The Prepared Mind: September 15, 2014

“Chance favors the prepared mind.” – Louis Pasteur

Domestic markets finally sold off after five consecutive weeks of gains.  Analysts pointed to better than expected retail sales combined with the highest consumer sentiment numbers in a year.  Good news is once again bad news.  Investors believe a strengthening economy will fill the Fed to accelerate raising interest rates.  Interest rate concern should continue to trump international concerns about the Ukraine, Mideast, and Scotland.

The SPX char remains bullish.  Last week’s sell-off was not strong enough to overcome come new intraday and closing highs of the previous three weeks.  The market has shown a remarkable ability to rally off intraday lows.  Equity only put/call ratios remain bullish.  Market breadth indicators provided sell signals at the beginning of the week.  These indicators remain bearish.  Technical indicators always remind me the sage advice given to me by Bob Price – a survivor of the 1929 Crash.  Bob sat in the Members’ Lounge of the CBOE smoking, trading, and updating his charts.  I knew nothing about charting and asked for Bob guidance.  His response, “Frankie,  every boat that ever sank had charts.”

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

Index

Sep 12 close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,987.51

-149.85

-0.87%

2.48%

12.64% (VXD)

S&P 500 (SPX)

1,985.54

-22.17

-1.10%

7.42%

13.31% (VIX)

NASDAQ 100 (NDX)

4,068.96

-18.13

-0.44%

13.28%

14.67% (VXN)

Russell 2000 (RUT)

1,159.60

-10.10

-0.86%

-0.34%

17.92% (RVX)

S&P 100 (OEX)

883.07

-7.41

-0.83%

7.19%

11.96% (VXO)

CBOE Volatility Index (VIX)

13.31

1.22

10.09%

NA

 

 

The VIX and related long VIX products reflected a 1% decline in the S&P 500 by showing gains for the week.  The short volatility products showed the opposite behavior.  Russell Rhoads, Senior Instructor at the Options Institute and an astute observer of all things VIX, , pointed out an anomaly in last week’s volatility markets.  ussell pointed out that the a divergence between the VXST, the  CBOE Short-term Volatility Index , and the VIX.   The financial medial pointed to the upcoming FOMC meeting and the upcoming PPI release as reasons for last week’s market sell-off and corresponding VIX increase.  The VXST belies the media’s description of concern and “market jitter.  The VXST closed at a small discount to the VIX rather than at a premium to the VIX.   As Russell points out, this behavior appears to be an indication traders expect the this market to rebound off yet another small market decline.  My 20 years experience as a marketmaker leads me to agree with Russell’s analysis.  This backwardation is the product of trader skepticism and lack of concern about a continued market sell-off.

 

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

Index

Ticker

9/12 Close

Change

% Change

9/5 Close

CBOE Volatility Index VIX

13.31

1.22

10.09%

12.09

VIX September Future VXU4

14.05

0.85

6.44%

13.20

VIX October Future VXV4

14.80

0.60

4.23%

14.20

VIX November Future VXX4

15.25

0.37

2.49%

14.88

CBOE Short-term Volatility Index VXST

13.28

3.01

29.31%

10.27

CBOE 3 Month Volatility Index VXV

15.04

0.96

6.82%

14.08

CBOE Mid-term Volatility Index VXMT

16.52

0.64

4.03%

15.88

VIX of VIX VVIX

89.25

11.92

15.41%

77.33

Long Vix ETP’s

 

   

 S&P 500  VIX Short Term Futures ETN VXX

28.62

1.17

4.26%

27.45

 S&P 500  VIX Mid-Tem Futures ETN VXZ

12.28

0.16

1.32%

12.12

Short Vix ETP’s

 

   

Daily Inverse VIX Short Term ETN XIV

42.50

(1.88)

-4.24%

44.38

Short VIX Short Term Futures ETF SVXY

83.43

(3.58)

-4.11%

87.01

All eyes are on the FOMC meeting on Tuesday and Wednesday.  The Fed will announce its decision concerning interest rates along with update forecasts on the economy on Wednesday afternoon   Domestic US industrial production and the regional New York Fed Manufacturing Survey will be release on Monday.  The Housing Market Index on Wednesday and Housing Starts on Thursday have the ability to move the market.  Friday will be one of four Quadruple Witchings for the year.  There will be expiration of Stock Index Futures, Stock Index Options, Equity Options, and Single Stock Futures.

The earnings cycle is officially over.  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

“Whenever anyone says, ‘theoretically,’ they really mean ‘not really.” – JP Donleavy

Monday September 15:

Economic:  Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15.

International Economic:  EMU Merchandise Trade – 5:00 AM.

Optionable Earnings:  None meeting criteria

Optionable Earnings:  None meeting criteria,

Tuesday September 16:                                                   

Economic:  ICSC – Goldman Sachs Store Sales – 7:45, PPI-FD – 8:30, Redbook – 8:55, Treasury International Capital – 9:00.

International Economic:  Great Britain CPI – 4:30.

Other:  FOMC meeting begins.

Optionable Earnings: 

Symbol

Company Name

Sep 12  Close

IV30

B/A

XEPS

ADBE

Adobe Systems Incorporated

$72.42

28.9

 A

$0.28

 

 

Wednesday September 10:

Economic:  MBA Purchase Application – 7:00, Consumer Price Index – 8:30, Current Account – 8:30, Housing Market Index – 10:00,  EIA Petroleum Status Report – 10:30.

International:   Bank of England Minutes – 4:30, EMU HICP – 5:00, Japan Merchandise Trade – 7:50 PM.

Other:  FOMC Meeting Announcement 2:00, FOMC Forecasts 2:00, Fed Chair Press Conference – 2:30.

Optionable Earnings:

Symbol

Company Name

Sep 12  Close

IV30

B/A

XEPS

LEN

Lennar Corporation

8-Feb

29.91

B

$0.67

UNFI

United Natural Foods, Inc.

$64.49

32.9

A

$0.65

 

Thursday September 18:

Economic:  Housing Starts – 8:30, Weekly Jobless Claims – 8:30, Philadelphia Fed Survey – 10:00, EIA Natural Gas Status Report – 10.30.

International Economic:  Great Britain CBI Industrial Trends Survey – 6:00.

Optionable Earnings: 

Symbol

Company Name

Sep 12  Close

IV30

B/A

XEPS

RHT

Red Hat Inc

$61.68

34.8

A

$0.26

TIBX

Tibco Software Inc.

$21.58

41.0

A

$0.13

 

Friday September 19:

Economic:  Atlanta Fed Business Inflation Expectations – 10:00, Leading Indicators – 10:00.

International Economic:  Germany PPI – 2:00 AM.

Other: Quadruple Witching – Expiration  of Stock Index Futures, Stock Index Options, Equity Options, and Single Stock Futures.

Optionable Earnings: None meeting criteria.

Monday September 22:

Economic:  Chicago Fed National Activity Index – 8:30, Existing Home Sales – 10:00.

International Economic:  EMU Merchandise Trade – 5:00 AM.

Optionable Earnings:  None meeting criteria.

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