Dow Drops Again in Quiet Session While VIX Continues Its Descent

Posted

Referenced Stocks:AA;AIG;BA;GRPN;HPQ

The Dow Jones Industrial Average (DJI) moved lower again today as investors readied their portfolios for earnings season. "It was more of the same as yesterday," observed Schaeffer's Senior Technical Strategist Ryan Detrick, CMT. "We pulled back on light volume as everyone gets ready for earnings season. Don't worry," Detrick noted, "once earnings season heats up, we'll start to see more action."

Continue reading for more on today's market, including :

• What was "surprising about today's action" ? Senior Trading Analyst Bryan Sapp explains.
• Earnings season is here and Schaeffer's contributor Adam Warner offered a preview of coming reports .
• Last week's fiscal-cliff deal doesn't mean the budget talks are over. Here are three key dates to watch this quarter.

plus...

• AIG shows some nerve, Groupon ( GRPN ) attracts some hopeful traders, and our Tweet of the day offers an important reminder to jaded traders.

It was indeed a near-repeat of Monday, as the Dow Jones Industrial Average (DJI) traded in a fairly narrow range but spent the entire day south of breakeven. By the close, the blue-chip index had given back 55 points, or 0.4%, but remained above its 10-day moving average for the fifth consecutive session. Still, 14 of the 30 Dow names closed in the black, led by Hewlett-Packard ( HPQ ), which appreciated by 1.5%. Alcoa ( AA ) was flat on the day ahead of its earnings release, and Boeing ( BA ) brought up the rear, losing 2.6% amid reports of a fuel leak with one of its 787 Dreamliner aircraft.

The S&P 500 Index (SPX) moved lower as well, dropping 4.7 points, or 0.3%. The Nasdaq Composite (COMP) suffered the smallest deficit, shedding 7 points, or 0.2%.

After spending most of the day in positive territory, the CBOE Market Volatility Index (VIX) made it six losses in a row, closing down 0.2 point, or 1.2%.

A Trader's Take :

"After the huge rally last week, it could very well have been time for a break, and that is what we're seeing this week," quipped Detrick. "The biggest news of the day were the rumors that AIG was considering suing the U.S. government over violation of the Fifth Amendment. That's right, suing the same government that bailed them out. This isn't set in stone and is not certain to actually happen, but the fact it is even being considered is pretty amazing."

3 Things to Know About Today's Market :

• Jaws were heard dropping up and down Wall Street today, as American International Group ( AIG ) deliberated whether or not to join a shareholder lawsuit against the U.S. government. At issue are the specific terms of the $182 billion bailout that saved the insurer from bankruptcy (or worse) in 2008, as shareholders were negatively impacted by high interest rates. Former AIG CEO Maurice "Hank" Greenberg initially filed the suit and is now fighting its dismissal in federal court, while a separate suit proceeds through the US. Court of Federal Claims. Ironically, this news comes on the heels of AIG's "Thank You, America" TV ad campaign, which offers gratitude for the government assistance.
• With Alcoa ( AA ) slated to report fourth-quarter earnings after the close, earnings season has unofficially begun. This quarter, companies in the S&P 500 Index (SPX) are projected to report earnings growth of 2.8%, up from the anemic 0.1% growth rate in the third quarter.
• The Consumer Electronics Show (CES) opened in Las Vegas last night, and tech-sector analysts say to be on the lookout for three themes. First, PC manufacturers will try and stage a renaissance, spurred by touchscreen tablets. Meanwhile, mobile companies will feature the smartphone as the nucleolus from which users can control all aspects of their digital life. Finally, those in the television business hope to convince consumers that it's worth paying for bigger and brighter technology.

Plus ... Google (GOOG) is testing its free WiFi service in an area populated by those who are probably already paying a monthly Internet fee -- Manhattan's chic Chelsea neighborhood. This is one step toward Mayor Michael Bloomberg's quest to be "the world's leading digital city," with "universal access to high-speed Internet." Under the terms of the deal, GOOG will absorb two-thirds of the costs to build and maintain the network, while a nonprofit neighborhood development group will pick up the rest. While Chelsea isn't exactly a region where residents can't easily afford Internet access, it is home to Google's NYC-based office.

Today's Top Tweet :

"Don't trade out of boredom, have a plan and see it first. Days like today are often best spent studying."
@SunriseTrader, , 12:50 p.m.

5 Stocks We Were Watching Today :

1. Groupon ( GRPN ) options traders are looking for a bounce higher over the next few weeks.
2. Bank of America (BAC) was tagged with price-target hikes at a pair of brokerage firms.
3. Ford Motor (F) bulls traded a bullish spread in the January 2015 series.
4. Short-term skeptics focused their efforts on Akamai Technologies (AKAM).
5. Juniper Networks (JNPR) speculators switched gears, buying to open April-dated puts.

Question of the Day :

Q : How can I determine if I will be assigned on my sold option?
A : An option seller will typically not be assigned unless the position is in the money at expiration. One (albeit not foolproof) way to determine the odds of this outcome is by looking at the option's delta, which gives a rough estimate of the percentage chance a position has of being in the money by expiration. So an option with a delta of positive or negative 0.2 has a 20% chance of being in the money when the options expire. This is a general method, however, as delta does not (and cannot) account for unexpected dramatic moves in the underlying security.

For a look at today's options movers and commodities activity, head to page 2.

Commodities :

Oil futures were little changed in Tuesday's session, with the February contract edging down 4 cents to $93.15 per barrel. Gold futures, however, mounted a strong advance, snapping their recent losing streak. February-dated gold added $15.90, or 1%, to settle at $1,662.20 an ounce.

At the end of every market day, the staff at Schaeffer's Investment Research reviews the trading day in detail, covering major events and key market developments. Don't miss this critical, timely and insightful report. If you enjoyed today's edition of Market Recap, sign up here for free daily delivery straight to your inbox.