The Prepared Mind 9.10.2012

The market mavens are in near unanimity in their market prognostications:  “To infinity…..and beyond.”  It is as if the financial media have joined Star Command and now sit at the feet of Buzz Lightyear.

On Thursday , Mario Draghi joined the pantheon of financial superheroes.  “Super Mario”  and the European Central Bank laid out a plan to stabilize the euro and euro-zone woes by buying government bonds and reducing borrowing costs.  European markets reacted immediately with Spain up 4.9% and Italy up 4.5%.  There are caveats.  Countries must request intervention by the ECB.  Adherence to strict budgetary and fiscal guidelines is required for the country requesting intervention, and national political climates may be a roadblock to implementation of this program.  On September 12, the German constitutional court will rule on the conditions concerning ratification of the bailout plan.  None of this will happen without full German participation.

The news from Europe spilled over into the U.S. with a number of indexes reaching multiyear highs. The Dow Jones Industrials reached their highest level since December 28, 2007.  The Dow Jones Industrial Average (DJIA) closed at 13306.64 – up 215.80 points or a gain of 1.655. The S&P 500 reached its highest level since January of 2008 – closing at 1,437.92 up 31.34 points and 2.23%.   The NASDAQ 100 (NDX)  is at its highest level since 200.  The NDX closed at 2,825.11 a gain of 52.87 points or 1.91%.  This performance reflected continued strength by Apple, and Amazon.    The Russell 2000 (RUT) was the biggest gainer for the week closing at 842.27 – up 30.18 points or + 3.72%.  The S&P 100 (OEX) gained 2.17% to close at 660.41. The VIX and other volatility indexes confirmed the upside market move.    The VIX closed this week at 14.38%.  The move was – 3.09 points or 17.69%.      Equity and option volumes still continue to trade  at yearly lows.

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

Index Close Weekly Change % Weekly % YTD Volatility of  Index
Dow Jones Industrials (DJIA) 13,306.64 215.80 1.65% 8.91% 13.19% (VXD)
S&P 500 (SPX) 1,437.92 31.34 2.23% 14.34% 14.38% (VIX)
NASDAQ 100 (NDX) 2,825.11 52.87 1.91% 24.03% 15.44% (VXN)
Russell 2000 (RUT) 842.27 30.18 3.72% 13.68% 18.52% (RVX)
S&P 100 (OEX) 660.41 14.00 2.17% 15.70% 13.37%(VXO)
CBOE Volatility Index (VIX) 14.38 -3.09 -17.69% NA

The coming shortened trading week will focus on Thursday’s reports from the FOMC along with the ruling on the new ECB solution from  the German constitutional court.    The impending “fiscal cliff” will continue to provide a backdrop to these announcements.  Earnings are at a quarterly low and will not have an impact on the markets this week.

Brian Johnson, a current client of OptionVue and DiscoverOptions has recently started a blog – Trader Edge.  His blog can be found at http://traderedge.net/.  Bill has started a series titled, “11 Rules to improve Your Trading.”  His first rule is:  “Trade with the Prevailing Trend.”  The  corollary to Bill’s rule is to “Avoid Trading against a Prevailing Trend.”  This is very important for those of us who are contrarians.  Trading against trends requires extreme vigilance on the part of the trader.  Being nimble is very important for the contrarian.  Current volume levels in the options market have made it difficult to adjust or close problem positions.  Pay very close attention to volume and open interest when creating option positions.   Do not put yourself in the situation where position size or volume of the underlying put you at a trading disadvantage .

Be disciplined.  Trade with a plan. Know where you will take profits and losses.

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 September 10:

Economic:  Consumer Credit – 3:00.

Earnings:  BMO:  John Wiley & Sons (JW.A), Sasol (SSL), Titan Machinery (TITN); AMC: Casey’s General Stores (CASY), Five Below (FIVE), Palo Alto Networks (PANW) .

Tuesday September 11:

Economic:  NFIB Small Business Optimism Index – 7:30, ISCSI-Goldman Sachs Retail Sales – 7:45, International Trade – 8:30, Redbook – 8:55.

Earnings:  BMO: United Natural Foods ((UNFI) .

Other:

Wednesday September 12:

Economic: MBA Purchase Applications – 7:00, Import and Export Prices – 8:30, Wholesale Trade – 10:00, EIA Petroleum Status Report – 10:30.

Earnings: BMO:  AMC:  Pall Corp (PLL).

Other:  FOMC Meeting Begins.  Eurozone July Industrial Production.

Thursday September 13:

Economic:  Jobless Claims – 8:30, Producer Price Index – 8:30, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Status Report – 10:30.

Earnings:  BMO: K12 (LRN), Pier 1 Imports (PIR);  AMC Analogic (ALOG),  .

Other:  FOMC Meeting Announcement – 12:30, FOMC Forecasts – 2:00, Ben Bernanke Press Conference – 2:15.

Friday September 14:

Economic: Consumer Price Index – 8:30, Retail Sales – 8:30, Industrial Production – 9:15, Reuters University of Michigan Consumer Sentiment 9:55, Business Inventories – 10:00.

Earnings:  BMO:  Cubic Corp(CUB).

Monday September 17:

Economic:  Empire State Manufacturing Survey – 8:30.

Earnings:  BMO:  Lennar (Len).

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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