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Equity market averages had solid gains for the week which was anchored by soothing words from Fed Chairman Ben Bernanke. The table was set for morning losses Friday on Wall Street after the latest GDP report showed the US economy growing at a 1 percent annual rate in the second quarter. Economists were expecting a 1.1 percent increase. Investors received another blow to the economic outlook with a University of Michigan Sentiment Index of 55.7 vs. 55.8 consensus. Markets initially solid after a speech from Bernanke at a meeting in Jackson Hole, WY. Stocks that failed to deliver promises of additional easing measures. While the Fed Head didn’t promise additional easing Friday, the FOMC September meeting will be a two-day event rather than one day and officials will mull over policy options at that time. Indexes could be volatile in the coming week as investors survey the damage from Hurricane Irene which is expected to wreak havoc along the East Coast over the weekend and possibly limit trading on Wall Street Monday morning.
The VIX declined throughout the week as the S&P 500 Index added nearly 5%. For the week, the VIX declined nearly 7.5 points or 17%, moving back toward the 35% level. The VIX was able to hold above support levels near the 20-day moving average at35.60, but fell through the 10-day moving average at 37.20. Resistance is now seen at the 48 level, and support is seen near the 32.50 region.

 

 

GE climbed to $15.65 afer a bullish ratio risk-reversal trades on the stock saw one strategist sold 22,500 Jan 11 puts at 39 cents to buy 15,000 Jan 19 calls at 23 cents.. On the week, shares are up 3.6 percent. Still, GE is down 18.6 percent over the past five weeks (from $19.16 on 7/21).

Intel (INTC) adds climbed to $19.86 and the top options trade in the chipmaker today is a 10000-contract block of Jan 16 puts, sold at 53 cents and tied to 180K shares at $19.86. INTC is up 3.5 percent this week and has not traded for less than $16 since July 2009.

Star Scientific (CIGX) had a large decline down $1.14 to $1.86 and options on the stock were very busy today after a court ruled against the company in a patent dispute. Options volume of 40,000 calls and 32,000 puts is 9X the average daily for the name. The top trade is a Sep 1.5 – 2.5 put spread apparently sold at 70 cents, 3824X on ISE. The contract is 25.6 percent ITM and expires in 21 days. Sep 1.5 puts, Sep 3 calls, and Sep 3 puts on CIGX are seeing active trading as well. Implied volatility jumped 26 percent and remains elevated at 163. Order flow seems to reflect expectations for large price swings in shares in the weeks ahead.

Equity market averages were under water on Thursday as weak economic data set a negative tone before the opening bell. The table was set for potential gains after the financials rallied around news Buffett’s Berkshire are investing $5 billion into Bank of America (BAC). Shares of the bank surged more than 20 percent and, and settled up 9.6 percent, and were the best gainers in the Dow Jones Industrial Average.

Early gains were lost after Germany’s DAX saw a sudden spike lower and traded down 4 percent in late action across the Atlantic. DAX finished down 1.7 percent. The Dow traded lower along with Eurozone stock benchmarks through late-morning and never recovered. The day’s economic data didn’t help much, as the only stat of the day showed a 5,000 increase in Weekly Jobless claims.

 

The tech-heavy NASDAQ lost 48, with Apple Computer (AAPL) weighing after Steve Jobs announced departure. Attention turns to GDP numbers and a speech from Fed Chairman Ben Bernanke Friday. CBOE Volatility Index (.VIX) is up 2.91 to 38.81 ahead of the news. Trading in the options market continues to reflect the cautious underlying tone. 7.6 million calls and 8.7 million puts traded across the exchanges.

Initial jobless claims climbed by 5,000 to a seasonally adjusted 417,000 in the week ended Aug. 20, according to the Labor Department . Claims filed in the previous week were revised up to 412,000 from an originally reported 408,000.

Economists surveyed had forecast claims would sink to 405,000. The Labor Department said a strike by workers at Verizon added at least 8,500 new claims last week and another 12,500 claims in the week ending Aug. 13. The four-week moving average of new claims, which smoothes out often-volatile weekly data, increased 4,000 to 407,500.

