Markets Call it Mixed to Kick Off EPS

Markets closed mixed to lower as pressure increased for Portugal to seek financial assistance from the European Union and the International Monetary Fund. M&A activity announced this morning did not provide enough support to allow U.S. equities to rally into the start or EPS season.

The Dow Jones Industrial Average ended down 37.31 points, or 0.32%, to close at 11,637. The S&P 500 fell 1.75 points, or 0.14%, to close at 1269, and the NASDAQ was up 4.63 points, or 0.17%, to finish at 2707.

The CBOE Volatility Index (VIX) closed up 2.33%, at $17.54, on put contract volume of 170,000 compared to 265,000 put contracts, with February 20 puts as the most actively traded series on 34,700 contracts.

The SPDR S&P 500 ETF (SPY) spread between call and put strike volatility stayed normal on low overall pricing. SPY ended down $0.16, at $126.98, on overall put volume of 745,000 contracts compared to 410,000 call contracts. SPY January call option implied volatility is at 14, puts are at 15, February calls are at 15, puts are at 17, March calls are trading at 16 and puts are at 19, below its 26-week average of 22.

PowerShares QQQ Trust (QQQQ) tech components pushed the NASDAQ positive on low volatility. The Qs touched a 52-week high to close up $0.21, at $56.08, on put volume of 228,000 contracts compared to 128,000 calls. Overall option implied volatility of 20 is near its six-month average of 22, indicating non-directional price movement. QQQQ has near-term support at its ten-day moving average of $55.23.

Apple (AAPL) shares are at record highs and options contractions traded 2.1x the average daily volume, with call volatility lower than puts. Shares closed up $6.33, at $342.45, on over put volume of 138,000 contracts compared to 280,000 call contracts, with January 340 calls as the most active series traded. January 350 call volatility is at 35, January 330 puts are at 37, February 350 call volatility is at 30 and February 330 put volatility is at 32, suggesting more downside risk is priced into the options than upside.

The big focus over the next few weeks will shift to the Q4 reporting season. The week of January 10 is pretty sparse on earnings although there are some important companies to watch. As usual, Alcoa (AA) kicked off the season after the close Monday. Other notable names reporting this week will be PKX (overnight Wednesday), INFY (early Thursday morning), INTC (Thursday night) and JPM (Friday morning). The week of January 17 is when the real volume kicks in. Keep in mind, it is also an abbreviated trading calendar as the U.S. markets are closed in observance of the Martin Luther King Jr. holiday.

In terms of economics, we will get some December inflation readings in the U.S. (PPI on Thursday and CPI on Friday) as well as the Beige Book (on Wednesday). Finally, the CFTC will vote on January 13 on new rules to limit commodity position limits, including documentation requirements for swap dealers and major swap participants regarding swap trading relationships and the adoption of a final rule setting conflict of interest requirements for derivatives clearing organizations, designated contract markets and swap execution facilities.

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