The Prepared Mind 5.28.2013

“Chance favors the prepared mind.” — Louis Pasteur

What a difference a week makes.  What a difference a day makes.  It doesn’t take much to bring out the market bears.  Tuesday morning’s financial news  reported the NASDAQ Composite had just set a new yearly high for the 18th consecutive day.   Yet, the next day the bears were out in full force.  A market consensus based on solely listening to the final three days of last week’s financial talking heads or reading market commentaries, would have led one to believe the bull market was in full retreat. Multiple pundits on CNBC were shrilly forecasting 1450 to 1500 for the S&P 500. The financial media narrative was the markets are overbought and a significant sell-off or correction is imminent or has started..  Multiple reasons were given as proof of the beginning of this correction.  Japanese equities experienced the largest single-day decline since Japan’s March 2011 earthquake. The Nikkei 225 went down 7.3% in response to a reported contraction in China’s manufacturing sector.  Early in the week, Ben Bernanke testified QE2 and Fed asset purchases could begin winding down in the near future.    Has the correction started?  I don’t know, but I would not view last week’s market performance as proof of a correction.

Beware of market seers. The Nikkei closed the week a 15,007.50 – nearly 4% off the market lows.  The Nikkei 225 is up 34.7%.  This past week’s behavior did not confirm a Nikkei correction.  The behavior of the US indexes provided even less supporting evidence of a market sell-off.  The losses for the week were about half of the gains of the previous week.  The NASDAQ 100 was the only index down more than 1%..  The NDX closed at 2,991.02 down 37.94 points or a loss of 1.25%,  The RUT reflected the focus on small caps by losing 0.92%   down 9.13 points to close at 984.88.  The Dow Jones Industrials (DJIA) closed at 15,303.10 losing 0.33% or 51.30 points.  The S&P 500 (SPX) closed at 1,649.60 – down 16.52 points or a loss of 2.04%.  The S&P 100 (OEX) closed at 746.75 – gaining 1.90% or 13.90 points.  The VIX and the other volatility indexes reflected the “fearcasting” during last week.  The VIX closed last week at 13.99 – a gain of 1.54 or a weekly gain of 12.37%.  The other volatility measurements showed similar moves of minimal magnitude.  This performance was as bearish as many of the market pundits would like us to believe. 

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

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

15,303.10

-51.30

-0.33%

16.78%

12.61% (VXD)

S&P 500 (SPX)

1,649.60

-16.52

-0.99%

15.66%

13.99% (VIX)

NASDAQ 100 (NDX)

2,991.02

-37.94

-1.25%

12.41%

14.48% (VXN)

Russell 2000 (RUT)

984.88

-9.13

-0.92%

15.68%

18.62% (RVX)

S&P 100 (OEX)

742.42

-4.33

-0.58%

14.82%

13.64% (VXO)

CBOE Volatility Index (VIX)

13.99

1.54

12.37%

NA

The lack of confirmation of a correction does not mean market participants should not be wary.   A healthy dose of skepticism will always serve the trader well. The late rally on Friday in the DJIA guaranteed the Dow went 100 days without a three day losing streak.  This is the longest 100 day period without a three day losing streak. It is a quiet week for domestic reports.  Final Q! GDP will be released on Wednesday morning.  Other reports will focus on housing,  Paul Volcker and Eric Rosengren speak on Wednesday.  Remarks by either have the potential to move the market.  Be aware of the earnings date for any equities you trade.   I have scanned stocks with upcoming earnings using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm the earnings dates. Continue to be wary of trading any products where there is not adequate liquidity and narrow enough markets.  You should be aware of daily volume and open interest in any products you trade.   I am including a consensus earnings estimate for each stock.  Stick with your plan.    Remain disciplined.

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 May 27:

Memorial Day – All U.S. Markets Closed

Tuesday May 28:

Economic:  S&P Case-Shiller Home Price Index – 9:00, May Consumer Board Consumer Confidence -10:00, Richmond Fed Manufacturing Index – 10:00, State Street Investor Confidence  Index – 10:00, Dallas Fed Manufacturing Survey – 10:30.

Other:   Japan Retail Sales.

Optionable Earnings:

Symbol

Company Name

May 24 close

IV30 B/A XEPS
SDRL Seadrill Limited

$36.82

23.7

B

$0.61

TIF Tiffany & Co.

$76.19

32.3

B

$0.53

CPRT Copart Inc.

$36.82

46.9

A

$0.50

ENS EnerSys

$48.39

30.1

A

$0.78

 

Wednesday May 29:

Economic:  MBA Purchase Applications – 7:00, ICSC – Goldman Sachs Store Sales – 7:45, Redbook – 8:55.

Other:  Paul Volcker, former Fed chair, addresses Economic Club of New York, Boston Federal Reserve Bank President Eric Rosengren speech on the economic outlook in Minneapolis – 12:00 PM.  Japan CPI – 7:30 PM. Japan Industrial Production – 7:50PM.

Optionable Earnings: 

Symbol

Company Name

May 24 close

IV30

B/A

XEPS

DG

Dollar General Corp.

$54.45

28.0

B

$0.72

DSW

DSW Inc.

$69.93

31.8

B

$0.90

KORS

Michael Kors Holdings Limited

$59.81

56.8

B

$0.37

TFM

The Fresh Market, Inc.

$45.74

44.3

B

$0.44

 

Thursday May 30:

Economic:  Q1 GDP – 8:30, Weekly Jobless Claims – 8:30, Corporate Profits – 8:30, Bloomberg Consumer Comfort Index – 9:45, Pending Home Sales Index – 10:00, EIA Natural Gas Report – 10:30, EIA Petroleum Status Report – 11:00...

Other:  EU Unemployment Rate -5:00 AM.

Optionable Earnings:

Symbol

Company Name

May 24 close

IV30

B/A

XEPS

BIG

Big Lots Inc.

$38.42

42.4

B

$0.63

GLNG

Golar LNG Ltd.

$35.86

38.5

B

$0.39

JOY

Joy Global Inc.

$56.11

39.6

B

$1.55

GES

Guess? Inc.

$30.33

45.9

A

$0.11

LGF

Lions Gate Entertainment Corp.

$27.66

37.8

A

$0.45

PANW

Palo Alto Networks, Inc.

$52.11

52.6

A

($0.01)

SPLK

Splunk Inc.

$44.88

48.4

A

($0.12)

 

Friday May31:

Economic:  April Personal Income and Outlays – 8:30, May Chicago PMI – 9:45, May University of Michigan/Reuters Consumer Sentiment – 9:55, Farm Prices – 3:00.

Other:   Cleveland Federal Reserve Bank President Sandra Pianalto speech on financial stability analysis at joint conference with Fed Board in Washington.  Japan PMI Manufacturing Index – 7:15,

Optionable Earnings: None meeting criteria.

 

Monday June 3:

Economic:  PMI Manufacturing Index – 8:58, ISM Manufacturing Index – 10:00, Construction Spending – 10:00.

Other:   EMU PMI Manufacturing Index – 4:00 AM, Minneapolis Federal Reserve Bank President Narayana Kocherlakota on panel on monetary policy and financial regulation at the University of Chicago Booth School – 1:45.

Optionable Earnings: None meeting criteria.

Comments are closed