Demand Takes a Bit of a Breather
The strong-buy demand from last week took a bit of a breather today on light volume with no major market moving news. Groups like the financials that performed best last week led on the downside today. While there were some very small pockets of profit taking, "real" selling pressure is pretty minimal and shorts are reluctant to lay out large positions given the market's momentum. Like we mentioned in the market wrap on Friday and in a few Hot Topics, "For the week of November 8, we may see some consolidation of the recent move due to a sparse lineup of catalysts. However, any dip is widely expected to be mild and could be a buying opportunity as we have had a tough time building momentum to the downside."
The Dow Jones Industrial Average ended down 37.24 points, or 0.33%, to close at 11,406. The S&P 500 fell 2.60 points, or 0.29%, to close at 1223, and the Nasdaq was up 1.07 points, or 0.04%, to finish at 2580. Commodity related names were the clear winners of the day, despite the strength in the U.S. dollar, helped in part by Barron's article over the weekend on hard assets and the Wall Street Journal's article on crude.
CBOE Volatility IndexI:VIX volume was low on a light economic calendar, closing up $0.03, at $18.29. Put volume of 45,000 contracts compared to call volume of 78,000, with December 27.5 calls as the most active series on 12,300 contracts.
The SPDR S&P 500 ETF (SPY) - Get Report closed down $0.24, at $122.49, on overall put volume of 826,000 contracts trading as compared to call volume of 516,000, with November 122 puts as the most active series on 57,500 contracts. November weekly 123/124 call spreads are active as well as November 121/122 put spreads, suggesting traders expect a tight trading range into the weekly expiration on November 12.
A common measure of put-option prices versus calls examines the pricing of "skew", bearish puts that are "out of the money" or not yet profitable, versus calls that are similarly out of the money. Out-of-the-money SPY December 127 call volatility is at 14, while December out-of-the-money 117 puts are at 20, suggesting traders leaning towards bearish hedges.
PowerShares QQQ Trust (QQQQ) volume was also light on what is expected to be a relatively quiet week, closing up $0.07, at $53.74. Overall put volume of 188,000 contracts compared to call volume of 68,000, with November 53 puts as the most active series on 25,100 contracts. November monthly put volatility is at 17 and December is at 18 versus its 26-week average of 25, which indicates that traders are pricing options on the expectations of decreasing price movement.
U.S. Economic data will be quiet this week as the only top-tier economic indicators (besides the usual weekly jobless claims) are International Trade, released Wednesday at 8:30 a.m. EDT and the University of Michigan's Consumer Sentiment index on Friday at 9:55 a.m. EDT. Veterans Day falls on Thursday, November 11, and while the stock and futures markets are open, other agencies are closed. As a result, jobless claims will be released Wednesday at 8:30 a.m. EDT instead of their usual Thursday slot. Import and export prices, while not a top-tier report, are also released on Wednesday at 8:30 a.m. EDT.
It seems as if the market is placing more importance on November 15 when Congress returns for a lame duck session and November 18 when the new GOP leadership will attend a summit at the White House. The focus will shift to the issue of the Bush tax cuts and if the Republicans may choose to allow it to slip into the 2011 session, despite President Obama softening his stance somewhat.
The following notable companies are expected to report Tuesday before the open: COV, CRH, DF, FOSL, JASO, MMC, ROK, TYC, and VOD; after the close: ABK, IGT, MBI, RAH and SRE. Economic data expected to be released include: ICSC-Goldman Store Sales due out at 7:45 a.m. EDT, Redbook at 8:55 AM ET and Wholesale Trade at 10:00 a.m. EDT.
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