Altria (MO) lost ground and 17,036 Oct 26 puts traded on the tobacco company. 76 percent traded at the Ask and open interest is 214 contracts. The Oct 26 put on MO is at-the-money with a delta of -.5 and expiring in 57 days. Implied volatility was up 13 percent to 25. The bearish trading is perhaps hedging activity related to regulatory headwinds in the tobacco industry. Shares have been under pressure in recent months, but the decline has been orderly. MO is down 7.3 percent since May.

In bullish flow, Merck (MRK) saw a Jan13 20 – 35 (2X1) bullish ratio risk-reversal trade on the pharmaceutical maker at 16 cents, 7500X. The position looks to be an opening trade. The strategist is writing downside puts to buy half as many upside calls. If shares fall below the strike price of the puts through the 2013 expiration, they’re likely willing buyers of the stock at that price. On the other hand, better profits are possible if shares rally beyond the strike price of the calls and the puts expire worthless. If shares hold between the two strikes, both contracts expire worthless and the credit is kept.

Equity market Indexes surged higher despite poor housing data and weaker than expected manufacturing data. Strong economic data helped lift Hong Kong’s Hang Seng index 2 percent and Japan’s Nikkei rose 1.2 percent. Trading was orderly across the Euro zone and the market action overseas seemed to help set a positive tone for trading on Wall Street. The underlying tone remained cautious after data released at 10:00 Eastern time showed New Homes Sales at an annual rate of 298K in July. Economists were looking for an increase to 310K from 300K. The data had little market impact, however, and major averages recorded solid returns.

 

Optimism that Fed Chair Ben Bernanke and other central bankers will offer soothing words at this week’s meeting in Jackson Hole, WY might be helping sentiment for the balance of the week. The Dow Jones Industrial Average was up 322 points and the tech-heavy NASDAQ rallied more than 100 points. CBOE Volatility Index (.VIX) was down 6.40 to 36.04. Trading in the options market is a bit lighter than usual, with 8.8 million calls and 9 million puts trading.

 

Regional surveys of manufacturers are pointing to a downshift in activity, as a key driver of the recovery retreats.  The Federal Reserve Bank of Richmond’s survey, offered the latest downbeat assessment of manufacturing, which contracted in the central Atlantic region.  The survey’s index of manufacturing activity fell to a negative 10 from negative 1 in July, indicating a sharp pullback in the sector.

New orders and shipments contracted, though manufacturing employment in the region showed continued expansion in August, albeit at a slower pace than a month earlier.

 

SPDR Gold Trust (GLD) lost $5.97 to $178.92 after the yellow metal came off yesterday’s record levels and traded down an impressive $54.7 to $1835 an ounce. Noteworthy recent options trades in the gold ETF include a Jan 150 – June 225 risk-reversal, 15000X on ISE. It traded at $4.60 BD-to-BD and appears to be a new position, based on sentiment data. Additionally, a 11500-contract block of Sep 175 puts on the Gold ETF traded at $2.80 on ISE, and was also opening BD-to-BD. Volume in the contract is approaching 19,000, making it the most active in GLD this week.

 

The VIX fell more than 6 points or 15% as the rally in equities, eliminated some of the fear associated with the volatility index.  The VIX moved down slicing through the 10-day moving average near 38%, and is poised to test the 20-day moving average near 33.5%.

 

 

Volatility remained high in the US equity markets as banks continued to face selling pressure. The doubt over how the European banks will perform has kept the US markets under a cloud of uncertainty. Safe havens such as US Treasuries and Swiss France and Japanese Yen have remained robust.

The VIX rebounded from the weekly low and closed higher by nearly 20%. The end of last week witnessed the beginning of a short consolidation and the VIX dropped to the 33% level. The volatility index tested resistance near 44. A break above the 48% high, was only accomplished during the period of the financial crisis. 6 times over the course of the last 15 years the VIX tested the 48 level, and that was the high in volatility for the move, and the low in stock prices.

