The Prepared Mind: September 22, 2014

There is an undercurrent of market analysis by the financial media which echoes the famous refrain of Alfred E. Neman – “What? Me worry?”   The attitudes towards the market are like Midwest either.  If you don’t like it wait a few hours, days, or weeks.  Technical Analysts were calling the markets “tired” two weeks ago.  The tune changed in a week.  Actually, the tuned remained the same as it has been for the past few years.  Market excitement appeared on a number of fronts.  The FOMC stated an accommodative policy will remain in effect for a considerable time after the bond buying program ends.   The IPO for Alibaba Group Holding (BABA) generated anticipation and excitement matching that of Facebook two years ago.  The S&P 500 closed at a new record closing high on Thursday.  The large cap euphoria was also apparent in the Dow Jones Industrial which end the week up over 1.7%.   This sentiment did not carry over to the small cap Russell 2000.  The RUT closed down1.3% on Friday.  The divergence between the large caps, mid caps, and small caps is creating a choppy environment for traders. Many indicators closed at bearish levels early in the week when the markets showed weakness in anticipation of the FOMC meeting.  Market strength in response to the FOMC statement saw VIX move from bearish levels above 14 to levels approaching 12.  VIX levels are now neutral to bullish territory.  All indicators are not bullish.  .  Equity only put/call rations have turned negative.  These indicators are not a valid reason to put on directional trades.  Traders need to  remember that negative does not mean  sell and positive does not mean buy. Here is an overview of last week’s market performance:

Index
Sep 19 close
Weekly Change
% Weekly
% YTD
Volatility of  Index
Dow Jones Industrials (DJIA)
17,279.74
292.23
1.72%
4.24%
11.03 (VXD)
S&P 500 (SPX)
2,010.40
24.86
1.25%
8.77%
12.11% (VIX)
NASDAQ 100 (NDX)
4,100.09
31.13
0.77%
14.15%
13.80% (VXN)
Russell 2000 (RUT)
1,143.49
-16.11
-1.39%
-1.73%
17.24% (RVX)
S&P 100 (OEX)
897.09
14.02
1.59%
8.90%
10.19%(VXO)
CBOE Volatility Index (VIX)
12.11
-1.20
-9.02%
NA
 

VXST relative to VIX continues to indicate a lack of fear.   Repeated market rebounds from any market weakness have created a sense of complacency.  This lack of fear was evident in this week’s near 22% decline CBOE Short-term Volatility Index.  Longer term VIX indexes held higher levels in anticipation of the upcoming third quarter earnings announcements.  Russell Rhoads of the CBOE reported a trader sold of the VIX Oct 18 / 21 Call Spreads for $0.18. The motivation of the trader is unknown.  We do not know if the trader was initiating a stand alone spread or hedging a existing long position in the VIX futures or options.   Here is an overview of last week for the VIX and related products:

Index
Ticker
9/19 Close
Change
% Change
9/12 Close
CBOE Volatility Index
VIX
12.11
(1.20)
-9.02%
13.31
VIX October Future
VXV4
14.15
(0.65)
-4.39%
14.80
VIX November Future
VXX4
14.95
(0.30)
-1.97%
15.25
VIX December Future
VXZ4
15.40
(0.20)
-1.28%
15.60
CBOE Short-term Volatility Index
VXST
10.41
(2.87)
-21.61%
13.28
CBOE 3 Month Volatility Index
VXV
14.38
(0.66)
-4.39%
15.04
CBOE Mid-term Volatility Index
VXMT
16.08
(0.44)
-2.66%
16.52
VIX of VIX
VVIX
77.70
(11.55)
-12.94%
89.25
Long Vix ETP’s
 
 
 
 
 
S&P 500  VIX Short Term Futures ETN
VXX
27.23
(1.39)
-4.86%
28.62
S&P 500  VIX Mid-Tem Futures ETN
VXZ
12.23
(0.05)
-0.41%
12.28
Short Vix ETP’s
 
 
 
 
 
