Opening View: VIX Signaling Short-term Weakness

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The Dow Jones Industrial Average's ( DJIA ) trading range between the 11,200 and 11,000 levels ended in dramatic fashion yesterday, with the Dow plummeting 225 points to its biggest loss in three months. The DJIA's decline held in the 10,900 area, which is home to its rising 10-week moving average. Look for this area to hold as support, while the 11,000 region could emerge once again as a source of short-term resistance. The S&P 500 Index ( SPX ), meanwhile, is currently perched on support near 1,170, with potential resistance near the 1,185 level, which is home to the index's 160-week trendline. Heading into the open, futures on the DJIA and the SPX are trading down 14 points and up 0.5 point, respectively, as traders prepare for a peek at the U.S. employment situation. Finally, the CBOE Market Volatility Index ( VIX ) soared more than 18% yesterday, marking the index's seventh straight absolute move in excess of 5%. According to Senior Quantitative Analyst Chris Prybal, the VIX has accomplished this feat only five other times since 1990. Furthermore, Chris says that the SPX's average return following this signal is below average "when you look out five to 21 days, historically," when compared to returns since 1990.

In earnings news, Time Warner Inc. ( TWX ) reported first-quarter adjusted earnings of 61 cents per share, as revenue rose to $6.32 billion. Analysts were expecting earnings of 49 cents per share on $6.38 billion in revenue. The company said it expects 2010 adjusted earnings to rise between 14% and 17% over its 2009 adjusted earnings of $1.83 per share. TWX shares are up nearly 3% in pre-market trading.

Chesapeake Energy Corp. ( CHK ) posted first-quarter earnings of $524 million, or 82 cents per share, excluding items. Revenue increased to $2.8 billion from $2 billion. Analysts had forecast the natural gas company to earn 68 cents per share on revenue of $2.05 billion. In electronic trading, CHK has edged nearly 1% higher.

Finally, Garmin Limited ( GRMN ) said that its first-quarter earnings were 38 cents per share, on a pro forma basis, with revenue falling 1% to $431 million. Wall Street was looking for earnings of 42 cents per share. Following the report, GRMN has plummeted nearly 13% in electronic trading.

Earnings Preview

On the earnings front, Allegheny Energy Inc. ( AYE ), Alpha Natural Resources Inc. ( ANR ), American Financial Group ( AFG ), BMC Software Inc. ( BMC ), Brightpoint Inc. ( CELL ), CBS Corp. ( CBS ), Vale S.A. ( VALE ), Prudential Financial Inc. ( PRU ) and Quest Software Inc. ( QSFT ) are slated to release their quarterly earnings reports. Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 1,892,800 call contracts traded on Tuesday, compared to 1,263,154 put contracts. The resultant single-session put/call ratio arrived at 0.67, while the 21-day moving average rose to 0.50 - its first advance since April 16.

Volatility indices

NYSE and Nasdaq summary

**The volume data shown above is from the Nasdaq and NYSE exchanges only. It does not include regional volume activity, which means that other daily volume quotes you see may be higher.**

Dow, S&P and Nasdaq futures

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Overseas Trading

Overseas trading is in poor shape this morning, as only one of the 10 foreign indexes that we track is in positive territory. The cumulative average return on the collective stands at a loss of 0.51%. In Asia, stocks closed in the red amid growing skepticism about Greece's ability to carry out austerity measures, while fears heightened that debt woes could spread to other countries such as Spain and Portugal. Japanese financial markets are closed for the Golden Week holidays, while South Korean financial markets are closed for the Children's Day holiday. Meanwhile, European shares are little changed after sharp losses in the previous session, with robust earnings from Societe Generale limiting losses in banks hurt by the euro zone sovereign debt crisis. Overseas market information comes to you courtesy of Schaeffer's Daily Bulletin .

Overseas markets

Currencies and Commodities

The U.S. dollar is on the march higher once again, as the euro tagged an annual low versus the greenback in overnight trading. Heading into the open, the U.S. Dollar Index is up 0.38% at 83.62. Once again, the combination of a strong dollar and concerns over today's supply data has crude futures falling back. Specifically, the most active contract had dropped $1.10 to $81.64 per barrel in electronic trading. Finally, gold futures have lost some of their luster this morning, with the malleable metal dipping $2.30 to $1,166.90 an ounce in London.

Currencies and commodities

Unusual Put and Call Activity:

For an explanation of how to use this information, check out our Education Center topics on Option Volume and Open Interest Configurations .

Unusual options activity - puts

Unusual options activity - calls

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This article appears in: Investing , Options


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