 

 

The decline in the European markets on the back of this week’s weaker than expected German GDP.  The IShares MSCI Germany Index Fund (EWG moved lower again and has been pummeled for a four-day 10.7 percent loss. Shares are falling to levels not seen since August of last year. EWG hit a 52-week low of $19.09 on August 25. Options order flow in the fund today is interesting, as EWG September 20 calls have traded more than 10,000 contracts against 43 in open interest. The top trade is a 5000-contract block at $1.15 when the market was $1.05 to $1.20.

Massive put spreads trade in SPY on the CBOE on Friday as a buyer paid 1.67 for 50,000 Sep 98-108 put spreads and then 1.72 for another 50K. The total 100K could hedge a an impressive $1.14 billion value long position. Total premium paid is nearly $17 million, with the max payoff of about $83million coming if SPY were to settle at or below the 98 strike (14.3% below current spot) in 29 days when these expire.

Bank stocks have been the hardest hit and the SPDR Financials (XLF) has been grinding lower in afternoon trading and is now down 25 cents to $12.13. Afternoon trades in the ETF include a 49000 contract block of Sep 11 puts at the 39-cent asking price. Another 40,000 Oct 10 puts, which saw heavy trading yesterday, traded at the 45-cent asking price. Total volume is 115k calls and 305K puts, which is not high volume for the financial fund these days, but still reflects the bearish underlying tone that has infected the financial sector in recent weeks. Implied volatility in XLF options is up 6,5 percent to 53, but still well below the highs of more than 70 seen after the 8/8 market debacle when XLF hit a 52-week low.

 

 

Volatility returned with a vengeance, moving higher as US equities were hammered even prior to the opening bell. Futures moved significantly lower as European markets declined as financial institutions continued to face selling pressure. Worse than expected economic data, along with higher than expected inflation did little to help the broad US indexes.
The VIX surged higher increasing more than 30%, after consolidation during the last few trading sessions. The tell that the markets were in trouble was the large move into treasuries on Wednesday. Yields moved toward all time lows in the prior session, given investors a heads up to the volatility to come.

Gold prices surged to a new all time high as investors looked to move capital into safe haven investments.
In economic news, The Philadelphia Fed said its factory-sector index of general business activity fell to negative 30.7 this month from 3.2 in July and -7.7 in June. The August index was the lowest since March 2009, when the U.S. was in recession. Economists surveyed expected an August reading of 1.5. Within the Philly Fed survey, the new-orders index fell to -26.8 from 0.1, while the shipments index was down to -13.9 from 4.3 last month. The hiring index also turned negative, at -5.2 from 8.9 in July. The negative manufacturing report continues a trend of worse than expected manufacturing data released over the past couple of months.

Additionally, Existing-home sales declined 3.5% from a month earlier to a rate of 4.67 million, according the National Association of Realtors. Economists surveyed had expected home sales to rise by 4.0% to an annual rate of 4.96 million. Sales in June were revised to 4.84 million from a previously estimated 4.77 million.

The negative economic data came coincided with stronger than expected inflation. CPI rose 0.5% from June, the largest monthly increase since March, according to the Labor Department. Core inflation, which excludes energy and food rose by a monthly 0.2% in July. Economists surveyed had forecast a 0.3% rise in overall prices and a 0.2% gain for underlying inflation.

The Nasdaq continued to be hurt by Cisco which has continued to decline. Cisco (CSCO), which rallied 16 percent on 8/11 after the company’s profits beat Street estimates, has suffered a three-day 5.6 percent decline. CSCO has now retraced 37.4 percent of the $2.30 gain seen in the three days after earnings were reported. A noteworthy spread in the networking company is a three-way. An investor apparently sold 15,000 Sep 16 calls on CSCO at 27 cents and bought 15,000 Jan 17.5 – 20 call spreads at 39 cents. The spread, for a 12-cent net debit, seems to reflect the view that shares will hold below $16 over the next four weeks and then rally from that point forward.

