Fear Spikes as North Korea Tensions, Irma Anxiety Ramps Up

The VIX is pacing toward a 23% weekly gain

Sep 8, 2017 at 2:41 PM
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After closing higher for two straight weeks, U.S. stock markets slipped during the holiday-shortened week -- although this is par for the course for the S&P 500 Index (SPX) after Labor Day. Traders returned from the long weekend to react to news of another North Korea missile launch -- with the potential for another strike this weekend -- while anxiety was also heightened by uncertainty surrounding Hurricane Irma. The Category 4 storm is expected to make landfall in Florida on Sunday --with Hurricane Harvey still fresh on traders' minds.

Irma Levels Insurance, Travel Stocks

In addition to the broader equities market, the anticipation surrounding Hurricane Irma took its toll on several sectors. Following last week's selloff for Dow stock Travelers, several other insurance stocks took it on chin, including HCI Group, Universal Insurance Holdings, and Heritage Insurance Holdings -- all of which have heavy exposure to Florida. Several restaurant stocks also took a hit on expectations of shrinking sales, with Fiesta Restaurant shares sinking to multi-year lows.

The travel sector also stared down hurricane headwinds with several cruise stocks selling off, while disappointing guidance only added to United Continental's bad week. Elsewhere, online travel name Priceline -- which is historically the worst stock to own in September -- continued to struggle against newfound technical resistance, due in part to sector peer Trivago's really bad week.

Equifax Breach Lifts Cybersecurity Stocks

Tech stocks had a rough start to the week, attracting a rare batch of put buyers to Advanced Micro Devices' options pits. Himax Technologies, meanwhile, erased some of its Qualcomm-inspired gains, and is on track to end the week in the red. Not all news was bad news, though, with GoPro stock taking an earnings-induced jump into double-digit territory. Plus, a massive data breach at Equifax had cybersecurity stocks like FireEye ending the week strong, while Goldman Sachs said to buy these video game stocks.

Drug Data Boosts NewLink Genetics, Sarepta Therapeutics

It was another busy week for biotechs, with a regulatory win helping spark a record-setting surge for Cellect Biotechnology stock. NewLink Genetics also gapped higher -- more than doubling in value this week, and putting the squeeze on shorts -- on solid drug data, while Sarepta Therapeutics jumped on solid data for its second Duchenne muscular dystrophy (DMD) treatment. On the flip side, Alnylam Pharmaceuticals plunged following a fatal end to its clinical trial. 

It's an Attractive Time to Purchase Options Hedges

And even though volatility spiked this week -- with the CBOE Volatility Index (VIX) pacing toward a 23% weekly gain -- it's still an affordable time to initiate options hedges against broader stock-market uncertainties. While one trader appears to have taken heed and bought out-of-the-money puts on this large- and mid-cap global ETF, big-money traders have failed to hedge long positions on this favorite ETF trade. Drilling down, there are a number of specific equities with cheap options, including several big-cap defense stocks and this uptrending drink stock.

iPhone 8 Reveal, Inflation Data on Tap

Though earnings season is winding down, there's still plenty of upcoming market-moving events to trade. All eyes will be on Apple next week, when the iPhone 8 is revealed -- with one analyst targeting record highs ahead of the event.

Additionally, bank stocks and gold prices could continue to be in focus as inflation data hits ahead of the Sept. 19-20 Fed meeting. No rate hike is expected this time around, while dovish Fed talk this week has some wondering if the central bank will hold off on raising rates until next year. However, despite this week's decline -- and September's historically bearish bias -- it may not be the best time to sell stocks just yet.

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