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Market volatility seems to have grinded to a slow halt as investor confidence in the US equity markets grinds higher.  Implied Volatility measured by the VIX volatility index edged through the 20% level late in the prior week.  Stocks were on hold for the first couple of trading sessions as investors awaited some big cap stock earnings and the announcement from the FOMC meeting on Wednesday.

Earnings results have surprised to the upside, and have allowed US equities to push through resistance levels, that will likely target much higher levels.  Better than expected earnings from Microsoft, Caterpillar,  and Apple, have created a strong demand for stocks, pushing the major averages up more than 6% for 2012.

After reporting much better than expected earnings after the bell on Tuesday, Apple surged more than 7%, and experience a huge decline in IV.  Near term implied volatility dropped from above 35% to below 20% post earnings.  The decline puts at the money implied volatility on Apple at the lowest levels in the past 52 weeks.  Historical volatility has also seen a large drop, with the range method showing a high on historical volatility of 25% and a low near 13%.

Microsoft implied volatility has also seen a large decline.  The software giant has seen large institutional buying which has pushed the stock above the $29 dollars and has tested the $30 dollar level for the first time since early 2010.  Implied volatility on the stock has moved below 20%, which is the lowest level in the past 2-years.

The VIX volatility index which tracks the at the money implied volatilities of the S&P 500 tested the 17.5% level, which is the lowest level since July of 2011.  The lows, since prior to the summer swoon when investors experienced a second panic over the European debt crisis, where 15%, which seems to be the level traders will potentially test.  With the 50-day moving average of the VIX now crossing below the 200-day moving average of the VIX, downward momentum on the implied volatility index is likely.

The Nasdaq 100 volatility index is trailing the VIX, printing a number of 19%, which is above support levels seen in July of 2011.  The OVX has also seen the 50-day moving average cross below the 200-day moving average which is a sign of continued negative momentum for implied volatility.

Investors are still continuing to use the low volatility environment to hedge long portfolio positions.  The skew index, is now at the upper end of the recent range, showing that out of the money puts are still in favor.  Investors are still willing to pay a premium to purchase out of the money puts relative to at the money options and out of the money calls.  Investors could consider using put spreads to hedge long positions.  In this circumstance, and investors could purchase an at the money put and use the skew of the out of the money put to finance closer to the money puts.

Implied volatility finally began to drift lower, but still remains above support, as investors remain careful to hedge their bets in case the January effect fades quickly.  Historical volatility has been printing above the implied volatility index mean of the S&P 500 Index during the recent decline.  On Tuesday is pushed below printing near 15%, compared to the 20.5% for implied at the money volatility.

The US markets have been slowly grinding higher and some stocks which include Microsoft have rallied nearly 8% in 2012, reflecting interest by investment managers to be in the broader market.  Microsoft as a large cap stock with low volatility has recently been a guide for overall investment activity.

Economic data points continue to remain positive.  Last week’s worse than expected retail sales data is now just a memory.  Homebuilder confidence rose to its highest level in the past 3 years.  Wednesday’s producer price index was in line with expectations, and did not seem to have an effect on market sentiment prior to the bell.  As China continues to show that it is moderately declining, equities and riskier assets have been outperforming.

Most investor attention had been focused on earnings which have been mixed.  Financial institutions have been a relative drag despite the mixed results.  Citigroup and JP Morgan released earnings and revenue which were disappointing, while Wells Fargo and Goldman Sacks beat analysts’ estimates.

The semi-conductor sector spiked on Wednesday with increasing call purchase action.  Implied volatility spiked, as investors rushed into the sector.  Earning are expected during the next two weeks, which is helping to drive investors expectations.  Implied volatility on the SMH, which is the semi-conductors holders ETF, jumped more than 3%, to 29%, up from %26.12 in the prior week.    Historical volatility jumped to 15% and 18% using a historical range method.  The put call ratio on volume on the ETF is .50, which is considered neutral.

Support on the VIX volatility index continues to remain robust above the 20% support level.  The 50-day moving average of the VIX is coming close to crossing below the 200-day moving average of the VIX which is know in the industry as the “death cross”.  It seems to be coinciding with the “golden cross” which is also approaching in the S&P 500 index.

The RSI on the VIX is moving close to 41, which is higher than the 30 level reached the last time the VIX tested the 20% level.  The MACD on the VIX is near the zero line which reflects a consolidative pattern that is showing little momentum.

Looking forward, there are a number of important earnings releases that will likely create volatility for individual stocks.  Headlines from the European Union will also likely keep implied volatility elevated despite the markets slow grind higher.

 

US markets continued to show signs of life in the second trading week of 2012.  Implied volatility continued to remain in a tight range, but refused to fall below the 20% level, which is historically elevated while markets are trending higher.  At the end last week, better than expected employment data along with this week’s solid consumer credit, have given US investors some solid themes to trade on.

Surprisingly, the European markets have had little effect on the US markets.  Investors are now looking for the headline that will spark the fuse that will ignite implied volatility and crater the US equity markets.  Some believe US investors have Euro fatigue and that is why the current negative news is not creating further headwinds for US markets.

European Issues Affect US Markets

The Euro has declined below 1.30 toward 1.26 in the first two trading weeks of the new year.  The decline of the Euro is having somewhat of a negative effect on large cap global stocks.  In their recent 4th quarter report, Oracle, which usually has not problem beating earnings estimates, reported a miss which saw share prices fall nearly 14%. Oracle blamed some of the companies loss on the decline in margins in Europe, along with the rally in the US dollar.  This could potentially hurt other global companies will also experienced the negative effect of a declining Euro.

The decline in implied volatility has made it difficult to find pure option plays.  Investors have been selling volatility even within the currency markets.  The ETF FXE (Euro Investor Trust), has declined in price along with the Euro which has been accompanied by a decline in implied volatility.  Historical volatility has lead volatility lower, which could be partially accounted for by end of the year/ beginning of the year trading.

