The Prepared Mind: December 2, 2013

“I can calculate the movement of the stars, but not the madness of men.” — Isaac Newton

Sir Isaac Newton lost his fortune speculating on South Seas opportunities.  His response to this financial trauma was “I can calculate the movement of the stars, but not the madness of men.”  Be wary of the madness of other men.    Markets were up for November and were up for the eighth straight week.  The S&P 500 (SPX) gave us a 37th new closing high for the year, while the Dow Jones Industrial Average (DJIA) achieved its 40th new closing high. The NASDAQ 100 (NDX) hit a 13 year closing high. Where to from here?  A number of analysts are calling for continued gains through the end of year.  This is an increasingly vocal  bullish clamor building among analysts concerning end of year market behavior.  Time will tell if this is just noise or if it is truth.  These analysts are putting forth a gamut of reasons for a continued upward trend.  The reasons most often cited are abundant capital liquidity, the end of the year is a historically bullish season for equities, and the belief fund managers will continue to buy in order to achieve “proper” weighting of equities in their portfolios.

The behavior of the VIX provided fuel to investors and analysts who believe we are seeing the end game of a valuation bubble. The VIX and other measurements of index volatility moved up for the week with the VIX closing at 13.70 – up 11.75%.  The bears in the investing community have their own litany of reasons why the market will soon correct or collapse.   The indicators include various measurements of bullish or bearish sentiment among consumers, advisors and investors, fear earnings will not grow to support higher equity valuation, margin levels at the NYSE, deflation fears, and the tapering of the Fed’s bond purchases.

The CBOE announced a new volatility index based on SPX prices this past Wednesday.  The CBOE Mid-Term Volatility Index (VXMT) measures the expected volatility of the S&P 500 Index over a 6-month time period.  VXMT joins the CBOE Short-Term Volatility Index (VXST – 9 Day), CBOE Volatility Index (VIX – 30 Days), and CBOE 3-Month Volatility Index (VXV – 93 Days) to offer a group of indexes that may be used to represent volatility at key points along the SPX term structure.

The market ended a week of wild gyrations with only moderate moves.  Here is a capsule view of last week’s market numbers: 

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,086.41

21.64

0.13%

22.76%

12.76% (VXD)

S&P 500 (SPX)

1,805.81

1.05

0.06%

26.62%

13.70% (VIX)

NASDAQ 100 (NDX)

3,487.82

65.80

1.92%

31.08%

13.93% (VXN)

Russell 2000 (RUT)

1,140.24

16.78

1.49%

31.95%

16.99% (RVX)

S&P 100 (OEX)

806.36

1.41

0.18%

24.71%

12.71% (VXO)

CBOE Volatility Index (VIX)

13.70

1.44

11.75%

NA

This will be an active week week.  The coming week is what has become commonly referred to as “Employment Week,”   Wednesday through Friday of Employment week are characterized by daily reports on the state of US employment.  The week culminates with the release of the Employment Situation Report on Friday morning.  The report provides a number of indicators for the previous month – in this case November.  These indicators include unemployment rate, non-farm payroll, discouraged workers, average workweek, and labor supply.  These numbers are regarded as important indicators in the level and timing of Fed intervention in the US economy.  Additional reports with the ability to move the markets will be retailer reports on sales for Black Friday and Cyber Monday, Wednesday’s new home sales, and Thursday’s release of the preliminary GDP.

 

Earnings are becoming more important as analysts are starting to focus on earnings growth and earnings multiples..  The price/earnings ratio is becoming more important as the bull market continues.    I scan the announced earnings for the week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  The earnings meeting these criteria are sorted by date below. It is your responsibility to confirm the earnings dates. They can and do change.  You will notice that a stock may move in one direction on the earnings announcement and then move in the opposite direction during the conference call.  Be aware of the earnings date for any equity options you may trade.

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“I can calculate the movement of the stars, but not the madness of men.”  – Sir Isaac Newton

Monday December 2:

Economic:  Gallup US Consumer Spending Measure – 8:30, Personal Income and Outlays – 8:30, PMI Manufacturing Index – 8:58, Construction Spending – 10:00.

International Economic:  German PMI Manufacturing Index – 4:00, EU PMI Manufacturing Index – 4:00 AM..

