The Prepared Mind: March 31, 2014

“Chance favors the prepared mind.” — Louis Pasteur

There was a divergence in movement of the individual indices this past week.  The Dow Jones Industrials were up small with the S&P 100 and S&P 500 showing small losses.  The small cap dominated Russell 2000 and tech laden NASDAQ 100 showed losses of 2% and 3% respectively.  This level of divergence is a rare occurrence and is viewed by some technical analysts as a bearish indicator. Other bearish indicators have been noted by these analysts.  Put-call ratios continue to rise and are at bearish levels.  Analysts are receiving sell signals from a number market breadth indicators.  Examples of market breadth indicators are the Chaikin oscillator, up/down volume ratio, up/down volume spread, on-balance volume, Arms index and cumulative volume index. These indicators often become inaccurate when different indexes behave in a divergent manner.

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,323.06

20.36

0.12%

-1.94%

13.55% (VXD)

S&P 500 (SPX)

1,857.62

-8.78

-0.47%

0.65%

14.41% (VIX)

NASDAQ 100 (NDX)

3,570.38

-76.83

-2.11%

-0.81%

18.09% (VXN)

Russell 2000 (RUT)

1,150.72

-39.59

-3.33%

-1.51%

21.00% (RVX)

S&P 100 (OEX)

822.40

-1.24

-0.15%

-0.22%

13.45% (VXO)

CBOE Volatility Index (VIX)

14.41

-0.59

-3.93%

NA

 

All the indicators are not bearish.  The volatility indices remain bullish.  Individual volatility indices are hovering are neutral to bullish levels.  Two of the larger trades last week in April VIX Options (Sale of the April 16 Straddle and a sale of April 17 calls) profit from a neutral to bullish market environment.  The wild card is the S&P 500.  The SPX is range bound with support at the 1840 level and resistance at 1880.  Many market observers believe market momentum is being built and stored during the continued trading in this range.  Any movement outside the range will then propel the market in that direction.  Stay tuned.

 

 

 

 

 

 

This is “Employment Week.”  The focus will be beyond  the employment numbers released at this  week culminating in Friday’s Employment Situation Report.   Motor vehicle sales will be released on Tuesday.  Traders are looking to see if an improvement in weather will lead to an improvement in March sales.  Analysts will be looking for emerging trends in the  ISM and PMI numbers to be release this week.

 

Google goes ex on a special stock dividend this week.  You can not trade Google options or stock and not understand the details or impact of this occurrence. If you trade Google options you must read the following document:

http://www.cboe.com/publish/ttstocksm/14-154.pdf

 

It is your responsibility to understand the impact upon your positions and your account.  My explanation is not the final word.  Read the CBOE circular and ask your broker any questions you may have.  My current understanding of the situation is in the following paragraph.

 

GOOGLE has declared a special stock dividend to holders of Class A and Class B shares.  The payable date is Wednesday April 2nd. The Ex-date for the distribution will be Thursday April 3rd.  Shareholders of 100 shares of Class A or B stock will get 100 shares of Class C (this is a new class) stock.  The new Class C shares will use the symbol GOOG, the old GOOG (Class A shares) will use the symbol GOOGL.  In a nutshell, on Thursday, April 3, 2014, trading in GOOG option series will be on an adjusted basis.  An investor who was long one GOOG June 1000 strike call will now own (explained in the Research Circular) one GOOG1 (that’s a number one after the GOOG symbol).  Why?  The GOOG1 option holder is entitled to 100 shares of the old Class A, AND 100 shares of the new Class C shares. A seller of an old GOOG option has an obligation for Class A & B shares. Once again, it is your responsibility to understand the impact of this upon your positions and any trades you make now or in the future.

 

This will be one of the quietest weeks of the quarter for earnings. Be aware of future earnings dates.  The earnings season for the first quarter wil be here soon. 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 31:

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

International Economic:  EMU HICP Flash – 5:00 AM, China PMI Manufacturing Index – 9:45 PM.

Optionable Earnings:  None meeting criteria.

Tuesday April 1 :

Economic:  Motor Vehicle Sales, ICSC-Goldman Store Sales – 7:45, Gallup US ECI – 8:30, Redbook – 8:55, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction spending – 10:00, Global Manufacturing PMI – 11:00.

International Economic:  EMU PMI Manufacturing Index – 4:00 AM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

APOL Apollo Education Group Inc

$32.40

60.0

A

0.18

 

Wednesday April 2:

Economic:  MBA Purchase Applications – 7:00, ADP Employment Report – 8:15, Gallup U.S. Job Creation Index – 8:30, Factory Orders – 10:00, EIA Petroleum Status Report –10:30.

International Economic: EMU GDP – 5:00 AM, EMU PPI – 5:00

Other:  Atlanta Federal Reserve Bank President Dennis Lockhart speech on the economic outlook in Miami – 12:30, St Louis Federal Reserve Bank President James Bullard welcoming remarks in St. Louis – 5:00 PM.

Optionable Earnings:

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

MON Monsanto Company

$110.80

22.2

B

3.1

TXI Texas Industries, Inc.

$87.80

31.1

A

-0.53

 

Thursday April 3:

Economic:  Challenger Job-Cut Report – 7:30, Gallup US Payroll to Population 0 8:30, International Trade – 8:30, Jobless Claims – 8:30,  PMI Services Index – 9:45, , Bloomberg Consumer Comfort Index – 9:45,  ISM non-Manufacturing Index – 10:00, EIA Natural Gas Report – 10:30,  Global Composite PMI – 11:00, Global Services PMI – 11:00.

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

Other:  European Central Bank Announcement – 7:45 AM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

GBX Greenbrier Companies Inc

$43.70

39.8

B

0.63

SCHN Schnitzer Steel Industries, Inc.

$28.56

31.9

B

0.14

MU Micron Technology, Inc.

$22.24

59.3

A

0.59

 

Friday April 4:

Economic:  Employment Situation – 8:30., Consumer Sentiment – 9:55, Farm Prices 3:00.

International Economic: No major announcements.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

KMX CarMax, Inc

$45.45

33.1

B

0.53

 

Monday April 7:

Economic:  Gallup US Consumer Spending 0 8:30, TDAmeritrade IMX – 12:30.

International Economic:  Bank of Japan Announcement – No scheduled time.

Optionable Earnings:  None meeting criteria

 

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