The implied volatility average has fallen from a high in October of 18%, to the current 12% level.  10% was the 52 week low for FXE implied volatility.  This low in April of 2010 which coincided with the highs in US equity markets.  Investors should consider keeping an eye on FXE implied volatility as it grinds toward 10%.

Nasdaq

Along with the decline in the VIX, the VXN, which is the volatility index for the Nasdaq has decline to support near the 21% level.  Technology stocks have been the outperformers in 2012.  Further support on the index is seen down to the 16% level, which was the low hit in both 2011 and 2010.  It is unrealistic to believe that Euro Zone issues will not spill back over into the US, which makes volatility levels near 18% interesting on the technology index.

US Markets are beginning to disconnect from many of the European bourses as economic data continues to show that the US economy is gain traction which could spill over into corporate profits.  In Early December, if the Euro dropped more than a big figure, the S&P 500 would decline as least a percent, and the VIX would shoot higher, pushing up implied volatility premiums.  The question on many traders minds is whether the US can disconnect from Europe.

Implied volatility for the benchmark S&P 500 Index traded in a large range reflecting trepidation during times of stress throughout 2011.  The VIX volatility index, which tracks the “at the money” mean of puts and calls on the S&P 500 index hit a high of nearly 48% during early August and then again in mid October.  Fears over European debt and the ability of Greece, Portugal, Spain and Italy to pay their debts created the need for portfolio managers to purchase downside protection.  Support on the VIX has remained near 22%, which is below the longer term 200-day moving average near 26%

Unfortunately, many of the issues that plague European sovereignty has not gone away.  Europe needs a fiscal union to end overspending in many of its financially troubled countries.  Creating a Eurobond and a lender of last resort will likely be the only path that could stabilize Europe.  It is difficult to believe that the US will be able to forge on without help from Europe, but declining rates in China could be the impetus needed for further upside in US markets.

Economic data will likely be the main focus for US investors during the first week of the new year.  Manufacturing data released on the first trading day of 2012 showed a better than expected growth.  The ISM PMI increased to an index level of 53.9.  Analysts estimates averaged an increase to 53.0. The employment index, a highly scrutinized sub index, increased to 55.1 in December from 51.8.

Employment will also likely be a strong driver of US capital markets.  On Thursday, investors absorbed better than expected private sector employment data.  According to ADP and Macro Economic Advisors private sector employment grew at 325,000 in December, compared to the 175,000 expected by economists.  Historically this number has been the largest during the year, but the trajectory of growth in employment is very positive.  Investors will be focusing on Friday’s BLS employment report to fully gauge the current employment situation.

The Nasdaq 100 is an interesting benchmark for implied volatility given the range of expectations for earnings.  Recent disappointment from Oracle and RIMM have supplied historical volatility.   The 30-day implied average of at the money volatility is down week over week to 21.05%.  The 52-week range is from 43.18 and the low is 13.50.  A sustained rally will take implied volatility lower, but on a relative basis volatility is trading on the lower end of the 52-week range.  During the last two summers, EU debt woes took implied volatility higher, after making annual lows during the highs in stock prices in late April 2010.

Trading slowed heading into the Columbus Day weekend on Friday. After three days of gains, stock market averages ticked higher Friday morning after the Labor Department said the US economy added 137,000 new jobs in September, which 55,000 more than expected. The early advance was short-lived and the Dow Jones Industrial Average moved lower after Fitch downgraded both Italy and Spain.

Fitch cut Italy by one notch to A+ from AA- with a negative outlook.  However, this rating remains relatively high.  Italy showed remarkable stability in its credit standing during the early part of the crisis and stayed at an implied A+/A1/A+ for quite some time.  However, it has succumbed in recent quarters to fall to A-/A3/A- currently.  Earlier this month, Moody’s cut Italy three notches to A2 and last month, S&P cut Italy by one notch to A from A+.  All three agencies have a negative outlook, so further downgrades appear likely.

On the economic front, the employment report surprised to the upside, giving investors a glimmer of hope that monetary policy is helping the economy to get back on track.  Nonfarm payrolls rose by 103,000 in September as the private sector added 137,000 jobs, according to the Labor Department. Expectations were for an increase of 60,000 jobs.  Payrolls data for the previous two months were revised up by a total 99,000 to show 57,000 jobs were added in August and 127,000 jobs in July.

The VIX volatility index remained within the lower half of the current 48-31 range, after testing the 42% level multiple times this past week.  Implied volatility is trading above the 50-day moving average near 36.5%.  A break of this level will likely test the 31% level, and will coincides with an equity breakout.  The VXN Nasdaq volatility index also tested support near 37%, and has further support near the 31% level.

 

 

In bullish flow, Sprint (S) shares ran to morning highs of $3.39 after CNBC highlighted items from a conference call and noted that iPhone sales will result in huge cash flow for the company. However, the stock came under pressure and was halted after an AP story indicated that the company will stop selling Clearwire (CLWR) compatible products and Reuters reported that Sprint might need to access the market to raise capital. Shares hit a low of $2.65 when trading resumed.  Trading in options on the stock is brisk, with 68,000 calls and 18,000 puts traded. Meanwhile, implied volatility in the options soared 15.5 percent higher and is elevated at 112.5.

 

Stock market averages moved higher in a relatively quiet session Thursday. The underlying tone of trading remained positive for a third day after Euro zone equity markets rallied around news ECB officials agreed to offer more loans to troubled European banks. UK’s FTSE paced the advance with a 3.7 percent surge. In the US, the domestic economic calendar included one sole stat, which showed jobless claims increasing by 6,000 to 401K last week and in-line with expectations.

