The Prepared Mind 6.24.2013

“Chance favors the prepared mind.” — Louis Pasteur

Volatility has been a constant in the markets over the past two weeks.  Triple digit interday and intraday moves in the Dow Jones Industrials have become the rule – not the exception.  Last week’s FOMC meeting and Bernanke’s statement that the Fed might reduce its bond buying program later this year exacerbated the downward pressure on the equity markets.  The bond markets showed even greater volatility than the equity side,    The movement in the bond markets impacted precious metals and currencies in addition to the equities.  Lower inflation expectations, a higher US dollar, and higher treasury yields mean there is less of a reason to own gold and other precious metals.  The week was characterized by multiple markets – equity (domestic and international), bond, currency, and commodity – trying to find and maintain a sense of equilibrium.

All the indexes hovered around a 2% loss for the week.  The Russell 2000(RUT) lost 1.97%, down 19.31 points to close at 960.51.   The Dow Jones Industrials (DJIA) closed at below 15,000,  down 270.78 points or a loss of 1.80%.  The NASDAQ 100 (NDX) closed at 2,877.94  losing 2.24 % or 65.92 points.  The S&P 500 (SPX) closed at 1,592.43 – down 34.30  points or a loss of  2.11%.  The S&P 100 (OEX) closed at 717.58 – losing 14.52 points or 1.98%.  The VIX and the other volatility indexes reflected continuing concern about the equity and bond markets.  The VIX closed last week at 18.90 – a gain of 1.75 or 10.20%.  The two week gain for the VIX is 3.85 or 25.4%.  The other volatility measurements showed similar volatility moves to the upside.  These volatility measurements are showing increasing strength.   The increase in volatility levels is indicative of the growing concern about Fed intervention in U.S. markets. In addition, it indicates growing range of index prices (read volatility) on a daily and weekly basis.  There is definitely a wait and see attitude among traders.  A decrease in options volume reflects continuing concern about the direction of the markets.

 

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

 

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

14,799.40

-270.78

-1.80%

12.94%

16.77% (VXD)

S&P 500 (SPX)

1,592.43

-34.30

-2.11%

11.66%

18.90% (VIX)

NASDAQ 100 (NDX)

2,877.94

-65.92

-2.24%

8.16%

19.44% (VXN)

Russell 2000 (RUT)

960.51

-19.31

-1.97%

12.81%

22.65% (RVX)

S&P 100 (OEX)

717.58

-14.52

-1.98%

10.98%

18.91% (VXO)

CBOE Volatility Index (VIX)

18.90

1.75

10.20%

NA

 

Expect the markets to remain skittish this coming week.   Members of the Fed will be speaking on a daily basis.  I have highlighted these speeches in the calendar which follows.  Pundits will be parsing these speeches in order to get a better sense of when the Fed bond buying program will end.  A full slate of economic announcements is on the docket.  These announcements will focus on housing, capital goods, manufacturing, personal income and consumer confidence.  The days with the most potential for market changing announcement are Tuesday and Wednesday.  New-home sales and S&P/Case-Shiller reports will be released on Tuesday. The final Q1 GDP will be announced prior to the opening on Wednesday.  Potential Sources of concern or market crises include civil war in Syria, emerging markets, Chinese credit crunch and domestic unrest in Brazil and Turkey.  Any of these could impact a wary market environment.

This will be another quiet week for earnings announcements.  The next cycle starts in July.  Be aware of this as you begin to establish positions in July and August options.  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 24:

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

International Economic:  No major reports.

OtherDallas Federal Reserve Bank President Richard Fisher speech on monetary policy in London – 8:30

Optionable Earnings:                                              

Symbol

Company Name

June 21 close

IV30

B/A

XEPS

TECD Tech Data Corp.

