The Prepared Mind: August 11, 2014

“Chance favors the prepared kind.” – Louis Pasteur

Volatility came back last.  A return of volatility – statistical and implied – is an August stock market phenomenon.  Investors and traders vacation days peak in August.  The reduction of numbers of players in the market leads to amplification of any negative news or fears.  Friday’s market rally brought the major indexes back near or into positive territory for the week.  The gains on Friday were: Dow Jones – 1.1%, S&P 500 – 1.2%, Russell 2000 – 0.8%, NASDAQ 100 – 0.8%, and the S&P 100 – 1.0%.  There is a divergence oo opinion are Friday’s rally.  One group of analysts are referring to it as a “relief rally”, a respite from two weeks of selling pressure.  Others feel the previous market weakness was the result of overreaction to international crises – the Ukraine, Gaza and Iraq.

The SPX chart remains bearish.  It has broken through support levels at 1950, 1925 and 1900.  The E-mini reached a low of 1890 during Thursday’s overnight trading session on Globex.   Equity-only put/call rations are. giving sell signals.  Market breadth indicators are painting the indexes as oversold.  An “oversold” environment can be characterized by volatility and sudden moves to the up and downside.  Mark momentum is slowing.  On Friday only 37% of equities were trading above their 50 day moving average; five weeks ago 79% of equities were trading above the 50 DMA.

Here is an overview of last week’s market performance:

Index

Aug 1 close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,533.93

40.56

0.25%

-0.26%

14.8% (VXD)

S&P 500 (SPX)

1,931.59

6.44

0.33%

4.50%

15.77% (VIX)

NASDAQ 100 (NDX)

3,877.01

1.54

0.04%

7.93%

17.02% (VXN)

Russell 2000 (RUT)

1,128.26

14.23

1.28%

-3.04%

20.52% (RVX)

S&P 100 (OEX)

857.89

2.44

0.29%

4.14%

15.22% (VXO)

CBOE Volatility Index (VIX)

15.77

-1.26

-7.40%

NA

 

 

The VIX is in upward trend.  The VIX futures showed a minimal response to Friday’s market rally.  The outstanding was whether the lack of response was due to continued concern over the downside or the usual Friday behavior of battening down the hatches for the weekend.  Large trades last week in VIX options and options on ETN’s showed a markedly bearish sentiment  T here was a buyer of 10,000 VXX Aug 29th 30/33 Call Verticals for $1.90.  This bearish position will show a profit of $1,10 if the VX is at or above 33.00 on August 29th.  This buyer expects volatility to continue through the end of August.

 

Here is an overview of last week for the VIX and related products:

Index

Ticker

8/8 Close

Change

% Change

8/1 Close

CBOE Volatility Index VIX

15.77

(1.26)

-7.40%

17.03

VIX August Future VXQ4

15.98

(0.07)

-0.44%

16.05

VIX September Future VXU4

16.11

0.01

0.06%

16.10

VIX October Future VXV4

16.42

0.18

1.11%

16.24

CBOE Short-term Volatility Index VXST

15.39

(3.62)

-19.04%

19.01

CBOE 3 Month Volatility Index VXV

16.69

(0.09)

-0.54%

16.78

CBOE Mid-term Volatility Index VXMT

17.66

0.16

0.91%

17.50

VIX of VIX VVIX

91.84

(9.27)

-9.17%

101.11

Long Vix ETP’s

 

   

 S&P 500  VIX Short Term Futures ETN VXX

33.21

0.20

0.61%

33.01

 S&P 500  VIX Mid-Tem Futures ETN VXZ

13.43

0.35

2.68%

13.08

Short Vix ETP’s

 

   

Daily Inverse VIX Short Term ETN XIV

37.08

(0.67)

-1.77%

37.75

Short VIX Short Term Futures ETF SVXY

72.63

(1.38)

-1.86%

74.01

 

The highlight of the week will be the Wednesday release of July retail sales.  Expectations are that sales will be flat to up 0.3%.  The US economy is dominated by consumers.  Any weakness in this number or in earnings of big retailers will have the ability to move a jittery market, Major retailers Wal-Mart, Nordstrom’s, Kohl’s, J.C. Penney, Dillard’s and Macy’s are all announcing earnings on Wednesday and Thursday.  Poor earning from the retail sector will be enough to make investors to forget the previous four weeks of better than expected earnings announcements.

Earnings announcements taper this week.  When trading equity options remember to factor in the next earnings cycle.  I have scanned for stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 22, 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 August11:

Economic:  No major announcements.

International Economic:  Japan PPI – 7:50 PM.

Optionable Earnings:

Symbol

Company Name

Aug 8 Close

IV30

B/A

XEPS

BITA

Bitauto Hldg Ltd (ADR)

$62.09

64.0

B

$0.35

EVEP

EV Energy Partners, L.P.

$35.76

27.5

B

$0.32

PCLN

Priceline Group Inc

$1,285.11

30.7

B

$11.34

RGEN

Repligen Corporation

$21.21

44.8

B

$0.06

WAC

Walter Investment Management Corp

$27.62

54.3

B

$1.31

ICPT

Intercept Pharmaceuticals Inc

$222.79

129.8

A

($1.10)

MR

Mindray Medical International Ltd

$29.81

48.4

A

$0.52

MTZ

MasTec, Inc.

$26.49

39.2

A

$0.37

RAX

Rackspace Hosting, Inc.