Overall market action now has a wait and see feel heading into key monthly jobs data Friday morning. Economists expect to see the US economy adding 83K new jobs in September and the unemployment rate holding steady at 9.1 percent. The Dow Jones Industrial Average is up 183 points ahead of the data and the tech-heavy NASDAQ added 46. CBOE Volatility Index (.VIX) edged down 1.56 to 36.25, which coincides with the 50-day moving average

 

SPDR Financials (XLF) adds 39 cents to $12.29 and the Oct 10 – 13 risk-reversal trades at 6 cents, 90411X, while the Nov 10 – 13 risk-reversal trades at 19 cents, 90411X. The four-way spread probably rolls a position opened one month ago. Shares are down about 3 percent since that time and the bullish combo is being rolled to November. Oct 13 calls on the fund have now traded 171,000 contracts and also includes a recent buyer of 10,000 at 14 cents, 12,500 for 13 cents, and 20,000 at 13 cents. Earlier, a 55,500 contract block of Dec 14 calls was bought on the financial ETF at 18 cents per contract. 450,000 calls and 295,000 puts traded on the fund Thursday, which is about double the usual. Implied volatility in XLF options is down 7 percent to 48.5 and now a far cry from the highs above 70 seen two months ago.

In bearish trade, EBAY adds 62 cents to $31.17 and is on a three-day 10.8 percent run higher. Some investors apparently see the strength as an opportunity to write April 35 calls on the stock. The top trade is a 4,453-contract block at $2.35 on ISE and an opening seller, according to data from the exchange. 18,321 now traded against 592 in open interest. A total of 30,000 calls and 5,900 puts traded on Ebay Thursday.

Ahead of the employment number, Monster Worldwide (MWW) moved higher and 4,065 Nov 8 calls traded on the online employment solutions company. The flow includes a multi-exchange sweep of 2,200 contracts at 75 cents when the market was 65 to 75 cents. 100 percent of the volume has traded at the ask and open interest is only 50 contracts. Sentiment data reflects at a firm buyer.

 

The VIX volatility index ran directly into resistance and failed to puncture the 48% recent highs after climbing toward 46% early in the trading session.  The VIX moved lower by 11%, to close the trading session near 44%.  Support on the volatility index is seen near the 50-day moving average near 35%.  This came despite investors initially selling stocks and moving out of riskier assets.

In economic news, Factory Orders declined by 0.2% from the prior month to $451.05 billion, according to the Commerce Department. Economists surveyed had predicted that orders wouldn’t change in August.  July orders rose 2.1% and June orders fell 0.4%.  In a positive sign, capital investment on equipment by U.S. businesses climbed. Non-defense capital goods orders excluding aircraft rose by 0.9%. The category of orders serves as an indicator of the confidence businesses have in the economy.  This is on the heels of a slightly better than expected ISM manufacturing number released on Monday.

Excluding transportation, factory orders fell 0.2% in August, after rising 0.6% in July. Orders in August for capital goods rose 4.0%, driven up by non-defense. Defense capital goods orders fell.  Excluding defense orders, overall factory orders in August decreased 0.2%, after surging 2.3% in July.

Investors again were focused on Europe.  The Euro group meeting came and went without providing any clarity about how to reduce the tensions in the euro zone debt market.  In fact, it is more likely that meeting injected more uncertainty by delaying the final decision for the Greece aid tranche for at least another month and hinting at a greater investor role for Greece by considering to increase the size of their haircuts.

A modest rally in stocks came as FOMC Chairman Ben Bernanke address congress.  Federal Reserve Chairman Ben Bernanke told U.S. lawmakers Tuesday that while the central bank was ready to do more to help a U.S. economy Congress and the White House should take steps to aid a persistently weak recovery.   The Chairman urged U.S. lawmakers to do more to help the economy, which would work in tandem with monetary policy to enhance growth.  The chairman stated that “Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy”.  Stocks later rallied nearly 2% into the close.

Sprint Nextel (S) implied volatility was higher amid heavy trading in the options on the phone company. Shares touched new 52-week lows of $2.25. Meanwhile, 92,000 calls and 29,000 puts traded on Sprint. The top trade is a 10,000-contract block of January 4 puts sold at $1.60. Jan 2.5 calls are the most actives, with 22,216 traded and 85 percent trading at the ask. The flow includes some Jan 2.5 – 4 call spreads, which seems to be bullish trading on the stock. Meanwhile, implied volatility in the options on the stock is rallying 31 percent to 122 and beyond the 52 week highs set Monday.

 

US equities were deep in the red on the final day of trading for the third quarter 2011. The domestic economic news held some good news after the Chicago PMI rose to 60.4 in September, up from 56.5 in August and much better than the 54.0 that was expected. At the same time, University of Michigan Consumer Sentiment index improved to 59.4, from 57.8 in mid-September and better than the 57.5 that was expected.

The stage was set for morning weakness on Wall Street after disagreement among EU officials about plans to solve the debt crisis weighed on Euro zone equity markets. Germany’s DAX paced the decline with a 2.5 percent loss. The euro gave up 1.3 percent on the buck and economic uncertainty has heightened risk perceptions heading into the historically volatile month of October. A disappointing reading on personal incomes, which fell .1 percent in August and .2 percent more than expected, also weighed on morning trading. The report also showed a .2 percent increase in spending, which was in-line with expectations.

The CBOE Volatility Index (.VIX) is up 3.7 to 42.50. VIX Options action is defensive, but volume is light. 6 million calls and 6.7 million puts traded across the US exchanges. The volatility index remains on the higher end of the current range.

 

In bearish flow, Eastman Kodak (EK), the 131-year old camera company and once a member of the Dow Jones Industrial Average is reeling Friday afternoon after Bloomberg reported the company is exploring options , including bankruptcy. EK was recently down $1.12 to just 57 cents per share. Oct 1 puts are the most actives on the stock. 4,260 traded. November 1 and October .5 puts are seeing interest as well. 16,000 puts and 8,820 calls now traded in Kodak. EK has been under pressure throughout the week and was the subject of bearish options order Flow Monday when the stock was at $1.81 per share.

