The market could not muster the strength to hold key supports into the close — ESM10 1170. Volume also lightened up in the afternoon compared to the morning’s action. What is interesting about Wednesday’s action is that the midday pop and then late day pullback suggest a potential distribution of some long holdings. Keep an eye on the Claims data out pre-market Thursday which could continue to add some volatility if there are any surprises.

The major averages finished with losses as worries about the European debt crisis continued to dominate the financial headlines. Video footage of riots in Athens along with Moody’s warning of a potential downgrade of Portugal’s credit rating added some fuel to the fire Wednesday. The day’s domestic news included the latest ADP report that the US economy adding 32,000 private sector jobs in April; which is not great, but better than economist estimates of 32,000 and also better than the 19,000 added in March (revised up from -23,000). Again, however, economic data took a backseat to worries about the recent uptick in global market volatility stemming from the debt problems in Europe. After falling 224 points Tuesday, the Dow Jones Industrial Average lost another 60. The NASDAQ gave up 22.

Bullish Flow
Huntsman (NYSE:HUN), the Salt Lake City-based chemicals company, finished the session down 38 cents to $10.56 and options volume rose to 3X the average daily. More than 7,000 calls traded in the name. Only 345 puts. May and June 10 calls were the most actives and included an opening purchase of 2500 contracts at 68 cents each. The bullish trading in HUN is noteworthy because it comes two days before the company is scheduled to report earnings. The company also hosts an investor day on May 12. Some traders might be setting up bullish plays or hedging their short positions ahead of these two important company events.

Bullish order flow was also seen in Gap Stores (NYSE:GPS), Ford (NYSE:F), and Hovnanian (NYSE:HOV).

Bearish Flow
AIG (NYSE:AIG) was the subject of bearish spread trading Wednesday. Shares finished the day down 55 cents to $37.70 and some players were focused on the May 37 – 30 spread. For example, in afternoon action, one strategist apparently bought 1442 May 37 puts at $2.48 each and sold 2884 May 30 puts at 39 cents. This 1X2 put ratio spread traded multiple times and is a bearish play, as it makes its best profits if AIG falls to $30 at the May expiration, which is now two weeks and two days away.

Bearish flow also picked up in Meritage Homes (NYSE:MTH), Ralph Lauren (NYSE:RL), and Autodesk (NASDAQ:ADSK).

Index Trading
Trading volumes have picked up in the index market now that volatility has returned. The CBOE Volatility Index (.VIX) finished the day up another 1.07 to 24.91 and has now added 42.6 percent since April 26. The rally in the VIX comes as global equity markets experience a ripple effect, with sell-offs in one market followed by similar declines in others. The latest uptick in global equity market volatility has motivated increasing hedging activity. For example, in the index market Wednesday, 983,000 puts traded across all products or about 143 percent the recent average daily put volume.

ETF Trading
PowerShares QQQ (NASDAQ:QQQQ) saw a day of very heavy trading. The Qs are an exchange-traded fund that holds all of the stocks from the NASDAQ 100 Index. The NDX, in turn, is an index of the top 100 non-financial stocks that trade on the NASDAQ Stock Market. QQQQ finished the day down 25 cents to $48.18 per share and 1.08 million options contracts traded on the exchange-traded fund. One of the more noteworthy trades was a substantial July 47 – 42 put spread, where an investor apparently bought 25000 of the 47s at $1.59 and sold 25000 of the 42s at 53 cents. This massive spread, at a $1.06 debit, is likely a hedge and designed to offset potential losses in a stock portfolio should the recent sell-off on the US equity markets, including in NASDAQ trading, continue in the months ahead.

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