The Prepared Mind: December 23, 2013

The Santa Claus rally may have come a week early.  The indexes again reached all-time highs.  Santa came back from vacation in the person of Ben Bernanke.  Bernanke announced a $10 billion taper of the Fed’s $85 billion per month in bond purchases.  Ben picks his words with care.  He was very careful to emphasize the reduction in purchases was a “tapering”  not a “tightening.”  The Federal Open Market Committee (FOMC) set off a 300 point rally on Wednesday in the Dow with the announcement interest rates would be kept near zero for the foreseeable future.  This announcement came with an assurance that a 6.5% unemployment rate would not lead to an increase in interest rates.  Bernanke’s press conference, the FOMC announcements and the Congressional budget agreement removed much of the uncertainty hanging over the markets.

The trading for the coming week should be very light.  Releases of economic reports and corporate earnings will be equally light.  The second team will be trading the accounts over the next two weeks.  They will be trading with half an eye on the markets.  Their primary focus will be on confidence pools for the NCAA football bowl games.  If you walk into any trading rooms over the next two weeks, screens will be replaced by whatever sporting event is currently being broadcasted.  The lack of liquidity and activity will allow a large trade to create a significant move in individual equities and some indexes.  Do not allow yourself to be sucked into a liquidity trap.

I have found the next two weeks are best spent with my family and friends recharging my trading batteries.  Enjoy the trading lull.  Have joyous holidays and prepare for a prosperous 2014.  Many thanks to Walter for his contribution to this week’s trading advice.

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

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,221.14

466.08

2.96%

23.79%

12.89% (VXD)

S&P 500 (SPX)

1,818.31

42.99

2.42%

27.49%

13.79% (VIX)

NASDAQ 100 (NDX)

3,531.19

74.79

2.16%

32.71%

14.48% (VXN)

Russell 2000 (RUT)

1,146.00

40.38

3.65%

29.86%

16.21% (RVX)

S&P 100 (OEX)

809.74

18.18

2.30%

25.23%

11.80% (VXO)

CBOE Volatility Index (VIX)

13.79

-1.97

-12.50%

NA

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“Our enterprising security buyer, of course, will desire and expect to attain better results than his defensive or passive companion.  But first he must make sure that his results will not be worse.  It is no difficult trick to bring a great deal of energy, study, and native ability into Wall Street and to end up with losses instead of profits.  These virtues, if channeled in the wrong directions, become indistinguishable from handicaps..  Thus it is most essential that the enterprising investor start with a clear conception as  to which courses of action offer reasonable chances of success and which do not.”

– Benjamin Graham, The Intelligent Investor

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:   None meeting criteria

Tuesday December 24:

Economic:  ICSC-Goldman Store Sales – 7:45Durable Goods Orders – 8:30, Redbook – 8:55, FHFA House Price Index – 9:00, New Home Sales – 10:00, Richmond Fed Manufacturing Index – 10:00.

International Economic:  France GDP

Other:  NYSE and Options Exchanges close early – 2:00 PM ET.

Optionable Earnings:

Wednesday December 25:

U.S. Holiday – Christmas Day

Markets Closed

International Economic:  Bank of Japan minutes – 6:50 PM.

Thursday December 26:

Economic:  MBA Purchase Applications – 7:00, Jobless Claims – 8:30, Bloomberg Consumer Comfort Index – 9:45, EIA Petroleum Status Report – 10:30.

International Economic:  No Major Reports.

Optionable Earnings:  None meeting criteria

 

Friday December 27:

Economic: EIA Natural Gas Report – 10:30.

International Economic: No Major Reports.

Optionable Earnings:  None meeting criteria

Monday December 30:

Economic:  Pending Homes Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30, Farm Prices – 3:00.

International Economic: No major reports.

Optionable Earnings:   None meeting criteria

 

 

 

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