The Prepared Mind: August 25, 2014

“Chance favors the prepared mind.” – Louis Pasteur

Two weeks ago, August 8 to be precise,  I woke up to a market in turmoil.  The September S&P future was trading below 1890.  The S&P 500 had sold off from all-time highs. Analysts were predicting further weakness in the market.  As I waited for the US markets to open, there was an announcement of an easing of tension between the Ukraine and Russia.  Suddenly all was well.  The major indexes have recovered their entire losses and more over the past two weeks.  Once again a “market correction” and recovery lasted less than a month.  It was another lesson on why I, as a trader, focus on range rather than direction.

Concerns – economic and political – appear to have been put on the back burner by our markets.  ISIS, the Ukraine, Iraq and Syria have been replaced by positive feelings about growth, inflation and earnings.  Last week brought about the best gains of the summer.  The Dow Jones Industrials (DJIA) and the S&P 500 set new all-time intraday and closing highs on Thursday.   Friday’s trading volumes for the NASDAQ and NYSE were at the lowest levels for the year.

Market breadth is positive with buy signals across the board.  Analysts also describe the equities as being overbought.  I have never been able to wrap my brain around the financial oxymoron where thee equity markets can have buy signals while simultaneously being overbought.  Equity put/call ratios are in the no man’s land between bullish and bearish.  The VIX charts are showing bullish sentiment with levels approaching recent lows.0

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

Index

Aug 22 close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

17,001.22

339.21

2.04%

2.56%

10.75% (VXD)

S&P 500 (SPX)

1,988.40

33.00

1.69%

7.58%

10.47% (VIX)

NASDAQ 100 (NDX)

4,055.45

71.30

1.79%

12.90%

12.23% (VXN)

Russell 2000 (RUT)

1,159.43

18.65

1.63%

-0.36%

16.13% (RVX)

S&P 100 (OEX)

882.79

14.52

1.67%

7.16%

10.56%(VXO)

CBOE Volatility Index (VIX)

11.47

-1.68

-12.78%

NA

 

 

The VIX continue a steady downward trend last week.  There was a disconnect between the VIX and the VIX futures.  The futures were down 4% to 8% versus a loss of nearly 13% in the cash VIX.   The caution implicit in the price of the  longer term futures  is absent in the shorter term cash VIX.  The big trade for the week in VIX products was on Friday in the VXX.  A customer sold 9,000 VXX  28  with August 29th expiration.  The options were sold at 0.89.  The VXX closed at 27.70.  Breakeven for this trade is 27.11.  This customer expects a market downturn over the next week.

 

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

Index

Ticker

8/22 Close

Change

% Change

8/15 Close

CBOE Volatility Index VIX

11.47

(1.68)

-12.78%

13.15

VIX September Future VXU4

13.48

(0.40)

-2.88%

13.88

VIX October Future VXV4

14.23

(0.30)

-2.06%

14.53

VIX November Future VXX4

14.82

(0.48)

-3.14%

15.3

CBOE Short-term Volatility Index VXST

10.08

(4.26)

-29.71%

14.34

CBOE 3 Month Volatility Index VXV

13.51

(0.91)

-6.31%

14.42

CBOE Mid-term Volatility Index VXMT

15.49

(0.73)

-4.50%

16.22

VIX of VIX VVIX

79.58

(2.62)

-3.19%

82.20

Long Vix ETP’s

 

   

 S&P 500  VIX Short Term Futures VXX

27.70

(1.18)

-4.09%

28.88

 S&P 500  VIX Mid-Tem Futures VXZ

12.19

(0.21)

-1.69%

12.40

Short Vix ETP’s

 

   

Daily Inverse VIX Short Term ETN XIV

44.06

1.70

4.01%

42.36

Short VIX Short Term Futures ETF SVXY

86.52

3.57

4.30%

82.95

 

The focus for the coming week will be housing and manufacturing.   The state of the housing recovery has been a subject of debate.  Recent housing reports have done little to resolve this debate.  New home sales are expected to show growth in Monday’s report.  House prices are expected to remain flat after recovering showing earlier this summer.  Analysts will be looking the reports to get a better sense of the housing market and its future impact on the US economy.  Durable Goods are expecting to show growth approaching 10% reflecting large orders for planes received by Boeing.    Manufacturing reports are forecasted to show continued growth in the sector.  Vladimir Putin and Ukrainian President Petro Poroschenko are meeting on Tuesday.

