Options Market Update January 11, 2016

The first week of 2016 got off to a rocky start, as the S&P had its worst opening week in history. The S&P 500 lost 5.96%, the Dow dropped 6.19% and the Nasdaq fell by 7.26%

For the bulls, there was little to point to last week as nearly every sector of the market fell apart. However, the December Jobs Report crushed expectations as 292,000 jobs were created vs. 200,000 expected. Also, a contrarian may point to the extreme bearish sentiment across the market, which may signal a bottom.

For the bears, everything went right. The S&P 500, the Dow and Nasdaq are now down over 10% from their highs and have officially fallen into a “correction,” and small-cap stocks have been hit considerably harder, as the average small-cap stock is now down nearly 30% from its high. In addition, China’s Shanghai Composite lost 10% last week, and trading was halted for the day on two occasions, as circuit breakers were triggered to prevent greater losses.


The Chicago Board of Options Volatility Index (VIX) closed the week at 27, higher by 48.33% for the week. This is the highest level for the fear index since the market plunged in August and again in September. While the VIX is certainly showing that traders are concerned, the rise has been slow and steady, without extreme spikes. I find this lack of panic interesting, in light of the nasty selloff and calls by many traders for a much more significant market decline.

Events for the Week to Come

The upcoming week is full of economic data releases, Federal Reserve member speeches and the start of earnings season. Unfortunately, very little of that will matter to U.S. stocks. For the time being, the U.S. markets will likely continue to get pushed and pulled by Chinese economic data and currency movement. When that will end is anyone’s guess.

Companies of note that are reporting earnings this week are:
Alcoa (AA) Monday
CSX Corporation (CSX) Tuesday
JPMorgan (JPM) Thursday
Intel (INTC) Thursday
Citigroup (C) Friday
Wells Fargo (WFC) Friday

What Traders are Saying

Unless you were out of the market and in cash, there was no escaping the carnage of last week. For example, the leaders of the market from 2015 like Facebook (FB) and Amazon (AMZN) lost 7% and 10% respectively to start the year. Similarly, leading financial stocks JPMorgan (JPM) and Goldman Sachs (GS) lost approximately 10% each. And the pain wasn’t limited to stocks that had performed well in the previous year; the energy sector and transports continued their downward spiral, as the Energy ETF (XLE) and Transport ETF (IYT) lost another 7%.

The week’s selloff clearly hurt many of our positions as well. We were already in trouble with stocks like KKR (KKR) and JetBlue (JBLU) even though we had taken profits on half our positions. However, our former big profits in Nvidia (NVDA) and Microsoft (MSFT) have now disappeared as the market destruction left very few stocks unharmed. That said, some perspective is needed. Last week was just that—ONE week. While I would prefer all of our positions to go straight up every day, that’s not realistic. If the selling pressure continues, we will either exit or adjust many of our positions.

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