Looming earnings reports from key financials and little in the way of clarity from the Fed result in a stalemate on Wednesday. For its part, the S&P 500 ETF (NYSEARCA:SPY) finished down a narrow .05% in tight, inside trade worthy of keeping autumnal volatility seekers of all kinds at arm’s length.
Fed fund futures are currently and still pricing in a 60% chance interest rates will be nudged higher by 25 basis points for just the second time since last December’s raise. Bottom-line, Yellen & Co. are unsurprisingly divided between being data dependent, handmaids to Wall Street and those members recognizing “lower for longer” has already run its course.
Following Tuesday’s relatively dramatic selloff within the S&P 500’s (still) tight trading range, indecision to act out further or for that matter, “buy, buy, buy!” may be a function of investors waiting on the boys in pinstripes. Citigroup Inc (NYSE:C), JPMorgan & Chase Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) are set to announce their quarterly results Friday morning and possibly set the tone for earnings season.
Within Wednesday’s quiet on the western front, the energy complex slid for a second straight session. NYMEX crude dipped 0.80% to finish below $50 a barrel at $49.78. Backing the follow-through profit-taking, traders appear to be still giving weight to Tuesday’s bearish OPEC production report for September which saw output at its highest level since 2008.
Biotech was also under technical duress for a second session. The iShares Nasdaq Biotechnology Index ETF (NYSEARCA:IBB) sank nearly 2.50% and in the process, hitting a three month low while giving up 200-day simple moving average support. With no specific sector news traders could simply be pricing in the price of a Clinton presidency and its impact on abusive healthcare price practices.
Coupled with Tuesday’s 3.8% tailspin, the two day selloff in IBB is the deepest for the sector since June’s Brexit event. Shares of biotech giant Regeneron Pharmaceuticals Inc (NASDAQ:REGN), which slumped by 3.26% on no apparent news and Illumina, Inc. (NASDAQ:ILMN) which warned on Tuesday, were two pieces of eye candy for bears.
Unusual Movers: Options
With bulls and bears wrestling with future price direction and hoping for beneficial autumnal volatility, the CBOE Volatility Index found a modest bid of 3.45% to 15.89%.
The quick rush to buy portfolio insurance this week has driven the notorious “fear gauge” roughly 19% above its 10-day simple moving average. Typically, spreads in excess of 15% represent short-term opportunities to fade aggressive and generally, temporary behavior.
At the same time and repeating yesterday’s observation, with most historical panics coinciding with readings in excess of 25% to 30% in the VIX and recognizing we’re only in the first half of October; we’re probably not there yet.
It appears someone really likes Facebook Inc (NASDAQ:FB). The social media darling saw 9,300 of the Weekly Nov. 4 $137 calls trade on Wednesday and was among one of the most active contracts for S&P 500 constituents.
Compared to open interest of 3,600, Wednesday’s trading activity in the short-term and out-of-the-money call contract points to an opening and very bullish buyer.
The contract is currently stationed above FB stock by 6% but with a closing price of 1.23 would require about 7% to breakeven at expiration.
With just 7 trading days of life for the call, the assumed purchase appears to be a wager on Facebook delivering an earnings report worthy of other investors “liking” FB shares when it reports after the closing bell on Nov. 2.
Disclosure: As of this publishing, investment accounts under Christopher Tyler’s management do not maintain positions in any of the securities or their derivatives mentioned. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
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