The Prepared Mind 8.13.2012

Yogi Berra, member of the Baseball Hall of Fame, is renowned for his quotations and malapropisms.  Many of these contain sage advice  applicable to trading.  Two of my favorites are, “You can observe a lot by watching” and, “If you don’t know where you’re going, you’ll wind up somewhere else.”  The current markets reinforce Yogi’s understanding of the human (and market) condition.  Ignore them at your own peril.

The broad-based indexes seemed to be telling us everything is fine and showed gains for the fifth consecutive week.  Friday had low volume in The Dow Jones Industrials and the Average ended the week with the narrowest trading range in 18 months, and was the smallest non-holiday range in over three years.  The S&P 500 (SPX) closed the week above 1,400 with a gain of 14.88 points –  up 0.1.07% at 1,405.87.      Last week the Dow Jones Industrial Average (DJIA) closed at 13,207.95 –  up 111.78 points or a gain of 0.85%. The NASDAQ 100 (NDX) led the indexes with a gain of 46.96 points or plus 1.75% to close at 2,722.96.    The S&P 100 (OEX) gained 0.87% to close at 646.22. The Russell 2000 (RUT) closed above 800 at 801.55, a gain of 13.07 points – up 1.66%%.  The VIX and other volatility indexes reflect the optimism – or more accurately the lack of fear – in the market shown in the market.  The VIX ended the week with its lowest closing price in 5 months – 14.74%.  The closing numbers for the other volatility indexes reflected the lack of fear about the current market.  What is on the horizon?

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

Index Close Weekly Change % Weekly % YTD Volatility of  Index
Dow Jones Industrials (DJIA) 13,207.95 111.78 0.85% 8.11% 13.57% (VXD)
S&P 500 (SPX) 1,405.87 14.88 1.07% 11.79% 14.74% (VIX)
NASDAQ 100 (NDX) 2,722.96 46.96 1.75% 19.54% 15.89% (VXN)
Russell 2000 (RUT) 801.55 13.07 1.66% 8.18% 19.98% (RVX)
S&P 100 (OEX) 646.22 5.58 0.87% 13.22% 13.89%(VXO)
CBOE Volatility Index (VIX) 14.74 -0.90 -5.75% NA

The S&P 500 is in a trading range of 1,280 to 1,425.  Many market technicians are predicting a pullback as the 10 week rally approaches resistance levels.  Tuesday and Wednesday will bring the announcement of July Producer Price and Consumer Price Indexes.  While a number of retailers (Sears, Wal-Mart, Dollar Tree and Gap) are announcing earnings on Thursday, earnings announcements will be a non-factor this week.  Corporate profits announced for the past quarter showed a slowdown in earnings growth.  Focus on Thursday’s weekly employment report on Thursday will continue to carry more weight than usual.  Last week’s better than expected employment numbers disappointed bulls who saw the results as lessening the likelihood of QE3.  Analysts are looking for additional information to help them predict future Fed intervention.  There is continued concern about unrest in Syria, Iran’s nuclear capability, China’s economic growth and the future of the Euro.  Equally compelling arguments can be made for market gains or losses.  Do not be surprised by either….or both.

As Yogi said, “You can observe a lot by watching” Be careful.  Be aware.  Be nimble. Remember to focus on hitting singles and doubles.  Take profits and cut short losses,  Take what volatility and price movement give you.

Remember:

“Chance favors the Prepared Mind.” – Louis Pasteur

“When you get to a fork in the road, take it.” – Yogi Berra

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

Monday August 13:

Economic:  No U.S. Economic Reports

Earnings:  BMO:  Sysco (SYY); AMC:  Interoil (IOC).

Other:  Second Quarter Greek GDP.

Tuesday August 14:

Economic:  NFIB Small Business Optimism Index – 7:30,  ICSC Goldman Sachs Retail Store Sales – 7:45, July Producer Price Index – 8:30, July Retail Sales -8:30, Redbook – 8:55, July Business Inventories – 10:00.

Earnings:  BMO:  Dick’s Sporting Goods (DKS), Estee Lauder (EL), The Home Depot (HD), Nationstar Mortgage (NSM), TJX (TJX), Valspar (VAL); AMC:  Bob Evans Farms (BOBE), Myriad Genetics (MYGN).

Other:

Wednesday August 15:

Economic: MBA Purchase Applications – 7:00, July Consumer Price Index  – 8:30, Empire State Manufacturing Survey – 8:30, Treasury International Capital – 9:00, July Industrial Production – 9:15, July Capacity Utilization – 9:15, Housing Market Index – 10:00, EIA Petroleum Status Report – 10:30.

Earnings:  BMO:   Deere & Co.,  Staples (SPLS), Target (TGT)AMC:  Agilent (A), Applied Materials (AMAT), Cisco Systems (CSCO), Limited Brands (LTD), Network Appliance (NTAP), Netease (NTES), Petsmart (PETM), Sina Corp (SINA).

Other: Minneapolis Federal Reserve Bank Pres. Naryana Kocherlakota speaks in Minot, North Dakota – 8:00 PM.

Thursday August 16:

Economic:    July Housing Starts –  8:30, Jobless Claims – 8:30, Bloomberg Consumer Confidence Index – 9:45, August Philadelphia Fed Survey  – 10:00, E-Commerce Retail Sales – 10:00, EIA Natural Gas Status Report – 10:30.

Earnings:  Earnings:  BMO:  Buckle (BKE), Cato Corp (CATO), Dollar Tree Stores (DLTR)GameStop (GME), Perry Ellis International (PERY), Perrigo (PRGO), Ross Stores (ROST), Sear Holdings (SHLD), Stein Mart (SMRT), Wal-Mart (WMT); AMC:  Aeropostale  (ARO), Gap (GAP), ScanSource (SCSC).

Friday August 17:

Economic: August Reuters/University of Michigan Consumer Sentiment – 9:55, July Leading indicators – 10:00.

Earnings:  BMO: AnnTaylor Stores (ANN), Foot Locker (FL), Hibbett Sports (HIBB), J.M. Smucker (SJM).

Monday August 20:

Economic:  Chicago Fed National Activity Index – 8:30.

Earnings:  BMO:  Lowes Companies (LOW); AMC Nordson (NDSN), Tuesday Morning (TUES), Urban Outfitters (URBN).

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

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