Equities rally on fiscal-cliff optimism

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Equity indexes saw sharp gains yesterday apparently on optimism over fiscal-cliff negotiations, driving the CBOE Volatility Index and its futures lower.

The S&P 500 ended the session at its high of the day at 1430.36, up almost 16.78 points, or 1.2 percent--its highest close since Oct. 22. The SPX rallied through the morning, took a breather through the afternoon, and then pushed higher into the bell. It is just below resistance at 1438, while support is at 1400.

The Nasdaq 100 was up 36.17 points, or 1.38 percent, to 2664.26. This is still below the close from last Wednesday. It remains between support and resistance, which are now at 2625 and 2700 respectively.

The Russell 2000 was up 11.25 points to 835 even, finishing at its session high. It matched the close from last Tuesday, which was the small-cap index's highest since Oct. 18. Support is at 810 and resistance at 842.

The action left the VIX down 0.66 points, or 3.9 percent, to 16.34. The volatility index was at 17, unchanged with just 90 minutes left to trade, and then collapsed.

The December VIX futures fell 0.65 points to finish trading at 16.20, while the January futures were down 0.70 points to 16.50. This is the flattest term structure we have had in a very long time and makes the iPath S&P 500 VIX Short-Term Futures ETN an interesting play for those that want to be long volatility or hedged.

The VIX options turned over 362,000 contracts, 253,000 of which were calls. Despite that action the VVIX Index, which measures the implied volatility of the VIX options, was down 5 percent to 82.10. There is clearly optimism that the fiscal cliff will be averted, but the VIX term structure is not what we normally see when equities are on the rise or expected to move higher.

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