US Market Summary: Buffett’s Words Fail To Bring Chear To Markets

The Oracle spoke and the market did not like it! Financials held in there but the general market traded with a chop today. The market had another inside day with lower highs but higher lows, so the potential for a pop is still possible. The long and short is that there is still little buying interest and until then we will have no conviction. Sectors that continued to be pressured, Oil/gold/medical. Sectors with some strength, Banking, REITs, and Financials ETF (XLF).

After Hours

Stocks showed some resilience Monday, but finished the day with losses nonetheless. With no economic data scheduled and a light earnings calendar, early focus was on the troubles in the financial world and weakness in overseas markets. Japan’s Nikkei slid 1.2 percent and to new 26-year lows after Shinsei Bank announced plans to boost capital by selling preferred shares. Banks led European markets lower amid ongoing concerns about write downs at HSBC (HBC), Europe’s biggest bank, and after Lloyd’s (LYG) said it had secured an agreement that would give UK’s government a 77 percent stake in the bank. In the US, rebounds in some of the battered names–BofA (BAC), General Motors (GM), and General Electric (GE) –helped the Dow Jones Industrial Average (^DJI) stay steady, but losses in 16 of the Dow thirty was enough to send the industrial average for an 80-point loss.

Merck (MRK) was the biggest loser in the Dow, falling 7.7 percent on news it is acquiring Schering Plough (SGP) in a $41.1 billion deal. In the options market, the CBOE Volatility Index (^VIX) edged up .48 to 49.81. Options volume was on the light side, with approximately 5.4 million puts and 7.3 million calls traded on the options exchanges.

Bullish

Ebay (EBAY) calls were actively traded. Shares fell 16 cents to $10.27 and total options rose to twice the typical levels. 35,000 and 6,200 puts traded. January 2010 calls at the $15 strike saw the most activity. More than 23,000 traded and almost all of that volume traded ask-side of the bid-ask spread. It appears that buyers were dominating the action and positioning for a possible move higher in Ebay between now and yearend. Bullish trading was also seen in Lexmark (LXK), Hershey’s (HSY), and International Paper (IP).

Bearish

Milwaukee-based auto parts-maker Johnson Controls (JCI) saw bearish trading Monday. 8,700 puts traded, compared to 175 calls. January 2010 puts at the $5 strike were the most actives, with 4,800 traded and 85 percent hitting ask-side of the bid-ask spread. It appears that buyers were also active in the October 7.5s, March 12.5, and Jan-10 7.5 puts as well. Bearish trading also surfaced in Amerigroup (AGP), Marriott (MAR), and IAC Interactive (IACI).

Index Trading

Put options on the Japanese Yen Spot Price Index (.XDN) were active for a second day. The index, which tracks the yen/US dollar currency pair, finished down .54 to 101.26. Some investors appear to bracing for further losses and buying September 91 puts. Open interest increased by nearly 10,000 following a day of active trading Friday. Monday, volume in the XDN September 91 puts rose to more than 30,000 contacts. The S&P 500 Index (^GSPC), the CBOE Volatility Index (^VIX), and the Russell 2000 (^RUT) also had among the more actively traded contracts. 433,000 puts and 367,000 calls traded across all index products.

ETF Trading

Volume jumped in the SPDR Homebuilders ETF (XHB) Monday. 41,000 calls and 6,500 puts traded on the exchange-traded fund. Mach and April calls at the 9 line saw most of the volume. In the March contact, volume topped 6,900 and in the April 9s, more than 30,000 traded. The activity looks like bullish trading in anticipation of a rally in the XHB, which finished down 2 cents to $8.23. Outside of that, the Powershares QQQ (QQQQ), the SPDR Trust (SPY), and the Select Sector Financials (XLF) had among the most actively-traded securities. Approximately 2.1 million puts and 2.7 million calls traded across all exchange traded funds.

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