Hewlett Packard (HPQ) saw an impressive spike to $34 per share and helped lift the Dow Jones Industrial Average off its worse levels as reports the company will spin off its PC business and is close to a deal to buy Autonomy. The gains were lost and shares are down along with the other 29 components of the Dow. The top options trades surfaced before the headlines hit the wires. A strategist sold 1,000 Aug 32 puts at $2.84 and bought 2,000 Aug 31 puts at $2.05 on ISE. The backspread appears to be a short-term volatility play ahead of earnings. The company reported earnings prior to the close to the surprise of the market. Although the 1.10 per share met expectations, guidance for the further was taken down. Implied volatility in HP are up 22 percent to 53.5.

Volatility returned with a vengeance, moving higher as US equities were hammered even prior to the opening bell.  Futures moved significantly lower as European markets declined as financial institutions continued to face selling pressure.  Worse than expected economic data, along with higher than expected inflation did little to help the broad US indexes.

The VIX surged higher increasing more than 30%, after consolidation during the last few trading sessions.  The tell that the markets were in trouble was the large move into treasuries on Wednesday.  Yields moved toward all time lows in the prior session, given investors a heads up to the volatility to come.

 

Gold prices surged to a new all time high as investors looked to move capital into safe haven investments.

In economic news, The Philadelphia Fed said its factory-sector index of general business activity fell to negative 30.7 this month from 3.2 in July and -7.7 in June. The August index was the lowest since March 2009, when the U.S. was in recession. Economists surveyed expected an August reading of 1.5. Within the Philly Fed survey, the new-orders index fell to -26.8 from 0.1, while the shipments index was down to -13.9 from 4.3 last month. The hiring index also turned negative, at -5.2 from 8.9 in July. The negative manufacturing report continues a trend of worse than expected manufacturing data released over the past couple of months.

Additionally, Existing-home sales declined 3.5% from a month earlier to a rate of 4.67 million, according the National Association of Realtors. Economists surveyed had expected home sales to rise by 4.0% to an annual rate of 4.96 million. Sales in June were revised to 4.84 million from a previously estimated 4.77 million.

The negative economic data came coincided with stronger than expected inflation. CPI rose 0.5% from June, the largest monthly increase since March, according to the Labor Department. Core inflation, which excludes energy and food rose by a monthly 0.2% in July. Economists surveyed had forecast a 0.3% rise in overall prices and a 0.2% gain for underlying inflation.

The Nasdaq continued to be hurt by Cisco which has continued to decline. Cisco (CSCO), which rallied 16 percent on 8/11 after the company’s profits beat Street estimates, has suffered a three-day 5.6 percent decline. CSCO has now retraced 37.4 percent of the $2.30 gain seen in the three days after earnings were reported. A noteworthy spread in the networking company is a three-way. An investor apparently sold 15,000 Sep 16 calls on CSCO at 27 cents and bought 15,000 Jan 17.5 – 20 call spreads at 39 cents. The spread, for a 12-cent net debit, seems to reflect the view that shares will hold below $16 over the next four weeks and then rally from that point forward.

Hewlett Packard (HPQ) saw an impressive spike to $34 per share and helped lift the Dow Jones Industrial Average off its worse levels as reports the company will spin off its PC business and is close to a deal to buy Autonomy. The gains were lost and shares are down along with the other 29 components of the Dow. The top options trades surfaced before the headlines hit the wires. A strategist sold 1,000 Aug 32 puts at $2.84 and bought 2,000 Aug 31 puts at $2.05 on ISE. The backspread appears to be a short-term volatility play ahead of earnings. The company reported earnings prior to the close to the surprise of the market. Although the 1.10 per share met expectations, guidance for the further was taken down. Implied volatility in HP are up 22 percent to 53.5.

Equity markets in the US moved lower as investors awaited for the anticipated announcements from the German and French leaders Merkel and Sarkozy.  The worse than expected German GDP data released on Tuesday put pressure on stocks, which continued for the majority of the trading session.  The VIX edged higher, moving up nearly 4%, despite better than expected retail earnings.

The Merkel and Sarkozy summit resulted in a statement that discussed the long term commitment to Euro.  The pair of leaders went on to oppose going further down the road of consolidating fiscal policy via the issuance of euro zone bonds.  Both believe that bonds would only work once fiscal integration is complete.

Germany’s gross domestic product rose only 0.1% from the previous quarter, and by 2.7% year over year, leaving it below pre-crisis levels and calling into question the European Central Bank’s decision to raise rates twice this year.