$29.94

61.3

A

$0.17

 

Tuesday August 12,

Economic:   NFIB Small Business Optimism Index 7:30, ICSC – Goldman Sachs Store Sales – 7:45, Redbook – 8:55, JOLTS – 10:00.

International Economic:  Bank of Japan Minutes – 7:50PM, Japan GDP – 7:50 PM.

Optionable Earnings:

Symbol

Company Name

Aug 8 Close

IV30

B/A

XEPS

B

AerCap Holdings N.V.

$43.09

29.8

B

$0.52

INSY

Insys Therapeutics Inc

$27.14

86.4

B

$0.29

KATE

Kate Spade & Co

$37.28

40.8

B

($0.01)

RICE

Rice Energy Inc

$26.05

44.7

B

$0.07

BLUE

bluebird bio Inc

$33.97

88.8

A

($0.45)

CREE

Cree, Inc.

$48.52

45.4

A

$0.31

FOSL

Fossil Group Inc

$100.49

36.7

A

$0.96

IMOS

ChipMOS Technologies (Bermuda)

$23.71

42.4

A

$0.25

MYGN

Myriad Genetics, Inc.

$37.33

48.1

A

$0.46

PE

Parsley Energy Inc

$21.42

41.4

A

$0.09

 

Wednesday August 13:

Economic:  MBA Purchase Application – 7:00, Retail Sales – 8:30, Atlanta Fed Business Inflation – 10:00, Business Inventories – 10:00, EIA Petroleum Status Report – 10:30.

International:   China Industrial Production – 1:30 AM, China Retail Sales – 1:30 AM, German CPI –  2:00 AM, Japan Machine Orders – 7:50 PM.

Other:  New York Federal Reserve Bank President William Dudley opens workshop on wholesale funding risks in New York. – 9:05 AM, Boston Federal Reserve Bank President Eric Rosengren speech at workshop on wholesale funding risks in New York – 9:20 AM.

Optionable Earnings:

Symbol

Company Name

Aug 8 Close

IV30

B/A

XEPS

CSIQ

Canadian Solar Inc.

$25.73

67.8

B

$0.57

EZCH

EZchip Semiconductor Ltd.

$24.28

45.9

B

$0.21

IOC

InterOil Corporation (USA)

$57.34

44.1

B

$0.04

M

Macy’s, Inc.

$58.77

25.7

B

$0.86

PF

Pinnacle Foods Inc

$30.49

27.4

B

$0.33

PLUG

Plug Power

$5.65

95.4

B

($0.03)

SEAS

SeaWorld Entertainment Inc

$26.83

40.7

B

$0.61

CSCO

Cisco Systems, Inc.

$24.86

25.5

A

$0.48

NDLS

Noodles & Co

$27.35

59.9

A

$0.15

NTAP

NetApp Inc.

$38.44

29.6

A

$0.40

NTES

NetEase, Inc (ADR)

$82.95

33.8

A

$1.42

SLW

Silver Wheaton Corp. (USA)

$26.58

32.1

A

$0.20

VIPS

Vipshop Holdings Ltd – ADR

$208.09

54.5

A

$0.47

XONE

ExOne Co

$31.98

73.4

A

($0.15)

 

Thursday August 14:

Economic:  Weekly Jobless Claims – 8:30, Import and Export Prices – 8:30, EIA Natural Gas Status Report – 10.30.

International Economic:  China Produce and Import Price Index – 3:15 AM, EMU GDP Flash – 5:00 AM, EMU HICP – 5:00 AM.

Optionable Earnings: 

Symbol

Company Name

Aug 8 Close

IV30

B/A

XEPS

AAP

Advance Auto Parts, Inc.

$121.85

27.4

B

$2.01

KSS

Kohl’s Corporation

$54.45

26.3

B

$1.08

PRGO

Perrigo Company PLC

$141.56

35.3

B

$1.05

RRGB

Red Robin Gourmet Burgers, Inc.

$63.47

40.2

B

$0.90

A

Agilent Technologies Inc.

$55.05

26.9

A

$0.74

ADSK

Autodesk, Inc.

$53.63

35.8

A

$0.17

AMAT

Applied Materials, Inc.

$20.69

38.5

A

$0.27

DDS

Dillard’s, Inc.

$121.80

39.6

A

$0.90

SINA

SINA Corp

$46.93

48.7

A

$0.00

 

Friday August 15:

Economic:  PPI–FD (Producer Price Index-Final Demand) – 8:30, Empire State Manufacturing Survey – 8:30, Treasury International Capital – 9:00, Industrial Production – 9:55, Consumer Sentiment – 9:55, E-Commerce Retail Sales – 10:00..

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

Other:  Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech on banking regsulations in Brainerd, Minnesota – 10:45.

Optionable Earnings: 

Symbol

Company Name

Aug 8 Close

IV30

B/A

XEPS

JD

JD.Com Inc(ADR)

$27.48

55.2

B

($0.02)

 

Monday August 18:

Economic:  Housing Market Index – 10:00.

International Economic:  EMU Merchandise Trade – 5:00.

Optionable Earnings:

Symbol

Company Name

Aug 8 Close

IV30

B/A

XEPS

JKS

JinkoSolar Holding Co., Ltd.

$25.80

73.4

B

$0.72

BOBE

Bob Evans Farms Inc

$47.64

40.8

A

$0.09

PWRD

Perfect World Co., Ltd. (ADR)

$20.84

46.0

A

$0.36

URBN

Urban Outfitters, Inc.

$36.34

28.8

A

$0.49

 

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