Oct

8

Employment Data Fails to Push Stocks Higher

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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.

 

Employment Data Fails to Push Stocks Higher

 

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.

 

Oct

7

Stocks Rally After BOE Bond Purchase Announcement

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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

 

Stocks Rally After BOE Bond Purchase Announcement

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.

 

Oct

4

Volatility Softens Despite Continued Downward Pressure on Equities

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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.Volatility Softens Despite Continued Downward Pressure on Equities

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.

 



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