The Prepared Mind: August 18, 2014

“Chance favors the prepared mind.” – Louis Pasteur

European concerns – economic and political – will continue to dominate our markets.  The euro zone GDP last quarter showed flat line growth.   Germany, the euro zone’s largest economy, contracted 0.2% in the second quarter. The Euro is at a nine month low versus the US dollar.   Euro zone industrial production fell in June for the second straight month. Tension in the Ukraine is providing another source of market volatility.  Analysts are divided on the impact of European concerns upon US markets.  One camp believes the European Central Bank will implement their own version of quantitative easing.  This scenario would buoy European equity markets.  Other analysts find European turmoil to be positive for US equity markets.  These analysts see the US equity market as a safe haven.

A sampling of technical analysts shows a bearish stance on the US markets.  The past week’s rally only managed to get the SPX back to a declining 20-day moving average.  Equity put/call rations continue to be bearish.  Market breadth indicators are now bullish.  The VIX charts are showing bullish sentiment.  Market breadth supports the analysts who claim the past few weeks provide a correction for the market.  These conflicting signals provide more than enough reasons for traders to remain cautious.

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

Index

Aug 15 close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,662.01

128.08

0.77%

0.51%

12.83% (VXD)

S&P 500 (SPX)

1,955.40

23.81

1.23%

5.79%

13.15% (VIX)

NASDAQ 100 (NDX)

3,984.15

107.14

2.76%

10.92%

13.37% (VXN)

Russell 2000 (RUT)

1,140.78

12.52

1.11%

-1.96%

17.64% (RVX)

S&P 100 (OEX)

868.27

10.38

1.21%

5.40%

11.73% (VXO)

CBOE Volatility Index (VIX)

13.15

-2.62

-16.61%

NA

 

The VIX showed a steady downward trend last week.  The only exception the trend was a flurry of concern when global risk in the Ukraine reared its head.  There are two trading days left until expiration for August futures and options.  Settlement prices for the VIX and August options will be based on Wednesday’s opening prices.  It not the actual open in VIX that matters,  the post hoc calculated value of VIX based on the opening quote (or print) in each S&P 500 Index Options series is included in the VIX calculation. The settlement, per the CBOE, is calculated as follows”

 

“The Final Settlement Price for VIX Futures is determined from a Special Opening Quotation (SOQ) of VIX. The SOQ is calculated from the sequence of opening prices of the SPX options used to calculate the VIX index on the settlement date (the “Constituent Options”). The opening prices for SPX options used in calculating the SOQ are determined through an automated auction mechanism (“Hybrid Opening System” or “HOSS”) that matches buy and sell orders residing on the Electronic Order Book prior to the opening of trading. If there is no opening price for a Constituent Option, the average of that option’s bid price and ask price as determined at the opening of trading is used instead.”

 

It is your responsibility to understand the contract specification of any derivatives you trade – futures or options.  Google search is your friend.  The information can be found on the web site for the exchange trading the product.

 

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

Index

Ticker

8/15 Close

Change

% Change

8/8 Close

CBOE Volatility Index VIX

13.15

(2.62)

-16.61%

15.77

VIX August Future VXQ4

13.22

(2.76)

-17.27%

15.98

VIX September Future VXU4

13.88

(2.23)

-13.84%

16.11

VIX October Future VXV4

14.53

(1.89)

-11.51%

16.42

CBOE Short-term Volatility Index VXST

14.34

(1.05)

-6.82%

15.39

CBOE 3 Month Volatility Index VXV

14.42

(2.27)

-13.60%

16.69

CBOE Mid-term Volatility Index VXMT

16.22

(1.44)

-8.15%

17.66

VIX of VIX VVIX

82.20

(9.64)

-10.50%

91.84

Long Vix ETP’s

 S&P 500  VIX Short Term Futures VXX

28.88

(4.33)

-13.04%

33.21

 S&P 500  VIX Mid-Tem Futures ETN VXZ

12.40

(1.03)

-7.67%

13.43

Short Vix ETP’s

Daily Inverse VIX Short Term ETN XIV

42.36

5.28

14.24%

37.08

Short VIX Short Term Futures ETF SVXY

82.95

10.32

14.21%

72.63

 

The focus for the coming week will be housing and manufacturing.  The important housing reports are the NAHB Housing Market Index on Monday, Housing Starts on Tuesday, and Existing Home Sales on Thursday.  The state of the housing recovery has been a subject of debate.  Recent housing reports have done little to resolve this debate.  Analyst will be looking the reports to get a better sense of the housing market and its future impact on the US economy.  Tuesday’s CPI report is expected to show little inflationary pressure.  Any outliers showing inflation or deflation have the ability to rattle the market.  Manufacturing reports are expected to show continued growth in the sector.

