Stock Market Today: Traders Gear Up for Volatility Spike

NEW YORK (TheStreet) -- U.S. stock index futures were pointing to another weak day on Wall Street Tuesday as investors digested a mix of global economic reports and a U.S. clampdown on tax inversions that could hurt corporate deal-making.

Dow Jones Industrial Average futures slipped 42 points, or 26.68 points below fair value. S&P 500 futures fell 5.5 points, or 5.14 points below fair value. Nasdaq futures dipped 13.3 points, or 12.13 points below fair value.

Watch the video below for a look at how U.S. markets are doing in premarket trading Tuesday:

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According to Nicholas Colas, chief market strategist at New York-based global brokerage company ConvergEx Group, many traders and trading desks may soon be getting what they're looking for -- seasonal patterns are strongly favoring more volatility and volume appreciation over the next five weeks, which would help maximize the benefit of taking short positions or selling longs now and buying them back lower later as well as boost trading commissions.

He said the VIX over the last 25 years has never bottomed for the year in October. While the VIX could tread water at the current level of about 13.7, a move to above the February highs of 21.4 cannot be ruled out. Volumes have been on the light side for months, but the strategist wouldn't be surprised to see volumes rise 10% to 20% in October if volatility did indeed increase to the +20 level on the VIX.

"Keep in mind that there's only been one year over the last 2.5 decades where the VIX has peaked in February: this one, so far anyway," said Colas. "Do you feel lucky?"

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The VIX of most asset classes and sectors has risen over the past 30 days, Colas added. For instance, most industry sectors in the S&P 500 have been showing a higher implied volatility, ranging from materials, with its 1.5% increase over its VIX last month, all the way to consumer discretionary, which has increased 21.2% over its VIX in September.

Mixed global data arrived overnight. In China, purchasing managers' data compiled by HSBC Holdings and Markit Economics unexpectedly improved in September, and mainland Chinese indices closed higher. Meanwhile, declines in Markit Economics purchasing managers' indices for both manufacturing and the services sector in the eurozone in September painted a picture of economic weakness.

The Markit "Flash" PMI manufacturing index for September is scheduled for 9:45 a.m. EDT. Federal Reserve officials expected to make public appearances throughout the morning include Fed governor Jerome Powell, Kansas City Fed President Esther George, and St. Louis Fed President James Bullard.

The SPDR Gold Trust ETF (GLD) was up 1.34%. The United States Oil Fund (USO) was 0.91% higher.

The Treasury Department issued new regulations on Monday designed to limit the ability of U.S. firms to seek refuge in lower tax countries. Administration officials couldn't say how many pending corporate inversions might be stopped by the new rules and wouldn't address whether the rules would block Burger King's (BKW) bid in August to acquire Tim Hortons (THI) , the Canadian coffee and doughnut chain. Burger King shed 1.8% in premarket trading. AbbVie's (ABBV) $55 billion deal to buy Shire (SHPG) also could be in jeopardy. Abbvie slumped over 4% and Shire tumbled 5.8%. Also in question was Pfizer's (PFE) ability to re-approach AstraZeneca (AZN) with another takeover offer after being rejected in May. Pfizer fell 1.59%.

CF Industries (CF) popped 4% after the fertilizer producer confirmed it's in discussions with Yara International on a potential merger of equals deal that could create a $27 billion global fertilizer giant.

Philips (PHG) rose 1.63% after the electronics giant said it will split into two companies; one focused on lighting and the other specializing in the health care and consumer-lifestyle businesses.

Yahoo! (YHOO) was down nearly 2% in premarket trading after falling 5.6% on Monday to $38.65 as investors can now buy directly into Alibaba (BABA) .

Dublin-based Actavis recently made a bid for Allergan (AGN) but the Botox maker rejected the proposal and is closing in on its own takeover of Salix Pharmaceuticals (SLXP) , The Wall Street Journal reported, citing people familiar with the matter. Allergan was flat in premarket trading while Salix Pharmaceuticals jumped 9.12%.

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