Stocks End Flat Despite New Low on the VIX

Is it something unusual or a sense of complacency?
By Jill Malandrino ,

Stocks close the week with small gains, following another week of trading range bound. Only the Dow made consecutive new multi-year highs on Tuesday and Wednesday, but more importantly, some momentum indicators failed to confirm those highs.

The Dow Jones Industrial Average ended down 7.34 points, or 0.06%, to close at 11,491. The S&P 500 rose 1.04 points, or 0.08%, to close at 1243, and the NASDAQ was up 5.66 points, or 0.21%, to finish at 2642. Among the key S&P sectors, materials, consumer staples and health care were the best performers for the week, while financials were the worst.

The CBOE Volatility Index (VIX) compressed to finish at a fresh eight-month low on active call buying, closing down 7.36%, at $16.11, even though the market traded flat. VIX total put volume of 124,000 contracts compares to call volume of 341,000 contracts.

SPDR S&P 500 ETF (SPY) spreaders rotated from December to selling meaty January options in the last two hours of trading, resulting in a collapse of January I.V, to close down $0.14, at $124.16. December 124 puts were the most active series on overal put contract volume of 1.07 million compared to 570,000 call contracts. January put option implied volatility is at 13, February at 16 and March at 18, below its 26-week average of 22, suggesting decreasing price movement. Short premium option traders are controlling the market, however if the underlying market moves 2%, short premium traders will be forced to cover positions resulting in a larger more panicked move.

The PowerShares QQQ Trust (QQQQ) volatility decreased on seasonal patterns into holiday trading environment, closing down $0.08, at to $54.43. January put option implied volatility is at 17, February is at 20 and March is at 21, versus its six-month average of 22, suggesting lower near-term price movement compared to outer months.

Things start to slow down the shortened holiday week of December 20, but there are a few November-end earnings results to watch. JEF will report earnings Monday morning, giving an early look into capital markets results. In tech land, there will be a bunch of reports to watch, with ADBE, JBL, and PAYX on Monday, PRGS, RHT, and TIBX on Tuesday, and MU on Wednesday. On the consumer front, DRI reports on Mon, CAH, CCL, and NKE on Tuesday, and WAG and BBBY on Wednesday.

The following economic data are expected to be released on Monday: None; Tuesday: ICSC Goldman Store Sales due out at 7:45 a.m. EST; Wednesday: MBA Purchase Applications due out at 7:00 a.m. EST, GDP and Corporate Profits at 8:30 a.m. EST, Existing Home Sales at 10:00 a.m. EST and the EIA Petroleum Status Report at 10:30 a.m. EST; Thursday: Durable Goods, Personal Income and Outlays and Jobless Claims due out at 8:30 a.m. EST, Consumer Sentiment at 9:55 a.m. EST, New Home Sales at 10:00 a.m. EST and the EIA Natural Gas Report at 10:30 a.m. EST. There will be no economic data on Friday as the markets are closed in observance of Christmas.

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