Daily Inverse VIX Short Term ETN
XIV
44.47
1.97
4.64%
42.50
Short VIX Short Term Futures ETF
SVXY
87.14
3.71
4.45%
83.43

The coming week will be continue to be light on earnings.  Members of the Fed have a full schedule of speaking engagements this week.  Any misstatement will have the ability to shake up markets.  Economic reports will focus on housing and manufacturing.  Recent housing starts have be disappointing and home price appreciation has started ti waiver.  Monday’s existing home sales and Tuesday’s house price index will give further indication of the current state of the US housing market.  This week’s regional manufacturing reports, in conjunction with Thursday’s Durable Goods report, are expected to show continued growth in the manufacturing sector.   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 “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 September 22: Economic:  Chicago Fed National Activity Index – 8:30, Existing Home Sales – 10:00. International Economic:  EMU Merchandise Trade – 5:00 AM, China PMI Flash Manufacturing Index – 9:45 PM.   Other:  York Federal Reserve Bank President William Dudley conversation at conference in New York – 10:05 AM,Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech on monetary policy objectives in Marquette, Michigan. – 7:30 PM Optionable Earnings:  None meeting criteria. Tuesday September 23: Economic:  ICSC – Goldman Sachs Store Sales – 7:45, Redbook – 8:55, FHFA Home Price Index – 9:00, PMI Manufacturing Index Flash – 9:45, Richmond Fed Manufacturing Index – 10:00. International Economic: France GDP – 2:45AM. Other:  Federal Reserve Gov. Jerome Powell speech on community banking at St. Louis Fed conference – 8:20 AM,Kansas City Fed President Esther George speech at St. Louis Fed conference – 8:30 AM, Kansas City Fed President Esther George speech on the economy in Cheyenne, Wyoming – 9:15 PM. Optionable Earnings:

BBBY
Bed Bath & Beyond Inc.
$63.99
30.7
A
$1.14
CCL
Carnival Corporation
$40.11
26.0
B
$1.40

Wednesday September 24: Economic:  MBA Purchase Application – 7:00, New Home Sales – 10:00, EIA Petroleum Status Report – 10:30. International:  China UBS Consumption Index – 2:00 AM. Other:  Cleveland Federal Reserve Bank President Loretta Mester speech on the economic outlook, monetary policy, and communications, in Cleveland – 12:05 PM, Chicago Federal Reserve Bank President Charles Evans speech to conference on labor markets, in Washington – 1:00 PM. Optionable Earnings:

Symbol
Company Name
Sep 19  Close
IV30
B/A
XEPS
JBL
Jabil Circuit, Inc.
$21.60
36.3
A
($0.07)

Thursday September 25: Economic:  Durable Goods Orders – 8:30, Weekly Jobless Claims – 8:30, PMI Services Flash – 9:45, EIA Natural GasStatus Report – 10.30, Kansas City Fed Manufacturing Index – 11:00.. International Economic:  EMU M# Money Supply – 4:00 AM,  Japan CPI – 7:30. Other:  Atlanta Federal Reserve Bank President Dennis Lockhart speech on the outlook and monetary policy, in Jackson, Mississippi.- 1:20 PM. Optionable Earnings:

Symbol
Company Name
Sep 19  Close
IV30
B/A
XEPS
DMND
Diamond Foods, Inc.
$27.39
43.4
A
$0.13
MU
Micron Technology, Inc.
$32.48
47.0
A
$0.81

Friday September 26: Economic:  GDP – 8:30, Corporate Profits – 8:30, University of Michigan/Reuters Consumer Sentiment 9:55. International Economic: Italy Manufacturing and Mining Survey – 4:00 AM. Optionable Earnings: None meeting criteria. Monday September 29: Economic:  Personal Income and Outlays – 8:30, Pending Home Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30, Farm Prices – 3:00 PM> International Economic: EMU EC Economic Sentiment – 5:00 AM,  Japan Unemployment Rate – 7:30 PM. Optionable Earnings:

SNX
SYNNEX Corporation
$62.58
42.8
A
$1.48

 

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