The biggest implied volatility mover was Harbin Electric (HRBN).  The stock was up $1.78 to $20.98 and implied volatility in the options on the stock is falling 34 percent to 96 after the company filed a10K and started mailing proxy materials for a special meeting for shareholders to vote on the $24 per share cash LBO. 20,000 calls and 26,000 puts traded on the Chinese electrical equipment company. The top trade is a 9000-block of Oct 18 puts at $1.40 on ISE and was sold-to-open by a customer, according to ISEE data. 10,485 now traded, probably on the view that the stock will hold above $18 through the October expiration (21 days). Shares hit a low of $17.63 in volatile trading Wednesday on a negative blog post but have rebounded for a 19 percent gain since that time.

 

The geopolitical market environment is creating solid historical volatility, as most major average are in a solid trading range.  The S&P 500 Index is bouncing around in a 9% range, making it difficult for bulls and bears to make money.  Better than expected housing price data along with inline confidence data, allowed the US markets to rally on the heels of Europe’s short squeeze.

In economic news, U.S. home prices rose in July but remain down from last year, according to Standard & Poor’s Case-Shiller home-price indexes.  Home prices rose in July from June in 17 of the 20 major U.S. metropolitan markets included in the monthly survey.  Overall, the 20-city index rose 0.9% in July from June. Adjusting for seasonal factors, however, the index was flat. A smaller index of 10 major cities also rose 0.9% from June but fell 0.1% when seasonal factors were included. Year-to-year, unadjusted July prices fell 3.7% for the 10 major markets while the 20-city index was down 4.1%.

Consumer confidence fell short even of economists’ expectations. The present situation index, a gauge of consumers’ assessment of current economic conditions, fell further to 32.5 from a revised 34.3, originally put at 33.3. The Conference Board’s confidence index, which is on a 100-point scale, hit its most recent peak in February at 72.0.

Volatility fell nearly 3%, back into the lower end of the current trading range for the volatility index.  The VIX moved down to 35.5%, after reaching a recent high near 42%.  A continuation of the current equity market rally will likely lead to a test of the 20-day moving average near 35%.  A break of this level will likely test support near the 50-day moving average near 32%.  A market rally will co-inside with a breakdown of the VIX below the 30% level, which will likely be the tell that investors are less fearful of the current market environment.

 

Starbuck’s (SBUX) moved higher and the top options trade on the stock was a 3560-contract block of Oct 40 puts at $1.59 on ISE. Sentiment data indicate a customer sold-to-open. 5,035 now traded against 2,540 in open interest. SBUX notched a 52-week high of $42 intraday on Sep 20, but gave up the gains and finished the day with a loss. Shares fell an additional 6.1 percent over the next two days, to $38.6, but are on a three-day 4.7 percent run higher since that time. The stock is not far from a resistance level around $41, which coincides with highs seen in June and July. Meanwhile, implied volatility on the stock is down 9.5 percent to 40, compared to a 52-week high and low of 54 and 22.

RIM rallied as the  Blackberry-maker are seeing brisk trading Tuesday. Shares gained and are up 12.4 percent from the intraday 52-week low of $20.41 set Thursday. Options volume in RIM on the open was 63,000 calls and 19,000 puts. Meanwhile, implied volatility in options on RIMM is up 10 percent to 71 amid talk Carl Icahn has taken a stake in the company.

 

US equities consolidated after Wednesday’s and Thursday’s market drubbing.  Investors instead focused on exiting precious metals as gold sold off more than 100 dollars an ounce and silver prices plunged losing more than 25% over the last two trading days.  The only true safe haven seems to have been the US treasury market which witness a huge rally in which the 10-year note yield fell to 1.71 the lowest level seen since 1971.

The VIX volatility index remained strong, moving higher by more than 35% during the past week.  The VIX edged higher, but still remains in a large range between 48% and 31%.  Recent resistance is seen near the 42% level, while support is seen near the 20-day moving average at 35%.  The crude oil volatility index also saw a solid rally during the week.  The OVX rallied nearly 30% this week to 54.4, with support near the 40% level and resistance near 65%.

 

 

Banking stocks have lost significant value during the past week, but Friday witness a dead cat bounce.JP Morgan (JPM) was higher and attempting to stabilize after a 5-day 13.4 percent slide that sent shares to new 52-week lows of $28.53 intraday yesterday. Sentiment in the options market seems a bit less bearish. 21,000 calls and 15,000 puts traded on the bank. The top trade is a 5,000-contract block of March 38 calls at 85 cents on ISE when the market was 81 to 85 cents. Sentiment data indicate a firm opened a new position. Meanwhile, implied volatility in option on the bank has eased about 4 percent, but remains elevated at 60 (52-week range is 17.5 and 73.5).

The top equity options trade so far today was in BofA (BAC). After touching $6 even and closing at a new 52-week low of $6.06 Thursday, shares are up slightly Friday. In options action, a 40,000-contract block of Feb 3 puts was bought on the bank at 24 cents per contract. It was part of a 1X2. The strategist also sold 20,000 Feb 9 puts at $3.03.

There might be some positive news for US equities, as China’s tightening may finally be over amid worries that the U.S. and Europe are sinking back into recession. Many don’t expect any pre-emptive easing.  Unlike its quick move to stimulate its economy after the global financial crisis hit in 2008, Beijing has stood pat despite the sluggish growth in US and Europe. Premier Wen Jiabao has signaled that no easing is in the cards until it’s clear that China’s bubbly property sector has been reined in.

Volume and implied volatility are higher in iShares Silver Fund (SLV), as the metals continue to suffer heavy losses Friday. Gold is down $100 to $1,648.5 an ounce and copper lost 20 cents to $3.28. SLV is trading down $5.10 to $29.82 and today’s options volume in the ETF is about 400K calls and 330K puts. Players are jockeying for position ahead of the white metal’s next short-term move.

 

The VIX volatility index soared, as asset prices for all products with the exception of US Treasuries were hammered. Crude oil prices fell below $80 dollars a barrel, while gold and silver saw enormous slides. US equity prices were down more than 3.0%, on the back of Wednesday’s powerful selloff.

