Stocks Close Down, VIX Moves Higher in Last Hour
Stocks suffer their first back-to-back decline since October 6 and 7, as the strong rally of last week starts to see some consolidation. That being said, it does not seem like there was a lot of "real" selling behind the move and a lot of the action was futures and ETF activity. Some of the groups that enjoyed gains over the past couple of weeks saw quick profit taking and some short-term traders tried to press on the short side, but the broader themes of the tape remain in place. As we said Friday and Monday, "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 60.09 points, or 0.53%, to close at 11,346. The S&P 500 fell 9.85 points, or 0.81%, to close at 1213, and the Nasdaq was down 17.07 points, or 0.66%, to finish at 2562.
A spike in the U.S. dollar and news that the CME will raise metals margin requirements weighed heavily on commodity based names and a weak tape sent cyclicals lower today, with defensives acting well this afternoon to outperform the tape. Financials were the weakest sector, falling close to 2.25%, on weakness in REITs and pressure from a few large-cap banks.
CBOE Volatility IndexI:VIX moved higher as the market sold off in the last hour, with December put spreaders active as a hedge to lower volatility. VIX closed up $0.79, at $19.08, on put volume of 178,000 contracts compared to call volume of 130,000, with December 21 puts as the most active series on 47,200 contracts.
The SPDR S&P 500 ETF (SPY) - Get Report touched its 52-week high but closed down $0.88, at $121.61, on overall put volume of 1.51 million contracts trading as compared to call volume of 675,000, with December 118 puts as the most active series on 93,000 contracts. November monthly put option implied volatility is at 16 and December is at 18 versus its 26-week average of 23. November monthly 122/123 call spreads are active as well as November 120/121 put spreads, suggesting traders expect a tight trading range into the monthly expiration.
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 November 124 call volatility is at 14, while November out-of-the-money 118 puts are at 19, indicating traders leaning towards bearish hedges.
PowerShares QQQ Trust (QQQQ) also touched the 52-week high although, closed down $0.29, at $53.45. Overall put volume of 264,000 contracts compared to call volume of 102,000, with November (W) 53 puts as the most active series on 49,600 contracts. Note that the contract expires this Friday because it is a weekly expiration. QQQQ November monthly put volatility is at 17 and December is at 18 versus its 26-week average. Low volatility suggests traders are pricing options on the expectations of decreasing price movement.
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 tomorrow, Wednesday, November 10 at 8:30 a.m. EDT and the EIA Natural Gas at 10:30 a.m. EDT instead of the usual Thursday slot. Other economic data expected to be released on Wednesday include: Imports and Exports Price and International Trade due at 8:30 a.m. EDT, EIA Petroleum Status at 11:00 a.m. EDT and Treasury Budget at 2:00 p.m. EDT.
Notable earnings before the open include: CSC, ING, M, PUK, RL and SLE; after the close: BRKS, CSCO, KLIC and RST.
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