In US economic news, Housing Starts rose a bit less than expected (604K vs. 608K consensus), industrial production rose .9 percent and .4 percent more than economists had predicted.

In earnings news, Home Depot reported better than expected earnings.  Home Depot Inc raised its fiscal-year profit forecast for the second time in three months.  The news, boosted Home Depot shares 4.7 percent on Tuesday.  Home Depot said it still expects sales to rise 2.5 percent. It forecast earnings of $2.34 a share excluding future stock repurchases, up from a prior forecast of $2.24.

The VIX volatility index traded inside of yesterday’s range after falling to 33%, from last week’s closing level near 39%.  The VIX is now at the break out level reached after the index move through the resistance high seen after the Japanese natural and nuclear disaster in March at 32%.

Trading was active in the VIX pit ahead of the expiration. 385,000 options traded on the index. 183K calls and 78K puts traded in the product. Only about 16.5 percent of the volume is in the expiring August options. The top trades are 1X2 ratio spreads in Sep calls. The 25 – 32.5 call ratio spread trades at 12 cents, 27000X and at 13 cents, 27500X.

Heading into tonight’s earnings, DELL option volume ran triple the daily average level, with calls leading puts 20K:14K and shares moving higher after touching a high of 15.80. Call volume has been unusually strong for 5 of the past ten days, with Aug 15 and 16 calls seeing most of the volume.

After the bell, Dell reported quarterly earnings per share of 54 cents, topping forecasts of 49 cents. The company also reported second-quarter revenue of $15.66 billion, compared with estimates of $15.75 billion.  Dell also forecast flat third-quarter revenue, well below the $16.18 billion analysts expected. Additionally,  it cut its revenue growth outlook for the full year to a range of 1% to 5%, from 5% to 9% previously.

 

The largest mover during the week was the S&P 500 volatility index which skyrocketed above 47%, a 44% move, the highest since 2009.  The Index pushed above the 31% high seen in March 2011 after the Japanese natural and nuclear disasters.  The move from 32% to 47%, was nearly a 50% move on Monday, and volatility has remained high closing the week near 36%.

Another clear winner for the week was the price of US Treasury bonds.  Despite the downgrade by S&P, investors jumped into treasuries pushing yields not seen since the beginning of 2009.  Yields on the 2-year bond pushed below 15 basis points after being as high as 32 basis points at the beginning of the week.

Many analysts believed the Fed needed to do something to take some of the edge off of equities which had declined more than 7.5% during the prior 2 weeks.  The Fed came up with a cut of interest rates that has never been seen before in the market place.  In the statement that followed the meeting, the FOMC stated that interest rates would remain at exceptionally low levels until the middle of 2013.  For the first time on record, the FOMC set a date which funds would remain at a specific level.  Immediately fixed income instruments moved higher in price to reflect the new level of interest rates to the specified date.  Since funds would remain at zero to 25 basis points two years in the future, the price of the 2-year note would now have to reflect that level.

The VIX was one of the stars of the week, but it possible could have run into long term resistance.  Since 1993, the VIX has peaked near 48, only breaking through during the financial crisis which culminated in the Lehman collapse.  After each spike to a index level of 48, the S&P 500 has rallied an average of 20% during the next 12 months.

SPDR Financials (XLF) have given up early gains. Implied volatility fell, as some of the extreme fear that rattled the sector Monday appears to have eased in recent days. XLF, which holds all of the financial-related names from the S&P 500, hit a 52-week low of $12.04 Monday amid very heavy trading in the options. 1.2 millions and 280K calls traded in the product Monday and implied volatility surged 80 percent to new 52-week highs of 70.4. Since then, XLF has moved higher in two of four trading sessions and recaptured 5.2 percent. The volume was much lighter toward the end of week. About 400,000 puts and 100,000 calls. Sep 12 puts are the most actives and seeing mixed trading at the bid and offer. Meanwhile, implied volatility has eased another 9 percent to 49. While still up 25.6 percent on the week, volatility in the financial ETF is substantially lower than the levels seen early in the week.

