The Prepared Mind: March 24, 2014

The markets reversed the previous week’s five consecutive down days.  The back and forth in week-to week price movement brings to mind this week’s market word – “whipsaw.”  A whipsaw is when a market or security heads in one direction and is followed quickly by movement in the opposite direction.  The origins of the term are from a two person “whipsaw” which was operated by pushing and pulling the saw from opposite ends.  The market has exhibited classic whipsaw activity the past month.  The back and forth movement has not be limited to security prices alone.  Consumer sentiment, financial news reporting, and movement in the in option implied volatility are all showing signs of being whipsawed.

The best defense against being “whipsawed” is to not respond to every market gyration.  There are many strategies and tactics traders may use when trading this type of market.  The first approach is to implement strategies which work over broader price ranges.  Many option traders will use low beta or gamma strategies.  These strategies do not move one-to-one to market movements up or down.  This market action activity rewards two seemingly contradictory stances – patience and nimbleness.   Applications of these states of mind are the product of trading experience.  Be aware of how your strategies are behaving and will behave in relations to movements in price, time and implied volatility.

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,302.70

237.03

1.48%

-2.09%

14.29% (VXD)

S&P 500 (SPX)

1,866.40

25.27

1.37%

1.26%

15.00% (VIX)

NASDAQ 100 (NDX)

3,647.21

19.08

0.53%

2.07%

17.35% (VXN)

Russell 2000 (RUT)

1,190.31

9.29

0.79%

3.14%

19.38% (RVX)

S&P 100 (OEX)

823.64

13.69

1.69%

-0.03%

13.26% (VXO)

CBOE Volatility Index (VIX)

15.00

-2.82

-15.82%

NA

 

VIX options and futures continue to be very active over the past week.  The futures and the spot cash showed less of a reaction to this week’s rally versus previous rallies.  Higher lows in the VIX appear to be yet another reaction to whipsawing.  Block trades in the VIX are leaning towards strategies which profit from market range rather than market direction.

 

 

 

 

 

 

 

Economics reports will focus on housing and manufacturing.  The most important reports are  new home sales and pending home sales.  Will home prices move upwards from past month’s sluggish movement?  Regional Fed manufacturing surveys will provide the first readings of post-Winter factory activity.  Fed Governors are on tour this week.  Traders and financial analysts will be parsing their comments in an attempt to geain clarification of Janet Yellen’s comments last week about QE2.

This will be one of the quietest weeks of the quarter for earnings. Be aware of future earnings dates.  The two current front month options (April and May) include the bulk of upcoming earnings announcements. If you trade a stock, always know when earnings announcements will occur. I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm these earnings dates. Earnings dates can and do change.

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“One of the funny things about the stock market is that every time one person buys,

another sells, and both think they are astute.” – William Feather

 

Monday March 24:

Economic:  Chicago Fed National Activity Index – 8:30, PMI Manufacturing Index Flash – 9:45.

International Economic:  China PMI Flash Index – Sunday @ 9:45 PM, EMU PMI Composite Flash – %:00 AM,.

Other:  Federal Reserve Gov. Jeremy Stein welcoming remarks at Fed conference in Washington – 9:00 AM, Dallas Federal Reserve Bank President Richard Fisher speech on forward guidance, in London – 1:45 PM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

SONC Sonic Corporation

21.59

36.1

A

$0.06

 

Tuesday March 25 :

Economic:  ICSC-Goldman Store Sales – 7:45, Redbook – 8:55, FHFA House Price Index – 9:00, S&P Case-Shiller HPI, New Home Sales – 10:00, Consumer Confidence – 10:00, Richmond Fed Manufacturing Index – 10:00, State Street Investor Confidence – 10:00. 

International Economic:  Great Britain CPI and PPI – 5:30 AM.

Other:  Atlanta Federal Reserve Bank President Dennis Lockhart fireside chat on the economic outlook, in Atlanta – 4:00 PM, Philadelphia Federal Reserve Bank President Charles Plosser speech on economic outlook and monetary policy in New York – 7:00 PM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

CCL Carnival Corporation

$39.99

27.8

B

($0.08)

HDS HD Supply Holdings Inc

$23.32

37.8

B

($0.02)

WAG Walgreen Company

$66.50

27.7

B

$0.93

FIVE Five Below Inc

$38.83

54.3

A

$0.45

PVH PVH Corp

$119.12

31.2

A

$1.44

 

Wednesday March 26:

Economic:  MBA Purchase Applications – 7:00, Durable Goods Orders – 8:30, PMI Services Flash – 9:45,  EIA Petroleum Status Report –10:30.

International Economic: Great Britain GDP – 4:30 AM.

Other:  St Louis Federal Reserve Bank President James Bullard on panel discussing unconventional monetary policy, in Hong Kong – 2:00 AM.

Optionable Earnings:

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

FRAN Francesca’s Holdings Corp

$20.02

61.0

B

$0.28

LNN Lindsay Corporation

$80.82

30.9

B

$1.13

 

Thursday March 27:

Economic:  Jobless Claims – 8:30,  GDP – 8:30, Corporate Profits – 8:30, Bloomberg Consumer Comfort Index – 9:45,  Pending Home Sales – 10:00, EIA Natural Gas Report – 10:30,  Kansas City Fed Manufacturing Index – 11:00.

International Economic: EMU EC Economic Sentiment – 6:00 Am.

Other:  Cleveland Federal Reserve President Sandra Pianalto speech to RISE student conference at the University of Dayton, Ohio – 8:30AM, Chicago Fed President Charles Evans speech on the economy and monetary policy in Hong Kong – 9:30 PM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

ACN Accenture Plc

$83.06

24.7

B

$1.07

CONN CONN’S, Inc.

$33.31

71.3

B

$0.80

GME GameStop Corp.

$38.44

46.3

B

$0.78

LDOS Leidos Holdings Inc

$42.10

30.0

B

$0.43

LULU Lululemon Athletica inc.

$48.74

60.0

B

$0.72

SIG Signet Jewelers Ltd.

$102.01

31.4

B

$2.15

RHT Red Hat Inc

$58.47

40.3

A

$0.26

RH Restoration Hardware Holdings Inc

$64.78

58.3

A

$0.83

 

Friday March 28:

Economic:  Personal Income and Outlays – 8:30, Consumer Sentiment – 9:55, Farm Prices 3:00.

International Economic: No major announcements.

Other: Kansas City Federal Reserve President Esther George speech on the economy in Kansas City – 1:15 PM. 

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

CEO CNOOC Limited (ADR)

$150.47

26.0

 

Monday March 31:

Economic:  Chicago PMI – 9:45. Dallas Fed Manufacturing Survey – 10:30.

International Economic:  EMU HICP Flash – 5:00 AM.  

Optionable Earnings:  None meeting criteria

 

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