The selloff is on the heels of the FOMC downgrading their outlook of the US economy after Wednesday’s meeting. Despite adding additional liquidity in the form of the “twist”, markets were not impressed and instead focused on global growth. The downgrade by the Fed of inflation expectations hit gold and silver prices which collapsed. Silver dropped more than 10% while gold was down nearly $60 dollar per ounce.

The FOMC announce Operation Twist in which the Federal Reserve will sell 400 billion dollars worth of 3 year treasuries and purchase the same amount of 6 to 30 year US treasuries. The amount of twisting is slightly more than market participants expected at 350 billion of treasuries. 29% of the bonds purchased will be 20-30 year tenors in an effort to drive down the longer end of the treasury curve. There are several significant similarities between Operation Twist and the Fed’s QE programs and one key distinction.

In Wednesday trading yields on 10-year Treasury notes fell to 1.77%, their lowest level on record going back to 1977, which was one effect the Fed was hoping to have. The Fed’s move to keep more of its portfolio in mortgage bonds should also pull mortgage rates down as well.
In the US, Initial jobless claims dropped by 9,000 to 423,000 during the week ended Sept. 17, according to the Labor Department. Claims filed in the previous week were revised to 432,000 from an originally reported 428,000. Economists had forecast claims would decline by 8,000 the week ending September 17. The four-week moving average of new claims, rose by 500 to 421,000.
Additionally, the preliminary HSBC China Manufacturing Purchasing Managers Index fell to 49.4 in September from a final reading of 49.9 in August, according to HSBC Holdings PLC. The fall in the PMI could reignite some concerns over a sharp economic slowdown in China, due to weakening global demand for Chinese goods and various tightening measures at home. The positive news from this data is that the PBOC could potentially begin to loosen policy driving up commodities and equities.
The VIX volatility index more higher by nearly 14%, and is testing levels seen in August. The 48% level has historically been resilient, and has only been breached during the financial crises. The 31% level has been strong support during the past 2 months. A break above 48% would likely see a test of volatility toward 60%.

 

After the bell, H-P officially named Meg Whitman as CEO and president, effective immediately.

 

Equity markets were mixed as the Federal Reserve embarked upon a 2-day monetary policy meeting which the market expects to yield additional easing and liquidity. The move in stocks came despite worse than expected housing data. With an eye on Europe, and plans on how to fund Greece’s debt, investors bid up stocks head of the FOMC announcement. The IMF announcement reflecting stagnating growth did little to help US equities.

The IMF’s flagship report, the World Economic Outlook, warned that the U.S. and European economies faced recession unless governments around the world took concerted actions to revamp economic policies. For the U.S., that means less dependence on debt; for the euro zone, a resolution of the sovereign-debt crisis; for China, increased reliance on domestic demand.

US housing starts decreased 5.0% from a month earlier an annual rate of 571,000, according to the Commerce Department. A third of the dropped came from a decline in Northeastern states. Compared with the same month a year earlier, new-home construction in August was down 5.8%.

New building permits, a gauge of future construction, rose 3.2% from a month earlier to an annual rate of 620,000, the highest level since last December. Economists surveyed expected housing starts would fall by 2.3% to an annual rate of 590,000. Permits had been projected to fall 1.8% to an annual rate of 590,000. Construction of single-family homes, which made up 73% of all starts, fell by 1.4% from a month earlier.

Builders have also had problems attaining financing to start projects. On Monday, the National Association of Home Builders said its index of builders’ confidence fell to 14 in September, down from 15 a month earlier.

Mining companies were the bright spot for the equity markets with Novagold (NG) seeing a second day of high options volume. Yesterday’s flow was driven by a massive put spread, which resulted in 40K in new open interest in Dec 7 puts on the Vancouver-based gold miner. The flow was decidedly different. options volume is 16K calls and 980 puts. Gold was up $29 to $1805.70 an ounce.

After the bell, ORCL reported earnings of 48 cents a share ex items, up 14% vs. a year earlier and 2 cents above Wall Street expectations. Revenue climbed 11% to $8.37 billion, just above Wall Street forecasts. Both were the smallest gains in 6 quarters. New software license revenue climbed 17%. But hardware systems products revenue fell 5%.
The VIX volatility index consolidated and continues to trading in a range between 48% abd 39.5%. Support is seen near the lower horizontal trend line and the 50-day moving average at 30.50. A break would likely lead back to the 200-day moving average near 21.00. Resistance on the index is seen near 42%.

US markets were able to extend their winning streak to 5 trading sessions, as the retail and technology sectors continued to drive the markets higher.  All eyes continue to focus on this weekend’s ECOFIN meeting.  The focus of the meeting will be the EFSF and discussions over the  conditionality that countries like Finland and Holland are demanding for approval of the facility.  Any major announcements are unlikely but would not rule of the possibility of a resolution over the Finland’s request for collateral in the second Greek aid package.

Volume and volatility decreased during the week, as price action moved to the high end of the current trading range.  Economic activity throughout the week was on the soft side, but consumer sentiment increased along with  equity prices.

The University of Michigan’s preliminary reading on the overall index on consumer sentiment edged up to 57.8 from 55.7 on a month over month basis, which had been the lowest level since November 2008. It topped expectations of 56.5 among economists polled.  Unfortunately, forward looking confidence did paints a bleak picture.  The gauge of consumer expectations dipped to 47.0 from 47.4. It was the lowest level since May 1980. The economic outlook for the next 12 months fell to 38 from 40.

CBOE Volatility Index (.VIX) is down .99 to 30.98 and off 27 percent since Monday morning, when the “fear gauge” opened the week at 42.56. Trading is active in VIX options, but not due to the expiration. This month, VIX options expire after the standard expiration and the last day to trade September options on the volatility index is next Tuesday. Instead, the options action is focused on October calls on VIX and includes substantial ratio spreads. The Oct 25 – 32.5 (1X2) was bought at 77.5 cents, 5000X and at 82.5 cents, 31000X. The spread appears to be targeting VIX at 32.5 through the October expiration, which is in 32 days.   The VIX was able to hold support near the 50-day moving average.