 

 

Equity markets continued to reflect the 40%+ volatility the market is implying.  The VIX index currently stands near 39, after consolidating for most of the trading sessions.  Stocks rebounded over lows created during the previous trading sessions.  Better than expected economic data along with solid technology earnings brought the risk on trade back into action.

Initial jobless claims which was reported before the market opened, dropped by 7,000 to 395,000 in the week ended Aug. 6, according to the Labor Department. Jobless claims filed in the previous week were revised up to 402,000 from an originally reported 400,000.  Economists surveyed had forecast claims would remain at 400,000. It was the first time since early April that claims fell below the 400K level.  The four-week moving average of new claims, fell by 3,250 to 405,000.

The stronger than expected economic news helped equity markets regain footing and created less of a demand for US treasuries.  The U.S. Treasury sold $16 billion worth of 30-year long bonds at a poorly received auction Thursday.  The auction suffered from the extreme volatility sweeping through global financial markets recently. Investors submitted bids worth 2.08 times the amount on offer, the lowest since February 2009.

The 30-year Treasury bond moved down 4 16/32 in price and yielding 3.731 percent, up from 3.52 percent at Wednesday’s close. The benchmark 10-year Treasury note was yielding 2.301 percent, up from the 2.14 percent high yield at Wednesday’s well-received auction.

Technology stocks received a boost after better than expected profits from Cisco (NYSE:CSCO).  Profits totaled $1.2 billion, or $0.22 per share, compared to $1.9 billion, or $0.33 per share, in last year’s fourth quarter. Adjusted earnings per share totaled $0.40, ahead of analyst expectations. Revenue rose 3%, to $11.2 billion, also ahead of analyst forecasts.

Trading was active in Home Depot (NYSE:HD) and implied volatility in the options on the home builder is eased today. 22,000 calls and 46,000 puts traded on the home improvement retailer. Shares were up $1.65 to $30.16 and Sep 32 puts are the most actives. 30,123 traded, including a 13306-contract block at $2.90, which is possibly a liquidating sale. The contract is 5.7 percent ITM and open interest is 31,755.. Implied volatility in HD options is down 15.5 percent to 42. Some investors might be unwinding defensive put positions in HD after a three-week 17.8 percent decline in the share price and ahead of earnings, due the morning of Aug 16.

Financials are looking upbeat.  SPDR Financials (NYSE:XLF) add 68 cents to $12.87 and one strategist is rolling a position in Aug in-the-money put spreads to Sep out-of-the-moneys. The Aug 13 – 15 spread recently traded at $1.22, approximately 100,000X. It looks like today’s spread trader is banking a profit in August spreads after the big move lower in the ETF, but also opening a new position and bracing for additional losses in the financials through the Sep expiration, which is in 36 days.

The VIX continued to remain above 39 consolidating in a bull flag pattern.

 

 

Equity prices soared on the back of declining interest rates after the Federal Reverse changed their language stating they would keep interest rates at current levels until mid-June of 2013, created one of the largest bond rallies on record.

The language the Fed used in its statement was a downgrade to the US economy.  Terms such as sluggish and depressed were used to describe the current state of the US economy.    The Fed also anticipates that economic conditions will include low rates of resource utilization and a subdued inflation expectations.

Debt investors quickly re-priced treasury securities to reflect the interest rate promised by the Federal Reserve.  Two Year Treasury yields move from 30 basis points to 15 basis points in a blink of an eye, and will now stay at those levels if the Fed makes due on its promise.  Longer term bonds moved higher in price, and should continue to reflect upward pressure unless the US economy improves.

It was another busy day in the VIX pit today, with 522,000 calls and 300,000 puts traded on the volatility index. The market’s fear gauge closed at session highs of 48 Monday and rose to its best levels since May 21 when the index briefly touched 48.2. VIX came down sharply as the market began to rally. The index has seen choppy action and is down 7.50 to 40.5 at the close, which is not too far from session lows (39.67). Meanwhile, the top options trades in the index happened about 30 minutes into trading after the Sep 22.5 – 30 (1X2) call ratio spread was sold at 30 cents, 15000X. The strategist sold 30,000 Sep 30s to buy 15,000 Sep 22.5s and might have closed out a position after the 105-percent surge in the VIX over the previous three days.