The earnings cycle is officially over.  Earnings announced this week include:  Best Buy, Abercrombie & Fitch, Dollar General, Tiffany, Guess, Bob Evans, and Big Lots. 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 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:  German Prime Minister Angela Merkel meets with Spanish Prime Minister Mariano Pajoy.

Optionable Earnings: 

Symbol

Company Name

Aug 22 Close

IV30

B/A

XEPS

OSIS

OSI Systems, Inc.

$68.03

36.8

B

$1.17

QIHU

Qihoo 360 Technology Co Ltd

$101.63

48.6

B

$0.33

 

Tuesday August 26:

Economic:   ICSC – Goldman Sachs Store Sales – 7:45, Consumer Durable Goods Orders – 8:30, Redbook – 8:55, FHFA House Price Index – 9:00, S&P Case Shiller House Price index – 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

Aug 22 Close

IV30

B/A

XEPS

BBY

Best Buy Co Inc

$31.13

44.0

B

$0.31

DSW

DSW Inc.

$28.24

49.5

B

$0.30

SAFM

Sanderson Farms, Inc.

$94.16

33.9

B

$3.86

ARUN

Aruba Networks, Inc.

$20.17

53.9

A

$0.06

BOBE

Bob Evans Farms Inc

$48.85

40.6

A

$0.09

NMBL

Nimble Storage Inc

$28.83

68.5

A

$0.28

SQM

Sociedad Quimica y Minera de Chile

$28.39

33.0

A

$0.38

 

Wednesday August 27:

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

International:   No major announcements.

Optionable Earnings:

Symbol

Company Name

Aug 22 Close

IV30

B/A

XEPS

B

Bio-Reference Laboratories Inc

$31.59

39.8

B

$0.54

SDRL

Seadrill Ltd

$37.37

26.9

B

$0.78

TIF

Tiffany & Co.

$99.22

27.0

B

$0.86

A

Workday Inc

$87.81

46.6

A

($0.29)

GES

Guess?, Inc.

$25.17

38.4

A

$0.28

LCI

Lannett Company, Inc.

$35.06

56.9

A

$0.51

 

Thursday August 28:

Economic:  Gross Domestic Product (GDP) – 8:30, Weekly Jobless Claims – 8:30, Corporate Profits – 6:30, Pending Home Sales Index – 10:00, EIA Natural Gas Status Report – 10.30.

International Economic:  Germany Unemployment – 3:50AM, EMU Economic Sentiment – 5:00AM, Japan Unemployment – 7:30PM, Japan Industrial Production – 7:30PM.                                                                 

Optionable Earnings: 

Symbol

Company Name

Aug 22 Close

IV30

B/A

XEPS

B

Abercrombie & Fitch Co.

$43.50

47.1

B

$0.10

CSTM

Constellium NV

$28.31

32.4

B

$0.57

DG

Dollar General Corp.

$63.61

34.1

B

$0.83

SIG

Signet Jewelers Ltd.

$105.72

28.8

B

$0.99

AVGO

Avago Technologies Ltd

$76.27

30.2

A

$0.79

OVTI

OmniVision Technologies, Inc.

$27.67

33.0

A

$0.37

SPLK

Splunk Inc

$42.21

60.2

A

($0.33)

VEEV

Veeva Systems Inc

$22.65

50.9

A

$0.06

ZOES

Zoe’s Kitchen Inc

$30.94

60.0

A

$0.02

 

Friday August 28:

Economic:  Personal Income and Outlays – 8:30, Chicago PMI – 9:45, Consumer Sentiment – 9:55

International Economic: Germany Retail Sales – 2:00AM, EMU Unemployment – 5:00AM.

Optionable Earnings: 

Symbol

Company Name

Aug 22 Close

IV30

B/A

XEPS

BIG

Big Lots, Inc.

$47.15

40.9

B

$0.30

 

Monday September 1:

Labor Day – U.S. Markets closed.

International Economic:  No major announcements.

Tuesday September 2:

Economic:  Gallup US Consumer Spending Measure, PMI Manufacturing Index – 10:00, Construction Spending – 10:00, Global Manufacturing PMI – 11:00, Gallup US

International Economic:  No major announcements.

Optionable Earnings:  None meeting criteria.

 

 

 

 

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