What's In Store This Week, Lady Wall Street?

The S&P500 moved a whopping 1 point downward last Friday after seeing a high of 1964 and a low of 1942. A brief mid-morning rally that breached the critical 1960 resistance came to end when news of trucks exploding in Crimea caused a sell-off in the indexes. The 1940 level acted as support before the S&P rallied to close the day at 1955.

The week closed with a bullish bias with the the $VIX 30, 50, and 100-day moving averages acting as resistance. The 30-day forward looking volatility for the VIX rests around 84, after seeing highs near 120 in early August. The current value of VIX, 13.15, implies that the markets expect roughly a 3.75% movement in the S&P500 in the next 30 days, while the IV of the VIX implies a 24% movement in the volatility index itself.

Looking forward this week, expect some volatility from economic reports, notably the CPI, FOMC minutes, and home sales.

Sources: briefing.com, Risk Laboratory

On the Ebola front, Tekmira Pharmaceuticals ($TKMR) reported earnings last week, missing the consensus EPS estimate of -$0.26 by 2 cents to report a quarterly decline of -$0.28. Shares in the company developing the most promising Ebola vaccine dropped to $16.10 after reports of the miss, only to recover near its pre-earnings price just north of $18.00. Last week, I talked about how markets were pricing the risk of Tekmira pharmaceuticals. Based on the implied volatility, one could extrapolate a rough $2.75 movement in the stock from its pre-earnings price of $18.60. The stock did just that early Friday morning, only to see an explosion right back above $18.00 to close the week. It looks like someone didn't want the put options they sold in $TKMR to expire in-the-money.

Below is some data behind the current Ebola outbreak.

Like most naturally occurring phenomena (think bacterial reproduction, compound interest, user rate growth), the exponential increase in deaths and cases suggests that the current strain has reached "outbreak" status and does pose significant risk to the current geopolitical landscape. However, $TKMR is still currently priced with speculation that its vaccine will be succesful, but let's keep in mind that the company has yet to generate any sort of revenue. That's not to say that the stock price won't still go up, but due to the nature of human behavior and risk perception, there is still a lot of room for movement in the stock (be it upwards or downwards).

As of 8:30 PM EST, the S&P500 has yet to breach the 1960 support. Expect strong resistance at this point from last Friday's brief rally. Let's take a look at the options skew for $SPY:

Traders expect the 1960 level to show strong resistance, with strong speculation that the US indexes will kick off the week with downward action as far as 1935.5. A contrarian who bets that the S&P500 will breach 1960 may receive a handsome profit from their speculation based on the current pricing of $SPY calls.

Below is the option skew for $VIX:

The $VIX confirms that markets are weary going into the week. However, looking forward to September's expiration, one might be able to extrapolate weakening pessimism/growing optimism as August comes to a close.

Courtesy of CNN

CNN's fear 'n' greed meter shows a slight easing of fear from one week ago which the 6-point drop in the $VIX last week can confirm.

Going into this week, be cautious that geopolitical volatility may erupt like it did Friday morning. Hedge accordingly.

See you at tomorrow's opening bell.


$VIX $NDX $COMPQ $SPX $SPY $RUT