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Oct
8
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.
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