The Prepared Mind 6.10.2013

“Chance favors the prepared mind.” — Louis Pasteur

As I traded and watched last week’s market, I was reminded how it consistently confirms the old adages or oral history passed through the generations from one trader to another.   My favorite source for these trading nuggets had witnessed the 1929 crash as a clerk.  Bob sat in the member’s smoking lounge at the CBOE, monopolizing a Quotron to monitor his positions and search for new trades.  Bob no longer traded on the floor even though he still had a trading badge and floor access.  He would get up intermittently to place, cancel, or replace orders.   I still smoked cigarettes at the time.  My seat of choice was at Bob’s table.  I would sit there and listen to his analysis of the current market and tales of traders and markets gone by.  He had many favorite sayings.  “Frankie – charts?  Every boat that ever sank had charts.”  Last week confirmed one of his favorite bits of advice:   “Frankie.  Let me tell you the only sure thing about the market.  It will disappoint the maximum number of people in the shortest possible time.”

Everyone was disappointed last week – Bulls and Bears.   Both camps vacillated between the euphoria and disappointment.  The intraday and interday movements were enough to shake out bulls and bears alike. The markets closed with significant gains on Friday after better than expected employment number.   The Dow Jones Industrials (DJIA) was the best performing index for the week.  The DJIA closed at 15,248.12 up 132.55 points or a gain of 0.88%.  The Russell 2000(RUT) was the weakest index, reflecting relative concern about small caps by gaining only 0.20% up 1.98 points to close at 983.15.  The NASDAQ 100 (NDX) closed at 2,990.87  gaining 0.31% or 9.11 points.  The S&P 500 (SPX) closed at 1,643.38 – up 12.64 points or a gain of 0.78%.  The S&P 100 (OEX) closed at 740.60 – gaining 6.97 points or 0.95%.  The VIX and the other volatility indexes reflected the pessimism and optimism during last week.  The VIX closed last week at 15.14 – a loss of .1.16 or 12.37%.  The other volatility measurements showed similar volatility moves to the downside.  These volatility measurements are still showing relative strength compared to previous weeks.   The increase in volatility levels is not necessarily indicative of the growing bearish sentiment.  It is an indication of the growing range of index prices in the indexes on a daily and weekly basis.  A more appropriate term would be “wary.”

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

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

15,248.12

132.55

0.88%

16.36%

13.59% (VXD)

S&P 500 (SPX)

1,643.38

12.64

0.78%

15.23%

15.14% (VIX)

NASDAQ 100 (NDX)

2,990.87

9.11

0.31%

12.40%

15.88% (VXN)

Russell 2000 (RUT)

983.15

1.98

0.20%

15.47%

19.86% (RVX)

S&P 100 (OEX)

740.60

6.97

0.95%

14.54%

14.49% (VXO)

CBOE Volatility Index (VIX)

15.14

-1.16

12.37%

NA

 

This will be a quiet week for earnings announcements and economic reports.    All eyes will be on Japan.  Japanese GDP will be announced on Sunday June 9  before the opening of the U.S.> markets for the week.  The performance of the Japanese markets has had an influence on our markets.  It is difficult to determine what the influence will be to different economic numbers.  We appear to be in a situation where bad news is good for the U.S. markets and vice versa.  Just when I think I am beginning to understand the rules, bad news will once again bad news.

I lost internet connectivity last week.  It was the result of a line of thunderstorms which came through Chicago.  This was a reminder that I need to redouble  my adherence to my backup plans.  When it comes to loss of power during the trading day,  the question becomes what will I do “when”, not what will I do “if.”  Loss of power is a certainty during the spring and summer in the Midwest.  Make sure you are prepared for a loss of power or connectivity during the trading day.

The following is another discipline important to adhere to while trading.  During these times of no earnings announcements, it is easy to become oblivious to the impact of future announcements,  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 June 10:

Economic:  US TD Ameritrade IMX (Investor Movement Index) – 12:30.

International Economic:  EMU PMI Manufacturing Index – 4:00 AM , Japanese GDP on Sunday June 9, Bank of Japan Announcement, Italian GDP 5:00AM.

Other:   St Louis Federal Reserve Bank President James Bullard speech on global outlook in Montreal – 11:00.

Optionable Earnings:

Symbol

Company Name

May 31 close

IV30

B/A

XEPS
NAV Navistar International Corp

$33.95

68.2

D

($1.09)

BNNY Annies Inc.

$39.17

43.0

A

$0.28

LULU Lululemon Athletica Inc.

$81.43

45.8

A

$0.30

 

Tuesday June 11:

Economic:  NFIB Small Business Optimism Index – 7:30, ICSC – Goldman Sachs Store Sales – 7:45, Redbook – 8:55,  JOLTS – 10:00, Wholesale Trade – 10:00.

International Economic:  Japan PPI – 7.60 PM.

Optionable Earnings:

Symbol

Company Name

May 31 close

IV30

B/A

XEPS
ULTA Ulta Salon Cosmetics & Fragrance Inc

$85.65

47.1

A

$0.62

 

 

Wednesday June 12:

Economic:  MBA Purchase Applications – 7:00, EIA Petroleum Status Report – 10:30, Treasury Budget – 2:00.

International Economic: EU Industrial Production – 5:00 AM.

Optionable Earnings: 

Symbol

Company Name

May 31 close

IV30

B/A

XEPS
FIVE Five Below, Inc

$36.24

53.9

A

$0.04

HRB H&R Block Inc.

$29.84

48.6

A

$2.60

MW Men’s Wearhouse Inc.

$35.88

53.5

A

$0.55

PVH Phillips-Van Heusen Corp.

$113.70

34.9

A

$1.37

 

Thursday June 13:

Economic:  Jobless Claims – 8:30, Retail Sales – 8:30, Import and Export Prices – 8:30, Bloomberg Consumer Comfort Index – 9:45, Business Inventories  – 10:00, EIA Natural Gas Report – 10:30.

International Economic:  Bank of Japan Minutes – 7:50 PM.

Optionable Earnings: None meeting criteria.

Friday June 14:

Economic:  Producer Price Index (PPI) – 8:30,  Current Account (Quarterly Balance of Trade) – 8:30, Industrial Production – 9:15, University of Michigan/Reuters Consumer Sentiment – 9:55

International Economic:  No major reports.

Optionable Earnings: None meeting criteria.

 

Monday June 17:

Economic:  Empire State Manufacturing Survey – 8:30, Treasury International Capital – 9:00, Housing Market Index – 10:00.

International Economic:  EU Merchandise Trade – 5:00.

Optionable Earnings:

Symbol

Company Name

May 31 close

IV30

B/A

XEPS
DFS Discover Financial Services LLC

$48.66

25.9

B

$1.14

 

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