The Prepared Mind 9.24.2012

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

The past week was characterized by the markets hovering around multi-year highs while moving sideways.  Market participants were confronted with a mixed bag of news.  The Bank of Japan announced their version of quantitative easing, Japan and China are jousting in the China Sea over land claims, August housing starts and sales reached a two year high and a ratcheting up about the dangers of the U.S. fiscal cliff.  The background has been a continuing dirge from Israel and Iran.  Most of the market changing news is on the horizon.  Investors are waiting for something, or anything, to move the market in one direction or another.  Sellers are afraid to sell and buyers are afraid to buy.  Market mavens on both sides of the market continue to espouse their directional beliefs along with supporting “facts.”  The number of market newsletter writers who are bullish exceeds the number of bears by 30%.  Until  a direction makes itself known, market sense (financial street sense) combined with an ability to be nimble will be the hallmark of the successful trader.

The Dow Jones Industrials reached their highest level since December 10, 2007.  The Dow Jones Industrial Average (DJIA) finished at 13,579.47 – down 13.90 points or a loss of 0.10%. The S&P 500 reached closed at 1,460.15 –  down 5.62 points and 0.38%.   The NDX closed at 2,861.64, a gain of 6.41 points or 0.22%.    Domestic and international bank stocks were impacted by negative news and potential downgrades.  The heavy weighting of the financial sector in the Russell 2000 (RUT)  led to a downward move.   The RUT closed R  8, 855.51 – a loss of 9.19 points  or – 1.01%.  The S&P 100 (OEX) LOST 0.08% to close at 672.27. The VIX and other volatility indexes remained static for the week.  The VIX closed the past week at 13.98%.  The move was a loss of  0.53 points or 3.65%.      Equity and option volumes were weak as traders remained in an anticipatory mood.

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

Index Close Weekly Change % Weekly % YTD Volatility of  Index
Dow Jones Industrials (DJIA) 13,579.47 -13.90 -0.10% 11.15% 12.65% (VXD)
S&P 500 (SPX) 1,460.15 -5.62 -0.38% 16.11% 13.98% (VIX)
NASDAQ 100 (NDX) 2,861.64 6.41 0.22% 25.63% 14.44% (VXN)
Russell 2000 (RUT) 855.51 -9.19 -1.06% 15.47% 17.02% (RVX)
S&P 100 (OEX) 672.27 -0.55 -0.08% 17.78% 12.37%(VXO)
CBOE Volatility Index (VIX) 13.98 -0.53 -3.65% NA

Do not ignore the wild card for the week.  The the end of quarter (EOQ) close is on Friday.  Many hedge funds have missed participating in the market gains of the past three months.  The EOQ “window dressing” is a strategy used by mutual fund and portfolio managers at quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase  stocks with significant gains near the end of the quarter. These securities are then reported as part of the fund’s holdings.

Many companies go ex-dividend this week.  Check short in-the-money calls if they have the potential to be assigned.  Rolling the short call up to a higher strike price or out to a further expiration month should prevent this situation from occurring.  Earnings are not a factor this week.  Third quarter earnings announcements will be starting soon.  These announcements will give direction to the market.  Housing and region Fed announcements have the capacity to move the market.

Be disciplined.  Be aware.  Understand what you are trading.  Trade with a plan. Know where and how 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 24:

Economic:  Chicago Fed National activity Index – 8:30, Dallas Fed Manufacturing Survey – 10:30.

Earnings:  BMO:  Lennar(LEN), Ennis (EBF);  MAC:  Paychex (PAYX), Red Hat (RHT),

Other:  Kraft Foods is replaced by United Health Group in Dow Jones Industrial Average.  San Francisco Federal Reserve Bank President John Williams speaks to the S.F. City Club Roundtable – 3:10.

Tuesday September 25:

Economic:   ISCS-Goldman Sachs Retail Sales – 7:45, Redbook – 8:55. S&P Case-Shiller HPI (Home Price Index) – 9:00,  September Conference Board Consumer Confidence – 10:00, FHFA House Price Index – 10:00, Richmond Fed Manufacturing Index –  10:00, State Street Investor Confidence – 10:00.

Earnings:  BMO: Carnival Corp (CCL), Carnival plc (CUK), FactSet Research Systems (FDS), Vail Resorts (MTN), Neogen (NEOG); Copart (CPRT), Jabil Circuit (JBL), SYNNEX (SNX).

Other:  President Barack Obama and Treasury Secretary Tim Geithner speak at Clinton Global Initiative meeting.  European Central Bank President Mario Draghi meets with Germany Chancellor Andrea Merkel

Wednesday September 26:

Economic: MBA Purchase Applications – 7:00,  August New Home Sales – 10:00, EIA Petroleum Status Report – 10:30.

Earnings:  BMO:  Patni Computer Systems (PTI), Sycamore Networks (SCMR); AMC:  Progress Software (PRGS), Thor Industries (THO), Texas Industries (TXI).

Other:

Thursday September 27:

Economic:  August Durable Goods Orders – 8:30,  Q@ GDP – 8:30Jobless Claims – 8:30, Corporate Profits – 8:30, , Bloomberg Consumer Comfort Index – 9:45Pending Home Sale Index – 10:00, EIA Natural Gas Status Report – 10:30, Kansas City Fed Manufacturing Index – 11:00.

Earnings:  BMO: Actuant (ATU), Discover Financial Services (DFS), McCormick & Co (MKC), Worthington Industries (WOR); AMC:  Accenture (ACN), AZZ (AZZ), Comtech telecommunications (CMTL), Global Payments (GPN), Nike (NKE), Research in Motion (RIMM).

Other:  Italian Prime Minister Mario Monti speaks about the Euro.

Friday September 28:

Economic:   August Personal Income and Outlays – 8:30, September Chicago PMI – 9:45, September Reuters University of Michigan Consumer Sentiment 9:55.

Earnings:  BMO:  American Greetings (AM), Finish Line (FINL), HB Fuller (FUL),Walgreen (WAG).

Other:   End of Quarter for U.S. Markets. Audit of Spain’s banking system released.

Monday October 1:

Economic:  PMI Manufacturing Index 9-00, ISM Manufacturing Index – 10:00, Construction Spending – 10:00.

Earnings:  BMO:  Cal-Maine Foods (CALM), Ferrellgas (FGP), Wolverine Worldwide (WWW);  AMC:  Team Inc (TISI).

Other:  Kraft Foods is replaced by United Health Group in Dow Jones Industrial Average.  San Francisco Federal Reserve Bank President John Williams speaks to the S.F. City Club Roundtable – 3:10.

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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