 

In a blow to the technology sector RIM announced earnings after the bell on Thursday that were much worse than expected. The company said it shipped far fewer BlackBerrys and PlayBooks than analysts had anticipated. RIM was down nearly $20% as a number of analysts cut their recommendations or price targets on RIM.

Ingersoll Rand (IR) was hire and options volume is 4X the daily average, with 11,000 calls and 1,780 puts traded in the name. The focus is on Oct 36, 38 and 40 calls. The heightened activity is being related to reports that United Technologies is raising cash to make a big acquisition, which is driving increased activity in Tyco today as well. The Reuters report also mentioned Rockwell Collins (COL), Honeywell (HON), and Textron (TXT).

 

Equity markets moved higher along with European stocks, after five major central banks announced new facilities to improve dollar liquidity in the repurchase market. The ECB, FOMC, BOE, SNB and BOJ announced this new action aimed at avoiding any new liquidity crisis. The action addresses the shortage of dollar availability as U.S. lenders who are withholding funds.

Markets rallied despite mixed economic news on jobs, inflation and manufacturing. Initial jobless claims increased by 11,000 to 428,000 for the week ended Sept. 10, according to the Labor Department. Jobless Claims filed in the previous week were revised to 417,000 from an originally reported 414,000. The increase was larger than expected. Economists had forecast claims would rise by 1,000. The four-week moving average of new claims, increased by 4,000 to 419,500.

On the manufacturing front investors saw mixed numbers. Industrial production climbed 0.2%, according to the Federal Reserve, while capacity utilization moved to 77.4%. Economists surveyed by had forecast flat production and a capacity utilization rate of 77.5%. Production in July had climbed 0.9%, while capacity utilization was 77.3%.

In a regional manufacturing survey, the Philadelphia Federal Reserve said its index of current activity was -17.5 in September, an improvement from the -30.7 reading in August. Economists had forecast a reading for September of -16.

On the inflation front, CPI rose 0.4% from July as gasoline, food and shelter costs continued to increase, according to the Labor Department. In July, consumer prices were up by 0.5%. Compared to a year earlier, prices rose by 3.8% in August. Core inflation, rose by a more moderate 0.2% in August. Economists surveyed had forecast a 0.2% rise for both underlying inflation and overall prices.

In other banking news, UBS is fell to new 52-week lows and options on the bank saw brisk trading on news a rogue trader racked up roughly $2 billion in losses at the Swiss bank. Shares hit $11.4 in morning trading and are down $1.14 to $11.54. Options volume in the first hour of trading was 1,285 calls and 3,310 puts. By way of comparison, typical volume in UBS through the first hour is about 280 contracts.
Despite the rally in equities and the seemingly good feeling that has been created by the calming of the current European storm, the VIX has remained elevated. The downward movement will likely test the 31% level, which has held in two prior tests in August. Support is also seen near the 50-day moving average which is close to 30%. The upside has been capped by 48%, which has held as resistance 8 times in the last 20 year and only having that level breached during the financial crisis of 2008/2009.

 

After the bell, Research in Motion reported second-quarter adjusted earnings of 80 cents a share, on $4.17 billion in revenue. Analysts expected earnings of 90 cents a share on revenue of $4.5 billion. Guidance for the third quarter sluggish as well. Analysts were looking for a range of $1.20 to $1.40 a share, at the low end of estimates.

Equity markets edged higher but gyrated from positive to negative, as European shares lead US stocks higher. A slightly better than expected IBD/TIPP small business poll , helped stocks gain some traction, despite a weaker than expected 10-year note auction. Industrials were driven higher by Cummins after President and Chief Operating Officer Tom Linebarger told investors that 2011 would be another record earnings year for the diesel engine maker.

Investors remain pessimistic about the economy and the future, according to the latest IBD/TIPP poll released Tuesday, but confidence rebounded somewhat from Augusts’ record low. The IBD/TIPP Economic Optimism Index rose 4.1 points, or 11.5%, to 39.9. The gauge hit the lowest level in its 10-year history in August.

JetBlue calls were very active today, trading nearly 7500 contracts, or 8x the typical volume in the shares. Coming in today, JBLU call open interest of 60K is the highest since January, and the largest concentration is in Dec 7 calls, with 11572 contracts.

Options volume in Office Depot (ODP) ran 3X the daily average. 6,600 calls and 720 puts traded in the name. Shares were up 19 cents to $2.50 and Sep 2.5 calls, which are ten cents OTM and expiring in three-and-a-half days, are the most actives. 3,444 traded (89 percent Ask) against 1,405 in open interest.

Implied volatility in Seagate Technology (STX) moved higher amid heavy trading in puts on the storage device-maker. Shares are up 1.5% and 17,000 contracts traded. Typical put volume is about 3,100 and call activity has amounted to 2,410 contracts today. Dec 10, 11 and 12 puts are the most actives. Implied volatility is up 10.5 percent to 69, as players brace for the next big move in Seagate shares. The stock stumbled in August and was weighed down by an S&P downgrade to Sell on the 18th. From Jul 20, when earnings were reported, to Aug 19, STX tumbled 40.7 percent. Shares are now up 13 percent from 8/19 52-week lows and have been trading in a narrow range over the past few.

Both volume and volatility remained stable, with the overall volume on both the NYSE and Nasdaq trading near the medium term moving average. Volume soared in the early downdraft in August but has leveled out as the markets has consolidated. The VIX volatility index remained stable near the 38% level, after test 44% early on Monday. 48% seems to have been solid resistance and could be a precursor to a market rally.

Equity markets in the US were hammered at the end of the week, as investors focused their attention on European issues. With the on German representative on the ECB resigning Friday, the Euro was hammered as investors believe the hawkish tone of fighting inflation has ended. Yesterday’s comments from Trichet have given investors hope that the ECB will potentially reverse course and cut rates in the near future.