 

 

The VIX moved lower but was able to stay above support near the 32.5 level which was former resistance from the high reached in March of 2011, after the Japanese natural and nuclear disasters.  Further support is seen near the 20-day moving average near 24.25.

ProShares UltraShort S&P 500 Fund lost $1.24 to $26.51, but some investors seem to be expecting another rally in the ETF over the next 10 days. Aug 30, 31, 32, and 33 calls on the fund are busy today (ahead of the FOMC statement). August 30s, which are 13.3 percent OTM and have a delta of .29, are the most actives. 46,980 traded against 85,449 in open interest. The top trade is a 9826-contract block at 98 cents on ISE and an opening buyer, according to ISEE data.

 

In a week that saw the Dow Jones Industrials lose more than 500 point on a single day, investors were able to breathe a sigh of relief on a better than expected payroll report.  Although it will be difficult to regain the positive sentiment ingrained in the market in mid July, the negative vibe given off by the European periphery will make it hard for US markets to rally.

The VIX fear index skyrocketed during the week moving up above 31 at its peak on Thursday, returning more than 22% for the week.  The VIX broke through the 200 week moving average, and tested the highs seen near after the Japanese natural and nuclear disasters.  The next level of resistance for the volatility index is 55%, which was seen toward the end of the financial crisis in March of 2009.  Support is now seen near the 200-week moving average near 27.

The employment data seen during the week was slightly better than expected and did not show the weakness in the US economy that has been reflected in the recent manufacturing and consumer spending numbers.

On Wednesday, ADP reported slightly better than expected private employment which was followed on Thursday by a further decline in jobless claims.  On Friday, all eyes were on the employment report, which did not disappoint.

Nonfarm payrolls rose by 117,000 last month as private-sector employers added 154,000 jobs, according to the Labor Department. Payroll data for the previous two months were revised up by a total 56,000 to show increases of 46,000 jobs in June and 53,000 in May.  The unemployment rate dropped to 9.1% last month from 9.2% in June.  The numbers were better than expected as economists surveyed had forecast payrolls would rise by 75,000 in July and that the jobless rate would remain at 9.2%.

Total market volume on Friday was set to hit a record on the heels of the  35million contract record which was 5million above the prior record set on Thursday. Nearly half the volume has traded in ETF options, led by SPY with 5.6million contracts and puts leading calls 2:1. A few of the largest trades include a sale of the Aug 117-121 put spreads 43,000x for 1.83.

GE adds a dime to $16.58, but is down 7.7 percent month-to-date. A noteworthy trade in GE this morning was a Nov 12 – 15 put spread, apparently bought at 57 cents, 10000X on PHLX. Both contracts now traded more than 20000X.

After the close on Friday, S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn’t do enough to address the gloomy outlook for America’s finances. It downgraded long-term U.S. debt to AA+

 

Equity prices plunged and the VIX skyrocketed as investors moved out of riskier assets and into the safety of the Treasury markets. Technical support broke through on Wednesday, despite solid jobs data on Wednesday and Thursday. Peripheral yields continued to soar, even as the ECB discussed a resumption of their bond purchase program.

On the employment front, Thursday jobless claims continued to show improvement, despite remaining near the 400K level. Jobless claims fell by just 1,000 to 400,000 in the week ended July 30, according to the Labor Department. Thursday’s number follows a 21,000 decline the previous week, which was revised from an originally reported 24,000 drop. Economists surveyed had forecast claims would rise by 7,000. The four-week moving average of new claims fell by 6,750 to 407,750. The 400,000 level is generally considered the pivot point as to when jobs increase or decline.

On Wednesday ADP released private employment which increased by 114,000 jobs, compared to the 97K expected by economists. Friday’s government employment report will be the final arbiter of the current jobs situation.

The VIX volatility index skyrocketed testing levels not seen since the Japanese nuclear and natural disasters in March. The VIX moved higher by nearly 35%, moving up to the 31 level. A break of the 31 level will potentially see at test of the 35 level.

