Dr. Kearney’s Option Clinic – It Turned Out to be a Quiet Week…?

If you looked at the closing prices of most major Indexes today and compared it to last Friday’s close, you’d think it was a quiet week. The SPX and NASDAQ Composite gained about 0.1% and the DJIA was higher by about 0.3%. The VIX dropped from 20.41 to 18.98. But the path we took to get there was pretty unusual. Thursday had the best market gains in over three months, but with oil closing above $104 (up 2.4% Friday, 6.5% for the week and at a 29-month high) investors were scared Friday into giving back half of Thursdays gains. Friday’s news of better Retail Sales, a slightly better jobs report and WMT raising their dividend by 21% might have helped a little.

Two interesting items this week. Some "experts" are claiming there is no inflation. The CPI is pretty flat for the year, but over 40% of that is housing prices. If you look at the CRB it’s up 47% in the last ten months! You know what food and fuel prices have done recently, so pick your own inflation index.

Another item pointed out by a friend on the CBOE trading floor (his firm will not allow him to be quoted), was that the Implied Volatility of the At-The-Money March Call and Put in the SPX on the close Thursday pointed to the SPX trading within a 20-point range Friday. 18.49 was the range. While Implied Volatility and the VIX may not be Leading Indicators, sometimes they give you strong clues as to the expected trading range.

Remember that next Thursday, March 10th, the June S&P Future becomes the front month ("top step day" for you old floor traders!), even though the March contract continues on until the the 17th.

Dr. Kearney’s Option Clinic is now closed!