With the Swiss National Bank fixing their currency to the Euro mid week, investors piled into other safe haven instruments such as volatility and gold. The VIX volatility index soared nearly 17% at its peak on Friday, as investors purchased downside protection.

On Thursday evening President Barack Obama unveiled his proposal to pass a $447 billion package of spending initiatives and tax cuts to boost economic growth. More than half of Mr. Obama’s plan consists of payroll-tax cuts for employees and employers. The 447 billion headline number was larger than most analysts expected. The plan could add 1% to grow and push the unemployment rate down a percent to 8.0%
US markets were driven lower by financial institutions on the last trading day of the week. Bank of America Corp. are contemplating eliminating 40,000 positions during a restructuring that Chief Executive Brian Moynihan is expected to undertake. The CEO will likely focus on the bank’s expected savings, after telling investors last month that he aims to reduce quarterly expenses by as much as $1.5 billion.

Yahoo (YHOO) shares made a run to $14.56 in morning trading, but the gains were lost and shares moved lower. Options on Yahoo saw brisk trading, with 42,000 calls and 16,000 puts traded on the Internet giant. The top trades of the day are part of a ratio spread, in which the strategist sold 2,700 Sep 14 calls at 74 cents and bought 5,400 Sep 16 calls at 20. There is speculation that Yahoo has hired Director Kenny to form a Strategy and Transactions Committee.

The VIX moved more than 12% higher, bouncing off of support levels earlier in the week near 31%. Further support is seen near the 50-day moving average near 29%. The VIX has traded in a well defined range between 48% and 31% since the beginning of August. The pattern is consolidative in nature and is likely to show momentum after the markets breaks to a specific direction. Resistance on the VIX is seen near 45% and then again at 48%.

The Nasdaq Volatility index, also moved higher but like the VIX was unable to stay above the 40% level. The 20-day moving average near 35% was solid support where 45% and 46% are seen as solid resistance. Looking forward, the markets are likely to continue to show historical movements that are in line with the current implied volatility.

Trading was slow through midday, but the selling pressure surfaced in the second half of trading Thursday after investors digested the latest speech from Federal Reserve Chairman Ben Bernanke. Gold prices continued to climb and the Euro moved lower breaking through support.
The FOMC Chairman pointed to the Administration and told economic club questioners that fiscal stimulus was need to assist growth.

President Barack Obama addressed congress to push a jobs package. The White House doesn’t expect Congress to adopt every stimulus proposal he will put forward, a list likely to include new spending on transportation and infrastructure, the extension of a payroll tax cut for workers and a new payroll tax reduction for employers.

The Chairman pointed to a number of weak points in the US economy. This included unusually weak consumer spending and how debt problems in Europe hurt household and business confidence over the summer. He also noted the Fed expects inflation to moderate over time following the spike caused earlier this year by high energy and food prices.

In economic news was mixed. Weekly Jobless Claims increased by 2,000 to 414K in the period ended Sep 3. Economists were looking for a decline of about 10,000. Meanwhile, the Trade Balance narrowed to $44.4 billion in July and much more than expected thanks to record exports of autos, airplanes and other goods.

Although the Fed Head pledged to help the economy as needed, he failed to offer any concreted details of plans for monetary stimulus. Collective disappointment hit the Street and the Dow Jones Industrial Average is sporting a 119-point loss. The tech-heavy NASDAQ lost ground and the CBOE Volatility Index (.VIX)was up .96 to 34.34 amid light volume in the options market. 6.6 million calls and 6.9 million puts trading.

In the airline space, UAL loses 53 cents to $18.01 and the top options trade in the airliner today is a 4400 contract block of Dec 35 calls at 38 cents. The trade coincided with 2200 Dec 19 calls at $1.85 and 2200 Dec 30 calls at 9 cents. The same spread traded at $1.19, 800X. Both spreads traded on AMEX.

In precious metal land, Market Vectors Gold Mining ETF (GDX) rallies $1.37 to $66.80 and notched new highs today after the yellow metal surged $54.1 to $1,869 an ounce. A noteworthy spread in the fund today is a three-way, in which the investor bought 14750 Dec 50 puts and sold 14750 Dec 60 – 66 call spreads, collecting $2.79 on the package. It probably closes some of a position opened about two weeks ago when one player sold 44,200 GDX Dec 50 puts to buy 29,500 Dec 60 – 66 call spreads, collecting $1.9 million on the package (see 5/24 color.) Shares are up 12.7 percent since that time and half the call spread, 33 percent of the puts, are being closed out.

 

The VIX moved up nearly 9%, as equity markets in the US gyrated moving lower by more than 2% at the session lows, but pared losses during the close on weaker than normal volume. A better than expected ISM non-manufacturing, failed to help investors gain confidence.

In US Economic news, The U.S. service sector defied expectations and strengthened in August, according to non-manufacturing ISM. The ISM’s services purchasing managers’ index rose to 53.3 from 52.7 in July. Economists had expected last month’s PMI to fall to 51.0. The ISM said last month’s new-orders index rose to 52.8 from 51.7 in July, while business activity/production index slipped to 55.6 from 56.1. The ISM employment index fell to 51.6 last month from 52.5 in July. The prices index increased to 64.2 from 56.6.

Financial stocks dragged on the larger indexes as Bank of America was down 4%. The real story occurred in the credit default swap market. Bank of America’s five-year CDS spread was 13% wider on the session, 60 basis points higher than the point where Warren Buffett announced his rescue plan. Morgan Stanley’s 5-year spread was also up 13%, and Goldman’s CDS was up 13% to 243 basis points.

Despite the large slide in prices, the move lower was not accompanied by a increase in volume. Volume was below average, which is typical for a post-holiday session. The combination of a price plunge in holiday-dampened volume is rare, but it does happen. Lack of volume is usually a sign where there is low conviction.

