The Prepared Mind 11.19.2012

“Chance favors the prepared mind.” — Louis Pasteur

The markets reached three month lows with a second consecutive week of significant losses.   This was in response to investor concern about the fiscal cliff and the possibilities of a resulting recession.   The sell-off was ameliorated by an afternoon gain of over 1% off of Friday’s lows.  This short covering  may turn into a full-fledged rally if the markets are convinced the new mouthings of bipartisanship in Congress will, in fact, become a reality. A rally is very possible if market believes these statements will become a reality.

The Dow Jones Industrial Average (DJIA) was down 1.77% , losing 227.08 points to close at 12,588.31.  The S&P 500 closed at 1,359.88  –  down 19.97 points or a loss of 1.45%.   The NASDAQ 100 (NDX) closed at 2,534.16,  a loss of  49.63  points or – 1.92%.  The Russell 2000 (RUT)  closed at 773.98  – a loss of 21.02 points or down 2.64%.  The S&P 100 (OEX) lost 1.75% , or -11.00 points,  to close at 619.03. The VIX and other volatility indexes reflected the Friday afternoon optimism  in the markets.  The civility between the different political groups in the U.S. Congress lead to across the board decreases in implied volatility.  The VIX closed last week at 16.41 – a decrease of 11.82%.  Volatility measurements for the other indexes showed similar losses compared to the previous week.  There is a continuing disconnect between market index performance and volatility index performanceNormally volatility indexes would show gains in the face of a continued market sell-off.  This is the second week in a row where index performance ran counter to market performance.  There has been speculation the decline in volatility is in response to a number large long put positions which were closed at profit.  This selling pressure on options led to a reduction in implied volatility.

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

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

12,588.31

-227.08

-1.77%

3.03%

15.53% (VXD)

S&P 500 (SPX)

1,359.88

-19.97

-1.45%

8.13%

16.41% (VIX)

NASDAQ 100 (NDX)

2,534.16

-49.63

-1.92%

11.25%

18.13% (VXN)

Russell 2000 (RUT)

773.98

-21.02

-2.64%

4.46%

19.94% (RVX)

S&P 100 (OEX)

619.03

-11.00

-1.75%

8.45%

17.66%(VXO)

CBOE Volatility Index (VIX)

16.41

-2.20

-11.82%

NA

The coming week should be quiet.  The markets will be closed on Thursday and will have a shortened trading day on Friday. The lower trading volumes often result in market moves being magnified by a lack of liquidity.   The earnings cycle has ended for the third quarter.  There will be a dearth of economic announcements.  Do not let the absence of scheduled announcements lull you into a sense of complacency.  Expect continued interday and intraday price volatility. Upside and downside move are both possible; do not be surprised by either.   I have learned to reduce the size and scope of my positions in uncertain trading environments.  After more than 25 years trading, I still have to remind myself not to focus on opportunities missed.  An opportunity missed is quite often a risk avoided.

The quarterly earnings announcements have ended.  I have expanded the information to include the previous week’s closing price for each individual equity , the current 30 day implied volatility for the options (IV30), the time of the announcement (Before , After or During), average daily option volume (DVO) and consensus earnings per share (XEPS.)  I have scanned the pending announcements to include optionable stocks trading above $20 with an implied volatility greater than 20 and average daily volume exceeding 200 contracts.    This information provides crucial first pass information – liquidity and relative price – for those trading earning announcements.   You should confirm any information provided in the blog.  Events, dates and times can and will change.

Trade with a plan.  Be wary.  Don’t panic.  Profitability does not require buying a bottom or selling a top.

 

Remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

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

Monday November 19:

Economic:   October Existing Home Sales – 10:00, November  Housing  Market  Index – 1:00

Earnings:

Symbol

Company Name

Nov 16 close

IV30

B/A

XEPS

A Agilent Technologies Inc.

35.75

34.1

A

$0.80

JACK Jack in the Box Inc

25.1

35.1

A

$0.36

NUAN Nuance Communications Inc.

20.34

46.6

A

$0.48

QIHU Qihoo 360 Technology Co., Ltd.

23.03

59.8

A

$0.06

LOW Lowes Companies Inc.

31.4

32.2

B

$0.35

URBN Urban Outfitters Inc.

34.82

52.1

D

$0.41

Tuesday November 20:

Economic:  Housing Starts – 8:30, ISCS-Goldman Sachs Retail Sales – 7:45, Redbook – 8:55.

Other:  Richmond Federal Reserve Bank President Jeffrey Lacker speaks at the Shadow Open Market Committee’s Fall Symposium title  “The Fed’s Monetary Policy Adrift” – 9:00, Federal Reserve Chairman Ben Bernanke speaks to the Economic Club of New York – 12:15.

Earnings:

Symbol

Company Name

Nov 16 close

IV30

B/A

XEPS

CRM Salesforce.com

140.73

44.2

A

$0.32

SIG Signet Group plc

51.24

34.3

B

$0.37

VAL Valspar Corp.

55.72

28.6

B

$0.85

 

 

Wednesday November 21:

Economic:  MBA Purchase Applications – 7:00, Jobless Claims _ 8:30, PMI manufacturing Index Flash – 8:58, Bloomberg Consumer Comfort Index – 9:45, Consumer Confidence – 9:55, Leading Indicators – 10:00, , EIA Petroleum Status Report – 10:30, EIA Natural Gas Status Report – 11:00.

 

Other:   Partial (?) general strike by unions in Greece, France, Spain, and Portugal. San Francisco Federal Reserve Bank Pres. John Williams delivers the Wu Lecture at the Center for the Pacific Rim, in San Francisco – 8:45

Earnings: 

Symbol

Company Name

Nov 16 close

IV30

B/A

XEPS

DE Deere & Co.

85.39

25.8

B

$1.88

 

 

Thursday November 22:

U.S. Holiday – Markets Closed

 

Friday November 23:

NYSE Early close – 1:00.

Other:  Atlanta Federal Reserve Bank Pres. Dennis Lockhart speaks at the 5th Annual University of Virginia Investing Conference, in Charlottesville, Va – 4:20.

Earnings:  

 

Monday November 26:

Economic:   October Existing Home Sales – 10:00, November  Housing  Market  Index – 1:00

Earnings: None optionable.

 

 

 

 

 

 

 

 

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