Dow And S&P 500 Hit New Decade Lows

We ended the day like the rest of the week Choppy and Down. Two of the three major indices hit new decade lows, Dow (^DJI) and S&P 500 (^GSPC), but the S&P did stay in the 90’s (we closed at the lowest level since ‘96), we have not hit the 80’s levels thank goodness. This was a broad based drop with the retail (RTH), mining, and Tobacco. Spend some time this weekend looking at the charts, want to see some stabilization, watch mid 720’s in S&P, for a possible short term bullish spread trade. This is still not the time to start building out long term investments. Have to run, have a good weekend and see you Midday.

After Hours

Stocks fell for a fourth time in five days. The Dow Jones Industrial Average closed down 119 points on the day Friday and lost about 300 points for the week. Citi (C) was the biggest loser in the Dow Friday. Shares fell 42.7 percent and closed at session lows after the bank agreed to a swap with the government of preferred shares for common stock, a move which gives the US government a 36 percent stake in the embattled bank. The move seemed to renew nationalization fears and BofA (BAC) lost 25.8 percent on fears it might face a similar fate. The economic news was mixed, but did little to help support stock prices in the midst of aggressive selling in the banks.

Data released before the start of trading showed fourth quarter Gross Domestic Product falling 6.2 percent. Economists had predicted economic growth shrank 5.4 percent during that period. Other data released later was a little brighter. The Chicago Purchasing Manager’s Index [PMI] a gauge of regional manufacturing activity, showed some improvement after increasing to 34.2 in February, up from 33 the month before. The University of Michigan Consumer Sentiment was also a bit better-than-expected. It increased to 56.3 in February, up from 56.2 the month before. Economist had predicted a decline to 56. Yet, although the economic stats weren’t as grim as in recent days, another wave of selling surfaced in the final hour.

The NASDAQ (^IXIC) lost 13.6 points and the S&P 500 fell 17.7 points to 735.09. Approximately 6.4 million puts and 6.8 million calls traded on the options exchanges.

Bullish

Mosaic (MOS) calls were actively traded amid relative strength in some of the agricultural names. MOS closed up $3.39 to $43.05 and 16,470 March 45 calls traded. 64,000 calls traded total, or about three times the number of puts. It appears that some investors were buying premium in anticipation of further gains in the sector. Potash (POT) and CF Industries (CF) also saw gains despite weakness in the broader market Friday. Bullish trading was also seen Barrick Gold (ABX), Terex (TEX), and DuPont (DD).

Bearish

Wells Fargo (WFC) shares had a rough day. The stock lost $2.30 to $12.10 and put volume surged. 311,000 contracts traded, compared to 73,000 calls. Some investors seemed to be bracing for further fallout with aggressive trading in March puts with strike prices ranging from 12.5 to 7.5. More than 230,000 contracts traded in those four contracts alone. Bearish trading was also seen in Cypress Semiconductor (CY), BofA, and Tekelec (TKLC).

Index Trading

The CBOE Volatility Index (^VIX) broke its losing streak and closed up 1.69 to 46.35. VIX call volume picked up. 72,000 contracts traded, compared to 14,000 puts. One noteworthy trade hit late in the day when an investor apparently bought a substantial butterfly spread in March: buying 5000 calls at the 50 strike, selling 10000 March 70 calls, and buying 5000 calls at the 90 strike. This strategist apparently expects a substantial spike in volatility, as the max payoff from the fly happens if VIX (futures) settle at 70 at March options expiration. In addition to the VIX, S&P 500 Index, the NASDAQ 100 Index, and the Russell 2000 Small Cap Index (^RUT) had among the more actively traded contracts. 515,000 puts and 430,000 calls traded across all index products.

ETF Trading

The Currency Shares Euro Trust (FXE) lost 60 cents to $126.80 when the euro slid below 1.27 against the buck Friday. In the options market, FXE volume jumped after a strategist apparently bought 3000 June 125 puts and sold 3000 June 115 puts to create a bearish spread for net debit of $3 per spread. If so, they seem to expect the losses in the euro to continue, as this spread has a max payoff if FXE falls to $115 by June options expiration, which represents a 9.4 percent move down to 1.15 in the euro. SPDR Trust (SPY), the Powershares QQQ (QQQQ), and the iShares Emerging Markets Fund (EEM) had among the more actively traded contracts. Trading was active, with approximately 2.2 million puts and 1.8 million calls traded across all exchange traded funds.

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