Citi (C) is down 2.4% amid weakness in the sector after Federal regulators filed lawsuits against 17 major banks related to soured mortgage loans. In options action, an interesting three way trades in Citi on the ISE. Sentiment data indicate that one strategist sold 5,000 October 20 puts at 90 cents to buy the Jan 36 – 41 (1X2) call ratio spread at 31 cents, 5000X (10000 Jan 41 calls sold at 46 cents). This looks like a bullish play, or a bet that Citi shares will hold above $20 through the October expiration in 45 days and then rally through mid-January 2012. Shares are down 11.6 percent since last-Wednesday, but still up 8 percent from an intraday 52-week low of $25.4 set on 8/23.

GE loses 55 cents to $15.21 and one strategist sold 16,000 Nov 18 calls on the stock at 13 cents and bought 18,500 Nov 13 puts at 44 cents. The bearish combo might close out a position opened last week, when the Nov 13 – 18 bullish risk-reversal traded at 11 cents, 20000X.
The VIX moved higher and remained above the 20-day moving average support near 37.07. Additional support is seen near the 5-day moving average at 33.50.

Stock market averages were deep under water after the latest jobs data fell well short of expectations. According to the Labor Department, the US economy added zero new jobs last month. Economists were looking for about 100,000 new jobs. The unemployment rate was stuck at 9.1 percent and average hourly earnings declined by .1 percent. If that wasn’t bad enough, June and July numbers were also revised lower. Volatility across the Eurozone is also weighed on investor sentiment. France’s CAC 40 Index, Germany’s DAX and Spain’s IBEX all fell more than 3 percent on concern plans to help debt-ridden Greece are falling apart. The Dow Jones Industrial Average 2.2% while the NASDAQ more down 2.5%. CBOE Volatility Index (.VIX) jumped 1.82 to 33.64. For the week, the VIX is down nearly 5%. Trading volume was low ahead of the three-day Labor Day weekend, with 5.7 million calls and 6.5 million puts traded.

In the technology space, Microsoft (MSFT) lost 39==40 cents to $25.82 and is one of thirty Dow stocks trading lower Friday. Recent options trades in the software-maker include an Oct 17.5 – 25 (2X1) put ratio spread, bought at 67 cents, 7500X. The strategist bought one 25 put and sold two 17.5s. If so, the strategist is bracing for additional volatility in MSFT shares, as the max payoff at expiration is at $17.5 per share, which represents a 30.9 percent loss in MSFT over the next 7 weeks. 30,000 calls and 40,000 puts now traded in Microsoft, which is about typical volume for the name.

SilverCorp Metals (SVM) fell to new 52-week lows and is down $1.06 to $7.35 after the company received a letter from an anonymous source alleging accounting fraud. The letter was apparently forwarded to the company from the Ontario Securities Exchange. Options on the stock are seeing brisk trading as well. 22,000 calls and 34,000 puts traded. Sep 6 and 7 puts saw the most action. The activity seems to include a mix of buying, selling, opening and closing activity. Implied volatility in options on the stock is up another 31 percent and moving to new highs at 176 percent.

In the financial space, Wells Fargo (WFC) loses 89 cents to $24.34 and 10900 Jan13 $25 calls on the bank are bought at $4.25. The block looks opening and was tied to stock. Jan13 $25 calls on Wells Fargo are now 2.7 percent OTM with a delta of .55 and 9,991 in open interest. Shares are down 6.8 percent over the past two days, but 7.7 percent above the intraday 52-week low of $22.58 set on 8/10. Wells Fargo last reported earnings on 7/19.

US Stock market indexes declined on very light volume as volatility continued to consolidate in front of Friday employment report. Economic data was in focus early after the Labor Department said jobless claims declined by 14,000 last week, which was roughly in-line with expectations. The number didn’t seem to have much market impact and investors are awaiting monthly jobs numbers, which are expected to show 100K new jobs and an unemployment rate unchanged at 9.1 percent.

The other economic news was mixed, as the August ISM Manufacturing Index fell less than expected (50.6 vs. 48.6 consensus), but construction spending was worse than anticipated for July (-2.3 percent vs. 0 percent). Meanwhile, the automakers – Ford (F) and GM were lower after their respective monthly auto sales numbers and Costco (COST) is among a handful of retailers rallying on August same store sales results.

There’s a lot of news flow, but not much volatility continued to consolidate. Volume was very light, as some players might have already hit the exits in ahead of the three-day Labor Day weekend. 5.9 million calls and 6.8 million puts traded across the exchanges.

18,000 calls and 900 puts traded in Cisco (CSCO) during the first minutes of trading on the first day of September. CSCO is trading up 1 percent to $15.83 and was the Dow’s best gainer. In options action, 9,440 Sep 17 calls traded on the networking giant. 96 percent traded at the ask and open interest is 31,637. Sep 16 and the Weekly (9/9) 16 were purchased. Shares touched 52-week lows of $13.3 on 8/9 and then rallied 16 percent two days later after earnings were reported. CSCO has traded in a narrow range since that time, with resistance just north of current prices or near $16 per share.

Research In Motion (RIMM) declined 2% with options trades in the Blackberry-maker include a bearish combo, in which the strategist bought 9,200 September 29 puts 91 cents and sold 9,200 October 42 calls at 64 cents. The risk-reversal is tied to 375K shares at $32.81 and looks opening. Shares have rallied 52.8 percent off the 52-week low of $21.8 set on 8/8 and the position might have been initiated in anticipation of heightened volatility in RIM heading into a Sep 15 earnings release.

Xerox (XRX) more than 2% to $8.14 and an Oct 8 – 9 strangle is apparently sold on the stock at 68 cents, 5000X on ISE. It’s traded multiple times and volume in both contracts is more than 15000X. The was an opening position and seems to reflect expectations for shares to hold between $8 and $9 over the next 7 weeks. Shares hit a 52-week low of $7.3 on 8/19, but have rallied 12.2 percent since that time.