The Prepared Mind: December 16, 2013

Two consecutive down weeks in the market shifted discussion from the Santa Claus rally to a Santa Claus vacation.    The focus shifted to an end of the Fed’s bond buying program.   Economic data -retail sales, employment, housing, etc. – has been provided evidence of an improving economy.  The Ryan/Murray budget compromise in the U.S. House removes a perceived impediment to Fed tapering.  Many analysts point to the lack of a budget agreement as the reason tapering did not begin in September.  Passage of the first budget since 2010 is viewed as all but insuring the beginning of tapering.  These analysts feel the end of tapering has been priced into the markets through the sell-off of the last two week.

This downward move has occurred without the volume levels expected with a major market correction.  The volatility levels of the index indicate a reallocation of risk with only a minor concern with the possibility of a correction.  Students of volatility point to the price curves (contango) of the CBOE Russell 2000 Volatility Index (RVX – 19.53) and the CBOE NASDAQ-100 Volatility Index (VXN – 15.98.)  Contango is the market condition where the price of a forward or futures contract is trading above the expected spot price at contract maturity. The current distance above the spot price does not indicate increased fear of a downward plunge.

The coming week will be more of the same.  Expect further reallocation of risk as traders and investors prepare for Wednesday at 2:00 PM EST.  At that time, the FOMC will announce the results of their meeting. Ben Bernanke will follow this announcement with a press conference at 2:30 PM EST.  Expect a rally to new highs if December tapering is not announced. Most analysts are bullish for 2014.  This bullishness should temper a sell-off in response to December tapering.

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) 15,755.06 -265.14 -1.66% 20.23% 14.92% (VXD)
S&P 500 (SPX) 1,775.32 -29.77 -1.65% 24.48% 15.76% (VIX)
NASDAQ 100 (NDX) 3,456.40 -47.86 -1.37% 29.89% 15.98% (VXN)
Russell 2000 (RUT) 1,105.62 -23.66 -2.10% 32.64% 19.53% (RVX)
S&P 100 (OEX) 791.56 -14.19 -1.76% 22.42% 15.77%(VXO)
CBOE Volatility Index (VIX) 15.76 1.97 14.29% NA  

This will be yet another week with very fewearnings announcements.  The retail sales announcement on Thursday can and will effect individual equities.  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

“A public-opinion poll is no substitute for thought.” – Warren Buffett

Monday December 16:

Economic:  Empire State Manufacturing Survey – 8:30, Productivity and Costs – 8:30, PMI Manufacturing Index – 8:59, Treasury International Capital – 9:00, Industrial Production – 9:15.

International Economic: China PMI Flash Manufacturing Index – 9:45 PM Sunday,   EU PMI Composite Flash – 4:00 AM, EU Merchandise Trade – 5:00.

Optionable Earnings:   None meeting criteria

Tuesday December 17:

Economic:  ICSC-Goldman Store Sales – 7:45, Consumer Price Index (CPI) – 8:30, Redbook – 8:55, Housing Market Index – 10:00.

International Economic:  Great Britain PPI – 4:30 AM, Japan Merchandise Trade – 6:50 PM.

Other:  FOMC Meeting Begins.

Optionable Earnings:

Symbol

Company Name

December 13 Close

IV30

B/A

XEPS

FDS FactSet Research Systems Inc.

$114.11

28.1

B

$1.23

PAY VeriFone Systems Inc

$24.32

48.2

A

$0.18

 

Wednesday December 18:

Economic:  MBA Purchase Applications – 7:00, Housing Starts – 8:30, EIA Petroleum Status Report – 10:30, Treasury Budget – 2:00.

International Economic:  Bank of England Minutes – 4:30 AM.

Other:  FOMC Meeting announcement – 2:00, FOMC Forecasts – 2:00, Ben Bernanke Press Conference – 2:30.

Optionable Earnings: 

Symbol

Company Name

December 13 Close

IV30

B/A

XEPS

FDX FedEx Corporation

$136.34

26.9

B

$1.64

LEN Lennar Corporation

$34.89

35.5

B

$0.63

ORCL Oracle Corporation

$33.60

25.9

A

$0.64

PAYX Paychex, Inc.

$43.01

24.0

A

$0.42

 

Thursday December 19:

Economic:  Jobless Claims – 8:30, Bloomberg Consumer Comfort Index – 9:45, Philadelphia Fed Survey   – 10:00,  Existing Home Sales  – 10:00, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30.

International Economic:  Bank of Japan Announcement.

Optionable Earnings: 

Symbol

Company Name

December 13 Close

IV30

B/A

XEPS

ACN Accenture Plc

$74.08

22.4

B

$1.09

BRLI Bio-Reference Laboratories Inc

$26.60

42.5

B

$0.40

CAG ConAgra Foods, Inc.

$32.15

21.2

B

$0.55

CCL Carnival Corporation

$35.34

26.2

B

$0.03

DRI Darden Restaurants, Inc.

$51.38

26.3

B

$0.21

PIR Pier 1 Imports Inc

$20.74

36.7

B

$0.28

AIR AAR Corp.

$29.29

39.0

A

$0.50

CTAS Cintas Corporation

$54.97

20.3

A

$0.69

NKE Nike Inc

$76.23

26.9

A

$0.58

RHT Red Hat Inc

$46.35

38.9

A

$0.24

TIBX Tibco Software Inc.

$23.58

41.2

A

$0.32

 

Friday December 20:

Economic: Quadruple Witching – December Expiration, GDP – 8:30 AM, Corporate Profits – 8:30, Atlanta Fed Business Inflation Expectations – 10:00, Kansas City Fed Expectation – 11:00.

International Economic: German PPI – 2:00 AM, Great Britain – GDP – 4:30.

Optionable Earnings: 

Symbol

Company Name

December 13 Close

IV30

B/A

XEPS

FINL Finish Line Inc

$24.85

39.4

B

$0.00

KMX CarMax, Inc

$51.09

31.8

B

$0.48

WAG Walgreen Company

$57.55

27.4

B

$0.73

 

Monday December 23:

Economic:  Personal Income and Outlays – 8:30, Chicago Fed National Activity Index– 8:30, University of Michigan/Reuters Consumer Sentiment – 9:55.

International Economic: No major reports.

Optionable Earnings:   

Symbol

Company Name

December 13 Close

IV30

B/A

XEPS

NAV Navistar International Corp

$39.60

44.4

B

($1.55)

CAMP CalAmp Corp.

$23.68

51.6

A

$0.19

 

 

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