The Prepared Mind: June 23, 2014

The bulls are once again in the forefront.  The Dow Jones Industrial Average and the S&P 500 closed at all time highs on Friday.  The small cap heavy Russell 200 led the charge with a gain of nearly 2%.  Investors have decided the Ukraine and Iraq a crises which do not make a difference.  Janet Yellen assuaged fears of inflation during her press conference following last week’s FOMC meeting.  The S&P 500 set a new record for consecutive days trading above its 200 day moving average.  The streak which started on November 21, 2012 is 390 days and still counting.

Complacency was the theme this past week.  One of the most successful traders ever, Paul Tudor Jones, recently observed, “I actually find myself daydreaming about winning ‘Dancing with the Stars’ on some days in the office. It’s gotten to be very difficult, when you depend on price movement to make a living, and there is none.”  It is dangerous to start accepting the lack of price movement as the status quo.  This acceptance can leave a trader unprepared for sudden price movement.  In 1900, Charles Dow succinctly described an immutable fact about financial markets: The one fact pertaining to all conditions is that they will change.” Stay nimble and look at reward and risk

A review of the year-to –date market performance gives us the same picture:

Index

6/20 Close

Wkly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,947.08

171.34

1.02%

2.23%

10.60% (VXD)

S&P 500 (SPX)

1,962.87

26.71

1.38%

6.20%

    10.85% (VIX)
NASDAQ 100 (NDX)

3,799.83

24.09

0.64%

5.79%

12.27% (VXN)

Russell 2000 (RUT)

1,185.76

23.19

1.99%

1.90%

15.84% (RVX)

S&P 100 (OEX)

866.15

8.96

1.05%

5.14%

9.07% (VXO)

CBOE Volatility Index (VIX)

10.85

-1.33

-10.92%

NA

 

The VIX is no longer the fear index.  It has become the complacency index.  The VIX and related ETFs indicate the level of complacency by once again approaching all-time lows.

 

Index

Ticker

6/20 Close

Change

% Change

6/13 Close

CBOE Volatility Index VIX

10.85

(1.33)

-10.92%

12.18

VIX July Future VXN4

12.90

(0.90)

-6.52%

13.80

VIX August Future VXQ4

13.90

(0.70)

-4.79%

14.60

VIX September Future VXU4

14.80

(0.75)

-4.82%

15.55

CBOE Short-term Volatility Index VXST

10.33

(1.15)

-10.02%

11.48

CBOE 3 Month Volatility Index VXV

12.87

(0.92)

-6.67%

13.79

CBOE Mid-term Volatility Index VXMT

14.82

(0.79)

-5.06%

15.61

VIX of VIX VVIX

73.30

(5.71)

-7.23%

79.01

 

 

Reports on housing and manufacturing will dominate the week.  Case-Shiller and the FHFA House Price Index will provide readings for the summer sales season.  Domestic manufacturing has shown regional pockets of strength.  Durable Goods Orders on Wednesday morning will confirm whether or not this strength is national.  These reports, coupled with Personal income and Outlays on Thursday,  will provide a great snapshot of an economy dominatied by housing and consumer spending.

 

The earnings doldrums will end soon.  Remember many equities will be announcing earnings before July expiration.  These doldrums can create a sense of complacency where the potential impact of earnings upon a strategy are ignored or forgotten.  If you trade a stock, always know when earnings announcements will occur.  Earnings can sneak up on a trader during the earnings announcement doldrums.  I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 400 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

“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.” – George Soros

 

Monday June 23:

Economic:  Chicago Fed National Activity Index – 8:30, PMI Manufacturing Index Flash – 9:45, Existing Home Sales – 10:00.

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

Optionable Earnings: 

Symbol

Company Name

June 13 Close

IV30

B/A

XEPS

MU

Micron Technology, Inc.

31.81

45.1

A

$0.71

 

Tuesday June 24:

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

International Economic:  No major announcements.

Optionable Earnings: 

Symbol

Company Name

June 13 Close

IV30

B/A

XEPS

CCL

Carnival Corporation

38.81

25.73

B

$0.02

WAG

Walgreen Company

75.39

31.96

B

$0.94

 

Wednesday June 25:

Economic:  MBA Purchase Application – 7:00, Durable Goods Orders 8:30, GDP(Gross Domestic Product –  8:30, Corporate Profits – 8:30, PMI Services Flash 9:45, EIA Petroleum Status Report – 10:30.

International Economic:   No major announcements.

Optionable Earnings:

Symbol

Company Name

June 13 Close

IV30

B/A

XEPS

APOL

Apollo Education Group Inc

29.07

55.01

B

$0.65

BKS

Barnes & Noble, Inc.

20.74

50.81

B

-$0.63

 

Thursday June 26:

Economic:  Weekly Jobless Claims – 8:30, Personal Income and Outlays – 8:30, EIA Natural Gas Status Report – 10.30, Kansas City Fed Manufacturing Index – 11:00.

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

Optionable Earnings: 

Symbol

Company Name

June 13 Close

IV30

B/A

XEPS

LEN

Lennar Corporation

41.16

29.6

B

$0.51

BBBY

Bed Bath & Beyond Inc.

60.68

32.11

A

$0.95

 

Friday June 27:

Economic:  University of Michigan/reutters Consumer Sentiment – 9:55, Farm Prices – 3.00.

International Economic:  German WMU EC Economic Sentiment – 5:00 AM.

Optionable Earnings:  None meeting criteria.

Monday June 30:

Economic:  Chicago PMI – 8:30, PMI Manufacturing Index Flash – 9:45, Exiarting Home Sales – 10:00.

International Economic:  China PMI Manufacturing – 9:45 PM.

Optionable Earnings:  None meeting criteria.

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