By Brian Shepard
The last several quarters have generally been characterized by revenue misses, earnings beats (but by a shrinking amount), and negative guidance; as a result, there has been a negative skew to stock prices. In other words, in the immediate aftermath of the report, earnings beats have marginally outperformed the market, while misses sell off hard, primarily due to weak forward guidance. The sustainability of earnings growth remains key given the weak top-line environment. Margins were a theme we covered last year. Margins revert to the mean not for purely technical reasons, but because the free market works. As the economy expands, companies start earning above-average profits. The competition reacts to inflated margins. (Source)
Today’s observations: Lowest level in the VIX, fear gauge, since June 2007. The VIX has plummeted 10 handles from the high of 23.72 on Dec. 28. Mike V posted: So what’s the significance of 5yr VIX lows. I think it has been 5yrs since I looked at it. Roger Volz offered: Lower highs and lower lows, starts a 2-3 month sideways chop to get me interested in hedges. I would like to see some bearish capitulation as the spoos retest last September. Also, the pending earnings and the looming debt ceiling um, negotiations should ring in some concerns.
European Central Bank and Bank of England meetings are held premarket tomorrow. Pending news leads to uncertainty and profit-taking in front of the news.
Earnings season and a few observations: 85% of the SP 500 reports earnings over the next 2 weeks – STAY NIMBLE. Summary is that protection has been taken down and the Street is leaning long with S&P being up 2.4% as we enter earnings. 1) 2013 reported earnings are currently set at $100.71 for the S&P 500 by Standard = represent a rise of 14% in the coming year from the current levels of $87.1. 2) VIX saw its biggest one-week loss in more than 25 years = fear has exited the picture for January. 3) SPX derivative flows have seen bullish flows with accounts selling out of protection and establishing upside call positions. 4) XLF seen upside calls being bought > Jan 17 calls bought 50k (WFC reports Friday and next week a lot of banks report). 5) The yield on the benchmark 10-year note closed at eight-month highs above 1.9% and nearly topped 2% at one point.
Posted premarket by @princetontrader aka Mike V:
Pivots: http://t.co/SA5b7c8q Webcast: http://t.co/xSLp12d Mike also posted his vol windows at (08:53:17): ES: 1460.50 x 1450.75 and NQ: 2729.00 x 2711.75.
MTS charts posted by @tbg4321 aka Kathy:
NQ http://screencast.com/t/J03yPLuvaGX DX http://screencast.com/t/gCh5fNkOr
CL http://screencast.com/t/8Q0hWtAOOd 6E holding its breath in contraction, but holding below B pt of emerging Crab (brown) http://screencast.com/t/XEen0HMc
Today the S&P futures (spoos) started with 202k ESH and 1.4k SPH traded on Globex, trading range was 1451.60 – 1456.40. Tuesday’s regular trading hours (RTH’s), pit session trading range was 1446.20 – 1455.50 before settling at 1452.30, down 3.5 handles. Yesterday we posted: Definitely seeing a pickup in hedging activity – along with some specific large trades.
Today’s RTH opened 1455.50 – 1455.70, traded 1455 and up to 1456.60 and faded back to 1454.50. Both [AAPL] and [GOOG] were slightly lower as the spoos clawed their way to new highs 1459.30. The VIX traded a five-year low at 13.22, down another 40 cents, before reversing. The spoos gradually faded back throughout the balance of the morning and going into the 10 year auction printed a new daily low of 1453.50 before upticking to 1455.00 area. Jack Broz opined the lousy auction moved bonds/notes back into the range, virtually neutral now. So, basically the recent consolidation continues in the markets during the early days of 2013 as traders have not been pressing the downside yet.
Once again, the midday doldrums saw sideways trade in light volume along with an influx of traders leaving early. During the noon hour, the spoos briefly breached the opening range, but lacked conviction and trended lower, retesting the daily low at 1:53CT. 1453.20 briefly held, followed by 1452.90 and then 1452.80 by 2:12 as traders were tentative approaching 1452.30, previous settlement. After topping out at 1455 at 2:23 the spoos were trading 1454 area when the 2:45 closing imbalance showed 16 of the Dow 30 to buy and the broader market with a moderate $400M to buy. On the 3:00 cash close the spoos traded 1455.70 area before settling at 1456.00, up 3.5 handles on the 3:15 futures close.
Brian Shepard is a 20-year exchange member of the CME Group.
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