The Prepared Mind 8.6.2012

Last week I characterized watching the market as being in the same league as following a drunk driver.  Monday through Wednesday did their best to convince me that perhaps I was wrong.  Perhaps the markets had finally reached an equilibrium.   Ha.  Thursday’s market was down 1.5%  before rallying nearly 1% at the close.  Friday continued the afternoon rally.  This past Friday was the fifth straight Friday where the Dow Jones Industrials moved triple digits.  Intraday volatility is still a factor which must be considered when choosing a trading strategy.  This market behavior calls to mind the opening lines of the Beatles’ “Helter Skelter”:

When I get to the bottom I go back to the top of the slide
Where I stop and I turn and  I go for a ride
Till I get to the bottom and I see you again.

The broad indexes ended the week approximately 1% on either side of unchanged.  This performance reflected gains in the indexes of 1.7% to 2.6% on Friday.  The DJIA had    Last week the Dow Jones Industrial Average (DJIA)closed at 13,096.17 up 20 points or a gain of 0.16%.  The S&P 500 (SPX) ended the week up 5.02 points –  up 0.36% at 1,390.99.  The NASDAQ 100 (NDX) led the indexes with a gain of 31.97 points or plus 1.21% to close at 2,676.03.  The S&P 100 (OEX) gained 0.55% to close at 640.64. Despite gaining 2.6% on Friday, the Russell 2000 (RUT) still lagged behind the other indexes by closing the week at 788.48, a loss of 7.52 points – down 0.94%.  The VIX and other volatility indexes reflected the optimism shown by the rallies on Thursday afternoon and Friday.   The VIX ended the week at 15.44%.  This was the lowest weekly closing since the beginning of April. The weekly trading range for the other volatility indexes reflected the schizophrenic attitude about the current market news.

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

Index Close Weekly Change % Weekly % YTD Volatility of  Index
Dow Jones Industrials (DJIA) 13,096.17 20.51 0.16% 7.19% 14.44% (VXD)
S&P 500 (SPX) 1,390.99 5.02 0.36% 10.61% 15.64% (VIX)
NASDAQ 100 (NDX) 2,676.00 31.97 1.21% 17.48% 17.46% (VXN)
Russell 2000 (RUT) 788.48 -7.52 -0.94% 6.42% 21.49% (RVX)
S&P 100 (OEX) 640.64 3.48 0.55% 12.24% 14.77% (VXO)
CBOE Volatility Index (VIX) 15.64 -1.06 -6.35% NA

Earnings announcements will be a minimal factor this week.   The major announcements will be by retailers – Nordstrom, Dillard’s and Macy’s.  Play close attention to the conference calls by the retailers.  A number of analysts of forecasting the worst back-to-school season in years.  This number is viewed by many as an indicator of consumer confidence,  Bad guidance by the retailers could spook the market.  Expect the weekly employment report on Thursday to carry more weight than usual.  Analysts are looking for additional information to help them parse the monthly employment numbers released this past Friday.  It is important to understand the different variables affecting the International Trade report on Thursday.  The final number is a combination of imports and exports.  The same final number may result from an increase in exports or a decrease in imports.   What is ostensibly a good number on the surface may in fact be bad if the “good” trade number is the result of a decrease in imports.

Be careful.  Be aware.  Remember to focus on hitting singles and doubles.  Take what volatility gives you.  The closing lines of “Helter Skelter” provide a cautionary message:

Look out helter skelter
She’s coming down fast.
Yes she is.
Yes she is

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 August 6:

Economic:  Treasury STRIPS – 3:00.

Earnings:  BMO:  American States Water (AWR), BroadSoft (BSFT), Cinemark (CNK), Dril-Quip (DRQ), Humana HUM), Sohu (SH), Tyson Foods (TSN); AMC:  CF Industries (CF), Chesapeake Energy (CHK), Concho Resources (CXO), Markel Corp. (MKL), Plantronics (PLT), Tumi (TUMO), Vornado Realty Trust (VNO).

Other:  Federal Reserve Chairman Ben Bernanke speaks via recorded video to the 32nd General Conference of the International Association for Research in Income and Wealth – 9:00.

Tuesday August 7:

Economic:  ICSC Goldman Sachs Retail Store Sales – 7:45, Redbook – 8:55, Consumer Credit – 3:00.

Earnings:  BMO:  Amerigas (APU), Charter Communications (CHTR), Church & Dwight (CHD), CVS Caremark (CVS), Emerson Electric (EMR), Fossil (FOSL), Furmanite (FRM), Maximus (MMS), PG&E (PCG), Molson Coors Brewing (TAP), Vitamin Shoppe (VSI):  AMC:  Sotheby’s (BID), Bio-Rad Labs (BIO), Cree (CREE), Walt Disney (DIS), Express Scripts (ESRX), HeartWare (HTWR), Jazz Pharmaceuticals (JAZZ), Loral Space (LORL), Priceline (PCL), Primerica (PRI), Rackspace Hosting (RAX), VIVUS (VVUS)  .

Other:  Federal Reserve Chairman Ben Bernanke hosts a town hall meeting – 2:30.

Wednesday August 8:

Economic: MBA Purchase Applications – 7:00, Productivity and Costs – 8:30, EIA Petroleum Status Report – 10:30.

Earnings:  BMO:  Broadwind Energy (BWEN), Clean Harbors (CLH), Dean Foods (DF), EchoStar (DISH), GTX (GTXI), International Flavors & Fragrances (IFF), Liberty Media (LINTA), Macy’s (M), Maidenform (MFB), Molex (MLX), Ralcorp (RAH), Polo Ralph Lauren (RL), EchoStar (SATS), Tidewater (TDW); AMC:  Continental Resources (CLR), Dun & Bradstreet (DNB), EnerSys(ENS), Jack in the Box (JACK), Monster Beverage (MNST), Neenah Paper (NP), Universal Display (PANL), Saliz Pharmaceuticals (SLXP). AMERCO (UHAL).

Other:

Thursday August 9:

Economic:    International Trade 8:30, Jobless Claims – 8:30, Bloomberg Consumer Confidence Index – 9:45, Wholesale Trade – 10:00, EIA Natural Gas Status Report – 10:30.

Earnings:  Earnings:  BMO:  Advance Auto Parts (AAP), AMC Networks (AMCX), Belden (BDC), Briggs & Stratton (BGG), Cubic (CUB), Brinker (EAT), Randgold Resources (GOLD), Hillshire Brands (HSH), Kohl’s (KSS), Markel (MKL), Novo Nordisk (NVO), Elizabeth Arden (RDEN), Rolyal Gold (RGLD), Tim Hortons (THI); AMC:  Amylin Pharmaceuticals (AMLN), Bally Technologies (BYI), Dillard’s (DDS), The Howard Hughes Corporation (HHC), Nordstrom (JWN), Medivation (MDVN), Middleby (MIDD), Scotts Miracle-Gro (SMG).

Friday August 10:

Economic: Import and Export Prices – 8:30.

Earnings:  BMO: Harman International (HAR), J.C. Penney (JCP).

Monday August 13:

Economic:  No U.S. Economic Reports

Earnings:  AMC:  Interoil (IOC).

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