Hype Proved to be Non-Event
Equity sector performance finished mixed as there was no real theme following the mid-term elections and the FOMC meeting. The consensus call had been for stocks to see a "sell on the news" reaction, but that never really happened. With those two catalysts out of the way, traders will turn their focus to the jobs number on Friday. The question is, when do we move away from a directionless, low volume market that reacts to event risk and the dollar? Volatility needs to come back into the game as well trading based on fundamentals and technicals for that to happen.
Cyclicals were mixed with tech and discretionary outperforming, while industrials and materials lagged. Defensive sectors also saw mixed performance and financials were the outlier, taking a nice leg up after the FOMC meeting. Discretionary was also ahead of the tape, rallying on strength in autos.
The Dow Jones Industrial Average ended up 26.41 points, or 0.24%, to close at 11,215. The S&P 500 rose 4.39 points, or 0.37%, to close at 1197, and the Nasdaq was up 6.75 points, or 0.27%, to finish at 2540.
The CBOE Volatility Index I:VIX hit a midday high of $22.00, but edged lower and volatility fell apart, after the Fed concluded its latest meeting on monetary policy and said it will buy up to $600 billion in Treasury bonds versus expectations of $500 billion or less. VIX closed down $1.20, at $19.56, on put volume of 245,000 contracts compared to call volume of 179,000, with November 20 puts as the most active strike on 39,700 contracts.
The SPDR S&P 500 ETF (SPY) - Get Report volatility decreased as it rallied on the FOMC committing to purchase government bonds. The SPYs closed up $0.48, at $119.95, with overall put volume of 1.47 million contracts trading as compared to call volume of 906,000, with the November 118 puts as the most active series on 162,100 contracts. November weekly put option implied volatility is at 25, November monthly is at 18, below a level of 21 before the FOMC announcement. December implied volatility is at 19 versus its 26-week average of 23. Lower volatility suggests decreasing-price movement.
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. SPY November monthly 122 call volatility is at 21 and SPY November monthly 118 put volatility is at 23, suggesting traders leaning towards near-term bearish hedges.
The PowerShares QQQ Trust (QQQQ) touched a 52-week high, closing up $0.24, at $53.02. Overall put volume of 317,000 contracts compared to call volume of 205,000, with November 45 puts as the most active series. QQQQ November monthly is at 20 and December is at 19 versus its 26-week average of 25. November volatility suggests traders are pricing decreasing-price movement.
The following economic data are expected to be released on Thursday: Monster Employment Index due out at (6 a.m. EDT), BOE Announcement (8:00 a.m. EDT), Jobless Claims, Productivity and Costs at (8:30 a.m. EDT) ECB Announcement at (8:45 a.m. EDT), EIA Natural Gas Report at (10:30 a.m. EDT) and Treasury STRIPS at 3:00 p/m. EDT.
QQQQ November monthly 55 call volatility is at 17 below a level of 19 from this afternoon, while November 51 put volatility is at 21 below a level of 25 from this afternoon, indicating traders expect less price risk.
In addition to retailer same-store sales throughout the morning, the following notable companies are expected to report before the open: ALU, APA, ATK, BCE, BDX, BR, CCOI, CVC, DTV, HNT, HUN, LAMR, MF, MFC, PCS, SIRI, SNI, TDC, TKLC, TWC, UN, WIN; after the close: AGO, AINV, ATML, ATVI, CBS, DLB, FLR, HAIN, INAP, IRF, JDSU, KFT, MCHP, N, NILE, PRO, RBCN, RNWK, SAPE, SBUX, SD, SWKS, TSO.
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