The Prepared Mind 7.2.2012

"Chance favors the prepared mind."-- Louis Pasteur

The markets ended the week with an early display of fireworks.  Equities had their strongest June since the 90’s.  The last hour of trading on Thursday saw a reversal of early losses with gains of over 1%  off the lows in the indexes.   This rally continued on Friday with gains of 2% to 3% in the indexes.  A number of factors contributed to the euphoria.  The primary impetus was the announcement of a deal to recapitalize European banks while centralizing authority.  In addition, end of the quarter “window dressing” contributed to the gains.  The net result was the best June for the S&P 500 since 1999 and for the Dow since 1997.  It should be noted the numbers for the second quarter are not as rosy.  The DJIA was down 3.9% and the SPX was down 3.3%.

Last week the market action continued to be daily reaction to news – real and imagined.  The Dow Jones Industrial Average closed at 12,880.39 – up 239.61 points or a gain of 1.90%.  The Russell 2000 (RUT) closed at 798.49 , a gain of 23.33 points – up 3.01%.   The SPX ended the week up 27.15 points –  up 2.03% at 1,362.17.  The NASDAQ 100 (NDX) gained 30.29 points or plus 1.17% to close at 2,585.53.    The S&P 100 (OEX) gained 12.10% to close at 623.83.  The VIX continues to fluctuate between negative and positive sentiment.  This week the VIX returned to near end the week near recent lows.  The VIX and the other index volatility measurements were down approximately 6%.

Here is a capsule view of last week’s market numbers:

Index Close Weekly Change % Weekly % YTD Volatility of  Index
Dow Jones Industrials (DJIA) 12,880.39 239.61 1.90% 5.43% 15.32% (VXD)
S&P 500 (SPX) 1,362.17 27.15 2.03% 8.32% 17.07% (VIX)
NASDAQ 100 (NDX) 2,615.82 30.29 1.17% 14.84% 18.64% (VXN)
Russell 2000 (RUT) 798.49 23.33 3.01% 7.77% 21.93% (RVX)
S&P 100 (OEX) 623.83 12.10 1.98% 9.29% 16.54%(VXO)
CBOE Volatility Index (VIX) 17.07 -1.04 -5.74% NA

Next week will be a shortened trading week.  Equity markets will close early on Tuesday July 3.  All U.S. markets will be closed on the 4th of July to celebrate Independence Day.  The shortened week should not be devoid of additional fireworks.  The financial press has started calling the week with the first Friday of the month “Employment Week.” This week’s employment announcements will be compressed into the final two days of the week.  Thursday brings the Challenger Job-Cut Report, the ADP Employment Report, and the Weekly Jobless Claims .  These reports will fuel anticipation for June’s Non-farm Payrolls and Unemployment Rate.  These numbers will be parsed by economists in an attempt to divine the future direction of the U.S. economy.

U.S. employment will not be the only factor affecting market sentiment.  Do not assume downside risk is gone. Last Friday’s euphoria could easily be tempered as details of the European “solution” are released.  In addition, new concerns have been raised about a slowdown of the Chinese economic engine.  Eurodollar levels will provide an ongoing indicator of sentiment about the Eurozone.  There are very few scheduled earnings announcements.  Equity traders should remember to check ex-dividend dates for the stocks they have positions in.

Do not allow yourself to be surprised by “wild card” or unscheduled announcements.  Be nimble.  Be willing to take profits and recenter risk.

Be careful.  Be aware.

Remember:

“Chance favors the Prepared Mind.” – Louis Pasteur

This week’s economic news (All times are Eastern Daylight Time.) Dates and times are subject to change:

Monday July 2:

Economic:  Purchasing Manager’s Manufacturing (PMI) Index 9:00, ISM Manufacturing Index – 10:00, Construction Spending – 10:00.

Earnings:    Acuity Brands (AYI).

Other:  Results of Mexico’s presidential election on July1 announced.

Tuesday July 3:

Economic:  ICSC Goldman Sachs Retail Store Sales – 7:45, Redbook – 8:55, Factor Orders – 10:00.

Earnings:  None optionable.

Other:  U.S equity exchanges close at 1:00 PM.  Options which normally close at 4PM EDT will close at 1:00 PM.  Options which normally close at 4:15 will close at 1:15 PM.

Wednesday July 4:

Other:   U.S. Holiday:  Independence Day – Bond and Equity Markets Closed.

Thursday July 5:

Economic:    Chain Store Sales, MBA Purchase Applications – 7:00, Challenger Job-Cut Report – 7:30, ADP Employment Report – 8:15, Jobless Claims – 8:30, Bloomberg Consumer Confidence Index – 9:45, EIA Natural Gas Status Report – 10:30, , EIA Petroleum Status Report – 11:00.

Earnings:  BMO:  International Speedway (ISCA).

Friday July 6:

Economic: Monster Employment Index, June Nonfarm Payrolls – 8:30, June Unemployment Rate – 8:30.

Earnings:  BMO: None optionable

Monday July 9:

Economic:  Consumer Credit – 3:00.

Earnings:  AMC:  Alcoa (AA), PriceSmart (PSMT), A. Shulman (SHLM), WD-40 (WDFC).

Frank Fahey is a mentor with DiscoverOptions, the educational arm of OptionVue Systems.  Inquiries should call 847-816-6610 or email info@DiscoverOptions.com.

Comments are closed