Market Sentiment
Stocks traded broadly lower late Tuesday after the latest round of earnings news failed to spark another round of buying interest in the equity market. Better-than-expected results from Apple Computer (AAPL) and Texas Instruments (TXN) helped lift stock index futures late Monday. A number of Dow stocks -- United Technologies (UTX), Pfizer (PFE), and Caterpillar (CAT) -- reported better than expected results Tuesday morning.
However, after a 96-point advance Monday, the Dow Jones Industrial Average failed to extend gains Tuesday morning. The day's economic data didn't help:
• A report released before the bell showed housing starts increasing by 3,000 to an annualized rate of 590,000 in September. Economists were looking for an increase to 610,000. Building permits, a better gauge of future activity, fell to 573,000 from 580,000. Economists were expecting 595,000.
• Meanwhile, the Producer Price Index [PPI] took an unexpected dip in September. After increasing 1.7% in August, the gauge of prices on the wholesale level fell .6%. Economists were looking for no change in the PPI.
In the end, it seemed that the weak economic data trumped the earnings news and the DJIA was down 75 points heading into the final forty five minutes of trading. Boeing (BA), which was cut to Underweight at Morgan Stanley, is down 3.4% and the biggest loser in the industrial average. The CBOE Volatility Index (.VIX) is down .17 to 21.32, but trading in the options market is clearly more defensive than in recent days. Approximately 6.5 million puts and 6.9 million calls traded so far (a ratio of .94, compared to a 22-day average of .79).
Bullish Flow
NASDAQ (NDAQ) is up 52 cents to $20.39 and 4,500 Nov 18 calls traded. 77% hit ask-side and existing open interest is only 39 contracts. ISEE data (at 91% or 2172 contracts) confirm that customers are buying to open NDAQ calls today.
Investment Tech reports this afternoon that U.S. Senator Schumer is pushing for greater regulation of those anonymous trading venues known as dark pools. He said in a statement that private markets should "bear their fair share of the costs for maintaining a market infrastructure, now borne disproportionately by exchanges" (such as the NAZ and NYSE.) Meanwhile, implied volatility in NASDAQ options is at 35 (-.4) and falling to new 52-week lows. Earnings expected around Nov 5.
Implied Volatility Movers
Apple Computer (AAPL) implied volatility is falling to new 52-week lows. Shares are up 5% to $199.50 after the company reported a 47% jump in profits on surging iPhone sales. Implied volatility in AAPL options is crashing down below 26, from about 37 yesterday, and below its previous 52-week low of 27.4.
Implied volatility is also lower in Pfizer (PFE), Caterpillar (CAT), and United Technologies (UTX). Implied volatility is higher in Hershey's (HSY), Career Education (CECO), and Cameco (CCJ).
Unusual Volume Movers
Real-Time at WhatsTrading.com
Apple Computer (AAPL) is seeing 2X average daily trading volume, with 524,000 contracts traded and call volume representing 56% of today's activity.
Pfizer (PFE) is seeing 2X average trading volume, with 236,000 contracts traded and call volume representing 63% of today's trading activity.
Microsoft (MSFT) is seeing 2X normal trading volume. 207,000 contracts have traded, with calls representing 57% of today's volume.
Unusual volume (two times or more than normal average volume) is also being seen in Procter & Gamble (PG), Caterpillar (CAT), and Petrobras (PBR).
Regards,
Fred Ruffy
Senior Options Strategist, WhatsTrading.com
TradeKing All-Star Commentator
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.
While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or probability of reaching a specific price point, there’s no guarantee that this forecast will be correct.
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