$47.41

33.1

B

$1.01

 

Tuesday June 25:

Economic:  ICSC – Goldman Sachs Store Sales – 7:45, Durable Goods Orders – 8:30,  FHFA House Price Index – 9:00, S&P Case-Shiller HPI – 9:00, New Home Sales – 10:00, Consumer Confidence – 10:00, State Street Investor Confidence – 10:00.

International Economic:  No major reports.

Optionable Earnings:

Symbol

Company Name

June 21 close

IV30

B/A

XEPS

WAG Walgreen Co.

$48.34

29.0

B

$0.90

CCL Carnival Corp.

$33.44

25.8

B

$0.06

LEN Lennar Corp.

$34.94

54.8

B

$0.81

SNX SYNNEX Corp.

$42.56

31.0

A

$0.81

 

 

Wednesday June 26:

Economic:  MBA Purchase Applications – 7:00, GDP – 8:30, Corporate Profits – 8:30, EIA Petroleum Status Report – 10:30.

International Economic: Japan All Industry Index – 12:30 AM, French GDP – 2:30 AM.

Other: Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech on monetary policy to the Society for Economic Dynamics in Seoul – 1:55 AM, Dallas Fed President Richard Fisher and Richmond Fed President Jeffrey Lacker to appear before the House Financial Services Committee. The hearing will discuss the Dodd-Frank Act and the risk of new taxpayer-funded bailouts – 10:00.

Optionable Earnings: 

Symbol

Company Name

June 21 close

IV30

B/A

XEPS

LNN Lindsay Corporation

$77.00

37.1

B

$1.78

MON Monsanto Co.

$103.45

28.7

B

$1.60

BBBY Bed Bath & Beyond Inc.

$69.52

34.0

A

$0.93

 

 

Thursday June 27:

Economic:  Jobless Claims – 8:30, Personal Income and Outlays – 8:30, Bloomberg Consumer Comfort Index – 9:45, Pending Home Sales Index – 10:00,  EIA Natural Gas Report – 10:30, Kansas City Fed Manufacturing Report – 11:00, Farm Prices 3:00..

International Economic:  Great Britain GDP – 4:30 AM,  EU Economic Sentiment – 5:00 AM, Japan Industrial Production 7:50 PM.

Other: Federal Reserve Gov. Jerome Powell speech on monetary policy to Bipartisan Policy Center in Washington – 10:30, Atlanta Federal Reserve Bank President Dennis Lockhart speech on the economic outlook to Kiwanis Club, Marietta, Georgia – 12:30.

Optionable Earnings:

Symbol

Company Name

June 21 close

IV30

B/A

XEPS

CAG ConAgra Foods Inc.

$32.83

21.6

B

$0.19

FDO Family Dollar Stores Inc.

$61.64

32.3

B

$1.04

GBX Greenbrier Companies

$24.00

48.6

B

$0.55

WGO Winnebago Industries Inc.

$20.08

47.3

B

$0.27

ACN Accenture Ltd.

$79.52

25.0

A

$1.13

NKE Nike Inc.

$60.78

30.7

A

$0.74

 

 

Friday June 28:

Economic: Chicago PMI – 9:45 AM, University of Michigan/ Reuters Consumer Sentiment – 9:55.

International Economic:  France, Italy, Germany PPI – 5:00 AM.

Other:  Federal Reserve Gov. Jeremy Stein speech on monetary policy to the Council on Foreign Relations in New York – 8:00, Richmond Federal Reserve Bank President Jeffrey Lacker speech on economic outlook in White Sulphur Springs, West Virginia – 9:15, Cleveland Federal Reserve Bank President Sandra Pianalto speech on labor market trends and monetary policy – 12:00, Wheeling, West Virginia, San Francisco Federal Reserve Bank President John Williams speech on the economy to Sonoma Economic Conference in Rohnert Park, California – 3:30.

Optionable Earnings: None meeting criteria.

Monday July 1:

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

International Economic:  Japan Manufacturing Index – 7:50

Optionable Earnings: None meeting criteria.

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