Quick VIX

Yesterday’ trading session was extremely whippy as comments and rumors out of Capital Hill pushed markets first deep into the red and then back to unchanged on the day on extremely light volumes. Some of the most interesting price action was in the VIX. The index traded to nearly 21 when stocks were at their low, and the futures went into slight backwardation. Backwardation is when the near month future is more expensive than the back month and signals extreme market anxiety. However as soon as news broke that the House would reconvene Sunday night in Washington stocks took off and the VIX sold off to close on the lows of the day. In these low volume markets it does not take much to get major market moves and reversals like we saw yesterday. Today Obama is scheduled to meet with Congressional leaders and I expect the market to hang on their every word. Yesterday’s retails sales data was weaker than expected, which prompted a selloff in retail stocks. However one option trader was buyi...

This morning US s5tock futures are indicating a higher open on the back of better than expected jobless claims and a lower dollar. However, the market’s main interest will continue to be the fiscal cliff, with rumors driving the market’s direction. The broad market has shown some resilience so far in cliff negotiations while the VIX has been strongly bid. This implies traders are not rushing to sell stocks, but rather buy option protection for their positions. Geithner said yesterday that the US would “rise above” the debt ceiling on Dec. 31st though the Treasury could use emergency measures to delay this for another two months. If the tax hikes become effective January 1st though, this 2 moth cushion could last even longer. This could be why there appears to be little sense of urgency in Congress and it looks like the odds of getting a deal done by year end are minimal now. With many traders still on vacation yesterday volumes were generally low. However one stock that caught many tr...

Overnight volumes have been expected light ahead of the Christmas holiday. S&P 500 futures traded down to test Friday’s lows but have since bounced and are down small from Friday’s close. This move has closely tracked trading in the Yen and Euro, with the Yen and Dollar hitting highs as the S&p hit lows. Currency markets should be a good barometer of risk sentiment this week as equities see low volume. Look for the S&P 500 to follow the EUR/USD pair and the USD/JPY pair. When markets reopen on Wednesday morning expect the focus to be on the fiscal cliff again, with Obama’s “Plan B” in the spotlight. The bill Obama is expected to try and pass will likely extend tax cuts for people making less than $250K, increasing capital gains and dividend taxes to 20% and extending unemployment spending through 2013. On Friday markets around the world tumbled as a bout of risk aversion, driven by Speaker Boehner’s failure to get enough votes to pass “Plan B”, swept markets. One stock tha...

Last night Speaker Boehner scraped the House’s vote on “Plan B” because there were not enough Republican votes to pass it. This sent stocks around the world tumbling and a heavy dose of risk aversion in currency markets. S&P 500 futures lost about 50 points in a matter of minutes but has since stabilized higher and are down 22 ahead of the open. The US dollar and Yen as also stronger this morning as trader s move into safe haven assets. The VIX is the real mover on the news and the Jan future is up over 7%. Speaker Boehner is expected to speak at 10 EST and could give the market a clue as to his next move. The good news out of the Plan B failure is that everyone, especially the President, knows which Republicans will not compromise on tax increases, whether Boehner wants them or not. Boehner will have to tell Obama that if he wants a bill he will have to rally Democrats to meet the Republics that are willing to compromise half way. However, if Obama cannot get Democrats to compr...

Ahead of the US open global risk sentiment appears strong. Asian stock indices were up, led by the Nikkei (+2.39%) on reports that LDP and its coalition will pass a new US $119B stimulus package to spur on the Japanese economy. News out of Germany was also positive this morning, with IFO business confidence rising month/month. Housing data in the US was positive this morning, lead by strong gains in the South that made up for weakness in the northeast. The fiscal cliff will continue to have the most sway over US markets. The House is expected to pass Boehner’s “Plan B” as early as tomorrow despite Reid’s statement that it will not pass the Senate. This is seen as a way for Republicans to shift blame for going off the cliff onto the Democrats. After strong gains the past few days I would not be surprised to see some profit taking today or tomorrow unless real progress on a deal is announced. This week the Dow has put in back to back triple digit gains, led by Bank of America. This sto...

Yesterday the market closed on the highs of the day in a follow through move from Friday’s reversal. The eMini S&P 500 futures punched through the technically significant 1420 level with relative ease, and it looks like momentum is on the bulls side for the near term. However, the market will continue to be driven by every word out of Washington on the fiscal cliff. The latest developments in the negotiations seem to show a deal is getting closer, but we will believe it when we see it. Boehner is due to meet with House Republicans at 9 EST and a press conference is scheduled shortly after. Apple, the world’s most valuable company, has seen some huge intraday ranges the last few days. This has sent historical, or realized, 20-day volatility near its 2012 highs and implied volatility near levels typically only seen just before an earnings announcement. This, combined with expectations of light trading through the holiday season, has many option traders selling out of the money AAPL ...

This week all eyes will again be on the fiscal cliff negotiations in Washington, with comments from Congress driving the market. Over the weekend The Hill reported that Boehner offered to increase the debt limit for one year though Boehner said shortly after “Any increase in the debt limit will require a greater amount in spending cuts” which seems to negate any progress that had been made and puts the negotiations back at square one. Last Thursday and Friday the spot VIX index rose, and the Dec. contract, which expires Wednesday, rose in lockstep with it. However, the Jan. contract actually traded down on Friday, which suggests the market is only fearful in the near term and predicts the VIX to fall into Jan. expiration. The below average amount of contango between the Dec. and Jan. contracts is somewhat of a bearish sign for this week, and could mean the market sell off if comments out of Washington continue to disappoint. As the fiscal cliff nears the market is beginning to wonder...