Overnight trading in Europe and Asia has been light with European equities trading flat. The only major news driving trading this morning is a poor preliminary Japanese GDP reading: GDP growth was 0.3% Q/Q versus 0.6% expected and 1.2% last quarter. Also notable is a story out of China that a reserve ratio requirement decrease may have been delayed because current reverse repo activities are seen to be providing enough liquidity.

There will be no major US economic data released Monday, but Tuesday’ schedule includes the PPI, retail sales, and business inventories and Wednesday’s includes the CPI and industrial production. We expect these to be market moving events and could provide a catalyst for moving the market from its consolidation around 1400 in the S&P 500.

Technically the market is at a significant level. Last week the Russell 2000 ($RUT) closed above 800, the S&P 500 ($SPX) closed above 1400, and the NASDAQ Composite ($COMP) closed above 3000. At the same time the Russell 2000 Volatility Index ($RVX) closed below 20 and the S&P 500 Volatility Index ($VIX) closed below 15. RVX has only closed below 20 once since 2007 on a weekly basis and VIX has only closed below 15 four times since 2007 on a weekly basis. Since this is options expiration week we foresee traders taking advantage of this low implied volatility by rolling their portfolio protection forward. This could provide moderate downward pressure on the indices as sellers of out-of-the-money puts sell S&P futures against their short options as a hedge.