 

 

 

Prices of oil were hammered the day after the Department of Energy released worse than expected inventory data. U.S. commercial crude oil inventories increased by 1.0 million barrels from the previous week. Total demand over the last four-week period have averaged about 18.9 million barrels per day, down by 2.0 percent compared to the similar period last year. Crude oil moved through the $87 dollar per barrel level and are poised to test lower levels near 84.

SPDR Oil Exploration and Production Fund (XOP) is off heavily on a rough day for the major oil names after crude below 87 per barrel. A noteworthy trade in XOP today is a ratio spread, in which the strategist sold 30,000 Sep 62 puts at $7.50 to buy 50,000 Sep 55 puts at $3.15.
Big print in Petrobras (PBR) after a 20000-contract block of Aug 28 puts is bought at 17 cents per contract. Shares are down $2.61 to $29.77, as major oil names sell-off along with oil. 22,743 Aug 28 puts now traded in PBR against 3,843 in open interest. The contract is 5.9 percent OTM and expiring in 15 days. Overall volume in PBR is a brisk pace today, at 58K calls and 63K puts, or 4X the average daily.

In the small cap sector there were big prints in the iShares Small Cap Fund (IWM) after a Sep 64 – 70 put spread is apparently bought at $1.23, 30000X. The spread looks buyer-initiated and comes as shares of the small cap fund lose $4 to $73.26, not far from session lows of $73.13. 1.3 million puts and 450K calls traded in the IWM on a very busy day for the ETFs that track the broader market.

Equity markets continued to tumble as riskier assets remained under pressure for an eighth straight trading session. Worse than expected economic data, along with weaker than expected auto data contributed to the declined and pushed the volatility index higher.

The Senate voted 74-26 Tuesday to approve sweeping legislation to raise the country’s $14.29 trillion debt ceiling and cut the budget deficit by at least $2.1 trillion over the next decade, a major victory for Republicans who have long battled to shrink the size of the U.S. government.

Consumer spending decreased 0.2% in June, compared with a 0.1% increase in May according to the Commerce Department. Personal income increased 0.1% while the wages and salaries of consumer spending declined slightly. The savings rate rose to 5.4% in June, highest in nearly a year and up from May’s rate of 5.0%. Consumer spending is the backbone of US GDP accounting for approximately 66% of total growth. The decline and move toward savings, is a grim sign for third quarter GDP.

Auto sales continued to rise in line with expectations. GM Reported a 7.6% rise in new-car sales in July. General Motors sold 214,915 cars and light trucks last month, up from 199,602 a year earlier, largely on the strength of one new model, the Chevrolet Cruze.

The VIX continued to trade near the 24 handle, as the 50-day moving average of the volatility index pushed through the 200-day moving average of the index. The RSI of the index is consolidating near 64, which shows that upward momentum is still strong but not overbought.

 

Central European Distribution (CEDC) falls to new 52-week lows. Implied volatility in CEDC options was substantially higher amid increasing levels of put activity. 48,000 puts and 3,120 calls traded in the name. Recent trades include a spread, in which the strategist sold 9,400 Aug 9 puts at 92.5 cents per contract to buy 6,700 Aug 6 puts at 27.5 cents and 7,100 Dec 5 puts at 45 cents. Implied volatility in the options is up another 38 percent and elevated at 150 ahead of earnings, Wednesday afternoon.

Gold prices pushed to an all time high as investors continued to pile into precious metals.  The geopolitical macro concerns surrounding higher peripheral European yields and a potential downgrade of US debt, is drawing more investors to the yellow metal.

BofA (BAC) loses 27 cents to $9.57 and is testing its 52-week closing low of $9.57 set on 7/19 (intraday low was $9.4). Meanwhile, recent options trade in BAC include a three-way spread, in which the strategist sold Sep 9 puts to buy the sep 10 – 11 call spread, collecting 7 cents, 10000X. Total volume in the bank today is 296K calls and 93K puts, as some investors might be looking for the recent lows to hold. Meanwhile, implied volatility in BAC options has eased about 1 percent to 40, compared to a 52-week high and low of about 43.5 and 23.