Option Watch

Look at the option chains for the stocks listed below as their option activity has seen some tremendous increase today. Typically you can see what others are thinking by looking at the option volume and perhaps see some institutional action as well. As an example, Sybase ($SY) saw a 1,200 contract strangle for Jan 2010 between the $30 call and the $25 put go out today.

The put/call ratio is a key indicator of sentiment towards a stock with high ratios signaling bearish sentiment. If you look at the charts for these companies and see them approaching resistance then that would make the high put/call ratio logical from a technical perspective. However, if there aren’t any levels of resistance ahead then the chances increase that the high put/call ratio might be fundamental in nature.

The implied volatility (IV) is what the market thinks is going to happen to the historical volatility in the future. For options, when the IV increases, it also increases the price of options due to some news or unseen event on the horizon. Typically, option sellers are more willing to sell options when the IV gets high.

Indecision 2009

The official first day of 2009 with full market participation shows indecision as a doji formed on ok volume. No real economic events occurred today and not much in the way of news other than president elect Obama’s economic stimulus package proposal. Perhaps lots of traders were snowed in at their cabins or a catalyst is needed, but I’d say the latter. We do have a few catalysts tomorrow so we’ll see.

Oil has been creeping higher and the ETF that tracks oil ($USO) is approaching its downward sloping 50 MA as well as some horizontal resistance. Oil was hit extremely hard in 2008 after reaching record levels in July. Light, sweet crude for February delivery rose $2.47 cents to settle at $48.81 a barrel on the NYMEX today. Keep an eye on the events in Gaza as that’s what’s being blamed for the increase. As the commodity reaches technical levels, it might give a nice setup.

The US automakers reported huge sales drops for December with Ford falling 32%, $GM 31%, and Chrysler at 53%. Not good numbers, especially when two of the three are living on life support and the third too proud to admit it needs support as well. At any rate, US vehicles weren’t the only ones that suffered as Toyota’s sales fell 36.7% and Honda saw a 34.7% drop. US Steel ($X) is closing a plant in Texas that manufactures steel for the auto industry as they see trouble in that industry.

Tomorrow we get the ISM non-manufacturing PMI, pending home sales, factory orders, and the FOMC meeting minutes. On the earnings front, there are no S&P 500 companies reporting tomorrow.

2008 Is In The Books!

2008 will no doubt be an indelible image burned in the brains of many, both in and out of the market. The Dow Jones Industrial Average lost 35% this year, the third worst ever, as the worst was a decline of 52.7% in 1931. For the Nasdaq, this year’s loss of 41.5% is the index’s worst ever, going back to its inception in 1971. The S&P’s decline of 39% is the second worst ever, following the 47% decline the index saw in 1931. It’s nice to know that you can make money even when stocks are going down. Hooray for technical trading!

This year’s losses have been broad based, with all S&P 500 sectors showing double-digit percentage losses! The hardest hit sector was (drum roll please) the financial sector, with a nearly 60% loss for the year. The biggest loser for 2008 was $AIG , which lost 97%! However, there are some individual stocks that did fairly well for 2008 with Family Dollar Stores ($FDO) showing the largest rise of 35%. Another good performer for the year was Amgen ($AMGN) which gave a decent 24% return for 2008.

Volatility has come in significantly lately and that may be bad news for the markets. Why? Because there is a lot of hope being placed on Q1 of 2009 being decent. That’s not a bad thing in itself, but with the slew of poor economic data out there it may not be as good as some hope. Another downside is that the recent lows in volatility have come during a time of light volume overall. Remember, when the volatility is low, the market is complacent and that’s when you get caught “off-guard.”

Tomorrow the markets are closed for the New Year’s holiday. Here’s to a great 2009! Trade with a technical edge and make it a profitable year.

Is There A Bull In That?

Relatively speaking we saw probably the best day for the bulls in the current holiday trading season. All of the major indices had some nice gains today and the volume wasn’t too bad (remember, relative to the past week). GMAC gets to dip into the TARP funds and that was a small catalyst along with a better than expected Chicago PMI. With tomorrow being the last trading day of 2008, it will be interesting to see where we end the year.

Some rather large option activity today in an $AAUK, a foreign owned company, that trades as an ADR on the Nasdaq exchange. Anglo American is one of the world’s largest diversified mining and natural resource groups. It also trades on multiple exchanges so the chart has gaps nearly every day. However, someone stepped up and bought over 35,000 calls for the March $12.50 strike. This doesn’t mean it was a bull; it could have just as easily been a bear selling to a poor market maker.

One final note on the state of consumer confidence (as if we didn’t already know). The Conference Board released their latest reading this morning and it came in at a record low. The street was expecting a reading of 54.8 and was handed a reading of 38. Needless to say, the fear of the unknown with regards to unemployment and next quarters’ results weighed heavily on the number.

Tomorrow we get the weekly jobless claims, crude oil inventories and natural gas inventories. There are no S&P 500 companies reporting earnings tomorrow.

Off To A Slow Start

There just isn’t much to report other than the markets were thinly traded today and we will probably get more of the same tomorrow. The markets are closed on Wednesday, for New Years, and then open again on Thursday and Friday. However, as I’ve mentioned before, there isn’t much volume expected any of those days. Proceed with caution when entering any trade.

Retailers had their worst holiday season in years and its spun some rumors in the sector as more bankruptcies are “planned” for 2009. Circuit City, Linens ‘n Things and Sharper Image are some of the names that filed this year. While it is not wise to speculate on an individual company in situations like this, you can turn to the ETF that tracks the retail sector, $RTH. You can see from the chart below that there is definite resistance around the $78 level and a recent uptrend was violated. Obviously wherever there are rumors, you get heavy speculation. Stick to the technicals in any trade, especially in this sector.

The weekly Treasury auctions held today showed that interest rate on six-month U.S. Treasury bills dropped to unseen levels at 0.25 %. That’s down from a rate of 0.285 % last week. With all the uncertainty in the equities market, you’ll see the yields or interest rates go down as investors pile into the T-bills, bonds, etc. Earlier this month, the rate on the 3-month bill hit an all-time low of 0.0005%. That means that for every $10,000 bill, the three month bill was selling for $9,985.75. Less than face value!

Tomorrow we get the HPI (housing price index), Chicago PMI, and the CB consumer confidence report. There are no S&P 500 companies reporting earnings Tomorrow.