average after reporting quarterly earnings of $1.41 per share, and 20 cents better than Street estimates. At the end of the day, BA had slipped into the red, however, and was one of 15 Dow stocks showing losses on the session. 15 moved higher and the industrial average finished the day down 35 points. Meanwhile, Apple Computer (AAPL) helped lift the NASDAQ. Shares gained $5.23 to $156.74 after the company posted strong earnings on surging iPhone sales. The NAZ added 10. The CBOE Volatility Index (^VIX) slipped .40 to 23.47 after a day of uneventful market action left the S&P 500 almost unchanged. Trading activity in the options market slowed a bit, with approximately 6.5 million puts and 6.85 million calls traded across the exchanges.

Bullish

Yahoo (YHOO) shares fell to a low of $16.12 after the company posted disappointing second quarter earnings, but shares reversed direction midday. The stock hit a high of $17.44 late in the day and finished up 62 cents to $17.37. Options activity surged to 3X the normal levels, with 138,000 calls and 59,000 puts traded on the session. Trading was heavy in August 17, 18, and 19 calls, as some players appeared to be buying premium in anticipation of additional upside in YHOO.

Bullish trading also surfaced in Alcatel (ALU), American Capital Agency Corp. (AGNC), and Safeway (SWY).

Bearish

American Electric Power (AEP) fell 52 cents to $29.72 and put volume picked up Wednesday. Most of the action was in the August 27.5 puts. The top trade was a block of 2,431 contracts for 30 cents on the ISE, where exchange data indicate an opening customer put buy. 8,500 contracts traded total and, with 82 percent hitting ask-side, it looks like put buyers were taking defensive positions ahead of a July 31 earnings report.

Bearish trading also surfaced in Macy’s (M), Ultra Petroleum (UPL), and Kimberly Clark (KMB).

Index Trading

The PHLX Semiconductor Index (.SOX) saw more action than usual. The index gained 7.80 to 301.77 after Apple Computer (AAPL) helped ignite a rally in the tech sector Wednesday. SOX options volume rose to 2X the usual, with 5,200 calls and 450 puts traded. Most of the activity was in the August in-the-money calls and was perhaps a position adjustment–rolling up in strikes. Meanwhile, the S&P 500 (SPX), the CBOE Volatility Index (.VIX), and the Russell 2000 Index (.RUT) were the most actively traded. Volume picked up, with approximately 639,000 puts and 317,000 calls traded across all index products.

ETF Trading

The iShares Hong Kong Fund (EWH) edged down four cents to $14.72 and options volume spiked to 26X the average daily. The volume spike is due, in large part, to one trade after an investor paid 29 cents for 15,000 September 16 calls. It looks like a very bullish bet, and one that makes profits if EWH makes a significant move beyond $16 by the September expiration. Active trading was also seen in the Spyders (SPY), the Select Sector Financials (XLF), and the Qs (QQQQ). Trading picked up, with 1.95 million puts and 1.43 million calls traded across all ETFs.

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