Afternoon trading was a bit choppy, but of course, the dip buyers jumped in to prevent us from staying in negative territory for long. Equity volume and momentum did not show up for the game today and volatility continues to trend lower. This earnings reporting season is as important as ever, and not just because its Q4 and year-end numbers. It could be the catalyst that brings volatility back to the market and confirms a move in either direction. The longer we play in a range, the more explosive the break should be.

The Dow Jones Industrial Average ended up 34.43 points, or 0.30%, to close at 11,671. The S&P 500 rose 4.73 points, or 0.37%, to close at 1274, and the NASDAQ was up 9.03 points, or 0.33%, to finish at 2716. Most key S&P sectors advanced, led by energy, materials and health care, while telecom were under pressure.

The CBOE Volatility Index ( VIX) closed down 3.71% to 16.89, on put volume of 196,000 contracts compared to 283,000 call contracts, with March 20 puts as the most actively traded series on 68,100 contracts. Much of the volume was due to delta neutral asset class spreaders.

The SPDR S&P 500 ETF ( SPY) ended up $0.45, at $127.43. SPY January call option implied volatility is at 12, February calls are at 14 and March calls are at 15, below its 26-week average of 22. SPY has near-term support at its ten day moving average of $126.82. Overall, 656,000 put contracts traded compared 387,000 calls, with January 127 puts as the most active series.

The PowerShares QQQ Trust ( QQQQ) January and March call spreaders were active on lower volatility to close up $0.08, at $56.16. January call option implied volatility is at 14 and March is at 16, below its six-month average of 22, suggesting decreasing price movement. March 57 calls were the most actively traded series on overall put volume of 172,000 contracts compared to 129,000 call contracts.

Catalysts are essentially the same as the update we provided last night. 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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