Optionable Earnings:   

Symbol

Company Name

November 29 Close

IV30

B/A

XEPS

CTB Cooper Tire & Rubber Co

$24.54

48.1

B

$0.54

ASNA Ascena Retail Group Inc

$21.27

46.6

A

$0.32

KKD Krispy Kreme Doughnuts

$25.53

58.9

A

$0.16

 

Tuesday December 3:

Economic:  Motor Vehicle Sales, ICSC-Goldman Store Sales – 7:45, Gallup US – ECI – 8:30, Redbook – 8:55.

International Economic:  EU – PPI – 5:00 AM, EU Retail Sales – 5:00 AM.

Optionable Earnings:

Symbol

Company Name

November 29 Close

IV30

B/A

XEPS

EXPR Express, Inc.

$24.61

56.1

B

$0.25

AVGO Avago Technologies Ltd

$44.67

35.7

A

$0.73

GES Guess?, Inc.

$34.05

43.8

A

$0.39

MFRM Mattress Firm Holding Corp

$37.04

58.0

A

$0.54

 

Wednesday December 4:

Economic:  MBA Purchase Applications – 7:00,  ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, International Trade – 8:30, New Home Sales – 10:00,  ISM Non-Manufacturing Index – 10:00, EIA Petroleum Status Report – 10:30, Beige Book – 2:00.

International Economic:  EU PMI Composite – 4:00 AM.

Optionable Earnings:  None meeting criteria.

Thursday December 5:

Economic:  Chain Store Sales, Challenger Job-Cut Report – 7:30, Gallup US Payroll to Population – 8:30, GDP (Gross Domestic Product) – 8:30, Jobless Claims – 8:30, Corporate Profits – 8:30, Bloomberg Consumer Comfort Index – 9:45, Factory Orders – 10:00,  EIA Natural Gas Report – 10:30.

International Economic:  Bank of England Announcement – 7:00, EQ European Central Bank Announcement – 7:45 AM.

Other:  Dallas Federal Reserve Bank President Richard Fisher speech on the economy and Fed operations, in College Station, Texas – 1:15.

Optionable Earnings: 

Symbol

Company Name

November 29 Close

IV30

B/A

XEPS

CONN CONN’S, Inc.

$59.00

69.8

B

$0.63

DG Dollar General Corp.

$57.35

35.9

B

$0.70

JOSB Jos. A. Bank Clothiers Inc

$56.88

29.0

B

$0.50

MEI Methode Electronics Inc.

$28.68

55.0

B

$0.35

KR The Kroger Co.

$41.88

22.9

B

$0.53

AMBA Ambarella Inc

$24.79

60.5

A

$0.22

DMND Diamond Foods, Inc.

$24.96

47.4

A

$0.17

FNSR Finisar Corporation

$20.69

59.3

A

$0.31

FIVE Five Below Inc

$53.56

53.2

A

$0.04

ULTA Ulta Salon, Cosmetics & Fragrance, Inc.

$128.47

48.2

A

$0.74

VEEV Veeva Systems Inc

$41.91

84.5

A

$0.05

ZUMZ Zumiez Inc.

$27.89

50.9

A

$0.46

 

Friday December 6:

Economic: Employment Situation – 8:30, Personal Income and Outlays – 8:30, University of Michigan Consumer Sentiment – 9:55.

International Economic: EU GDP – 5:00 AM,

Other: Philadelphia Federal Reserve Bank President Charles Plosser speech to open Philly Fed policy forum in Philadelphia – 10:15, Chicago Federal Reserve Bank President Charles Evans on panel discussing economy and monetary policy in Chicago – 3:00.

Optionable Earnings: 

Symbol

Company Name

November 29 Close

IV30

B/A

XEPS

BIG Big Lots, Inc.

$38.34

38.5

B

($0.08)

 

Monday December 9:

Economic:  TD Ameritrade IMX – 12:30.

International Economic:  Japan GDP – 6:50 PM Sunday December 8, China PPI and CPI – 8:30 PM Sunday December 8.

Optionable Earnings:   

Symbol

Company Name

November 29 Close

IV30

B/A

XEPS

PVH PVH Corp

$134.84

32.2

A

$2.26

 

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