The Prepared Mind: July 1, 2014

“Chance favors the prepared mind.” — Louis Pasteur

The major equity indexes ended the week hovering around unchanged.  The current market behavior makes it very easy to forget a week earlier the DJIA and SPX closed at all-time highs.  Nothing has been able to put a damper on the upward trend.  The final number for first quarter GDP showed the economy had shrunk at a 2.9% annual rate.  Analysts were quick to excuse the number by pointing out a disconnect between the GDP number and other economic indicators – unemployment, housing, and consumer confidence.  The general mindset was the poor GDP number was the direct result of last winter’s weather.  Short-term and intermediate term indicators remain bullish.  Market breadth is bullish.  The only neagative is the weighted put/call ratio.  Complacency continues to be the theme.  The holiday shortened week should bring an extension of the current doldrums.  The Fourth of July weekend starts early with the NYSE closing on Thursday at 1PM Eastern.  The

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

Index

June 27 Close

Wkly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials(DJIA)

16,851.84

-95.24

-0.56%

1.66%

11.02% (VXD)

S&P 500 (SPX)

1,960.96

-1.91

-0.10%

6.09%

11.26% (VIX)

NASDAQ 100 (NDX)

3,839.22

39.39

1.04%

6.88%

16.47% (VXN)

Russell 2000 (RUT)

1,185.35

-0.41

-0.03%

1.87%

16.47% (RVX)

S&P 100 (OEX)

866.54

0.39

0.05%

5.19%

9.60% (VXO)

CBOE Volatility Index(VIX)

11.26

0.41

3.78%

NA

 

 

The pundits are telling us the VIX is no longer the fear index.  According to the financial media, the VIX and related ETFs indicate the levels of complacency not fear.  The VIX does not operate in a vacuum. In reality, the VIX is quite a bit higher than statistical or historic 20-day or 30-day SPX historic volatilities.  The 20-day historic volatility is 5.91% and the 30-day volatility is 6.16%.  The VIX  is not cheap at all when compared to these historic volatilities.   Low volatility is not an indication the market is preparing to sell-off.

 

Index

Ticker

6/27 Close

Change

% Change

6/20 Close

CBOE Volatility Index VIX

11.26

0.41

3.78%

10.85

VIX July Future VXN4

12.65

(0.25)

-1.94%

12.90

VIX August Future VXQ4

13.50

(0.40)

-2.88%

13.90

VIX September Future VXU4

14.38

(0.42)

-2.84%

14.80

CBOE Short-term Volatility Index VXST

10.65

0.32

3.10%

10.33

CBOE 3 Month Volatility Index VXV

12.82

(0.05)

-0.39%

12.87

CBOE Mid-term Volatility Index VXMT

14.78

(0.04)

-0.27%

14.82

VIX of VIX VVIX

72.72

(0.58)

-0.79%

73.30

 

It is “Employment Week.” The highlight of the abbreviated trading week is Thursday’s June Employment Situation Report.   The focus is starting to change from the unemployment rate to participation right.  This change in focus is touted by market bears looking to accentuate the negative.  Which focus is correct?  I do not know.  Either argument can be compelling, but the final choice is yours.  Rest assured someone will be telling us “I told you so.”  PMI and ISM manufacturing reports will tell us if improvement continues in the manufacturing sector.  Analysts are waiting to see if Tuesday’s Motor Vehicle Sales will confirm the trends in improving consumer sentiment and confidence.

 

The earnings season start Tuesday July 8 with the announcement of Alcoa earnings.  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 30:

Economic:  Chicago PMI – 9:45, Pending Homes Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30.

International Economic:  EMU HICP Flash – 5:00 AM, Japan PMI Manufacturing – 9:35 PM, China PMI Manufacturing – 9:45 PM.

Other: San Francisco Federal Reserve Bank President John Williams speech to banking conference, Sun Valley, Idaho – 1:10 PM.

Optionable Earnings:  None meeting criteria

Tuesday July 1:

Economic:   Motor Vehicle Sales, ICSC – Goldman Sachs 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.

International Economic:  EMU PMI Manufacturing – 4:00 AM, EMU Unemployment – 5:00 AM.

Optionable Earnings: 

Symbol

Company Name

June 30 Close

IV30

B/A

XEPS

CAMP

CalAmp Corp.

21.17

61.52

A

$0.16

 

Wednesday July 2:

Economic:  MBA Purchase Application – 7:00, Challenger Job-Cut Report – 7:30, ADP Employment Report 8:15 , Gallup US Job Creation Index – 8:30, Gallup US Payroll to Population – 8:30, Factory Orders – 10:00,  EIA Petroleum Status Report – 10:30.

International Economic:   EMU GDP and PPI – 5:00 AM, China PMI Composite – (:45 PM.

Other: Federal Reserve Chair Janet Yellen speech on monetary policy to IMF central banking conference in Washington – 11:00 AM.

Optionable Earnings:

Symbol

Company Name

June 30 Close

IV30

B/A

XEPS

GBX

Greenbrier Companies Inc

58.01

41.06

B/A

$0.74

 

Thursday July 3:

Early Market Close:  1:00 PM –  NYSE; 1:15  – CBOE and CME.

Economic:  Employment Situation – 8:30, International Trade – 8:30, Weekly Jobless Claims – 8:30 PMI Services Index – 9:45, ISM Non-Manufacturing Index – 10:00, EIA Natural Gas Status Report – 10.30, Kansas City Fed Manufacturing Index – 11:00.

International Economic: EMU PMI Composite – 4:00 AM, European Central Bank announcement – 7:45

Optionable Earnings:  None meeting criteria

Friday July 4:

Independence Day – US Markets Closed.

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

Optionable Earnings:  None meeting criteria.

Monday July 7:

Economic:  Gallup US Consumer Spending Measure – 8:30, TD Ameritrade IMX -12:30.

International Economic:  No major announcements.

Optionable Earnings:  None meeting criteria.

 

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