The earnings cycle is officially over.  Earnings announced this week include:  Urban Outfitters, Home Depot, Lowes, Dicks Sporting Goods, Smucker, Hewlett-Packard, Gap, Aeropostale,  Intuit, Footlocker, and salesforce.com. When trading equity options remember to factor in the upcoming 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 August 18:

Economic:  Housing Market Index – 10:00.

International Economic:  EMU Merchandise Trade – 5:00.

Optionable Earnings:

Symbol

Company Name

Aug 15 Close

IV30

B/A

XEPS

JKS

JinkoSolar Holding Co., Ltd.

$27.50

67.2

B

$0.69

URBN

Urban Outfitters, Inc.

$36.34

31.2

B

$0.69

JMEI

Jumei International Holding

$36.18

74.4

A

$0.11

PWRD

Perfect World Co., Ltd. (ADR)

$23.23

45.0

A

$0.38

 

Tuesday August 19:

Economic:   ICSC – Goldman Sachs Store Sales – 7:45, Consumer Price Index (CPI) – 3:30, Housing Starts – 8:30,  Redbook – 8:55.

International Economic:  Great Britain CPI and PPI – 4:30 AM, Japan Merchandise Trade – 7:50 PM.

Optionable Earnings:

Symbol

Company Name

Aug 15 Close

IV30

B/A

XEPS

RDEN

Elizabeth Arden, Inc.

$20.35

60.5

B

$0.29

DKS

Dicks Sporting Goods Inc

$43.01

36.4

A

$0.49

YOKU

Youku Tudou Inc (ADR)

$22.62

54.1

A

($0.04)

 

 

Wednesday August 20:

Economic:  MBA Purchase Application – 7:00, EIA Petroleum Status Report – 10:30.

International:   Germany PPI – 2:00 AM,  Bank of England Minutes – 4:30 AM, China PMI PMI Flahs Manufacturing – 9:45 PM.

Other:  FOMC Minutes – 2:00.

Optionable Earnings:

Symbol

Company Name

Aug 15 Close

IV30

B/A

XEPS

GLOG

GasLog Ltd

$25.66

47.8

B

$0.13

HAIN

The Hain Celestial Group, Inc.

$87.81

30.4

B

$0.89

PETM

PetSmart, Inc.

$68.68

29.2

B

$0.94

HPQ

Hewlett-Packard Company

$35.59

27.8

A

$0.89

 

Thursday August 21:

Economic:  Weekly Jobless Claims – 8:30, PMI Manufacturing Index Flash – 9:45, Philadelphia Fed Survey – 10:00, Existing Home Sales – 10:00, Leading Indicators – 10:00, EIA Natural Gas Status Report – 10.30.

International Economic:  Germany PMI Composite Flash – 3:30, EMU PMI Composite Flash – 4:00 AM.

Optionable Earnings: 

Symbol

Company Name

Aug 15 Close

IV30

B/A

XEPS

BKE

The Buckle, Inc.

$45.78

27.6

B

$0.53

DLTR

Dollar Tree, Inc.

$55.93

25.3

B

$0.65

PLCE

Childrens Place Inc

$49.32

35.3

B

($0.44)

CRM

salesforce.com, inc.

$53.51

36.5

A

($0.01)

GME

GameStop Corp.

$41.83

46.9

A

$0.19

QUNR

Qunar Cayman Islands Ltd

$28.56

56.0

A

($0.40)

TFM

The Fresh Market Inc

$31.36

45.8

A

$0.35

 

Friday August 22:

Economic:  No major announcements.

International Economic: No major announcements.

Other:

Optionable Earnings: 

Symbol

Company Name

Aug 15 Close

IV30

B/A

XEPS

ANN

Ann Inc

$35.84

34.5

B

$0.70

FL

Foot Locker, Inc.

$50.71

29.2

B

$0.54

 

Monday August 25:

Economic:  Chicago Fed National Activity Index – 8:30, PMI Services Flash- 9:45, New Home Sales – 10:00, Dallas Fed Manufacturing Survey – 10:30.

International Economic:  No major announcements.

Optionable Earnings: 

Symbol

Company Name

Aug 15 Close

IV30

B/A

XEPS

QIHU

Qihoo 360 Technology Co Ltd

$98.48

52.2

B

$0.33

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