Tuesday, October 4, 2011
Filed Under Market Snapshots
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.