The Prepared Mind: September 28, 2014

“Chance favors the prepared mind.” – Louis Pasteur

It was a difficult week for equities despite a rally on Friday.  All the major indexes pulled back at least 1%.  The small caps continued their individual trend by once again underperforming large cap stocks by a significant margin.  During the week the media used and reused the same metaphor – “Best house in a bad neighborhood.”    The bad neighborhood ranged from Russia and the Ukraine to small cap stocks to global economic growth to poor EMU growth numbers to ISIS.  Market behavior prior to Friday was an exercise in looking for a safe haven.  This search for the safe haven was characterized by risk off trades and moving into cash.  Hard commodities also showed weakness last week.  Predicted “safe haven” moves into precious metals never materialized.

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

Index

Sep 26 close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

17,113.15

-166.59

-0.96%

3.24%

13.25%(VXD)

S&P 500 (SPX)

1,982.85

-27.55

-1.37%

7.28%

14.85% (VIX)

NASDAQ 100 (NDX)

4,053.25

-46.84

-1.14%

12.84%

16.85% (VXN)

Russell 2000 (RUT)

1,117.50

-25.99

-2.27%

-3.96%

19.39% (RVX)

S&P 100 (OEX)

885.25

-11.84

-1.32%

7.46%

13.62% (VXO)

 

Complacency in the Short-term VIX finally disappeared last week.   The VXST rallied from the 10 level to 15.03 – a gain of 40%.  The VVIX – the VIX of the VIX – reflected the increased volatility of the VIX by trading over 100 with a close above 90.  I will give a webinar on the VIX and associated products at 2 EDT on Monday September 29.  Call your OptionVue/DiscoverOptions sales rep if you are interested in attending.

 

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

Index

Ticker

9/26 Close

Change

% Change

9/19 Close

CBOE Volatility Index VIX

14.85

2.74

22.63%

12.11

VIX October Future VXV4

15.33

1.18

8.34%

14.15

VIX November Future VXX4

15.82

0.87

5.82%

14.95

VIX December Future VXZ4

16.14

0.74

4.81%

15.40

CBOE Short-term Volatility Index VXST

15.04

4.63

44.48%

10.41

CBOE 3 Month Volatility Index VXV

16.02

1.64

11.40%

14.38

CBOE Mid-term Volatility Index VXMT

17.45

1.37

8.52%

16.08

VIX of VIX VVIX

90.63

12.93

16.64%

77.70

Long VIX ETP’s

 

   

 S&P 500  VIX Short Term Futures ETN VXX

29.37

2.14

7.86%

27.23

 S&P 500  VIX Mid-Tem Futures ETN VXZ

12.66

0.43

3.52%

12.23

Short VIX ETP’s

 

   

Daily Inverse VIX Short Term ETN XIV

40.73

(3.74)

-8.41%

44.47

Short VIX Short Term Futures ETF SVXY

79.90

(7.24)

-8.31%

87.14

 

The coming week is the monthly “employment week.”  The plethora of US employment reports culminate with Friday’s Employment Situation at 8:30.  In the past, this week has shown elevated volatility levels in anticipation of Friday’s report..  Thursday’s meeting of the European Central Bank (ECB) governing council is adding to the levels of uncertainty.  The trading community is anxiously awaiting the how and when of the ECB promised quantitative easing.  Any disappointment will lead to further risk off behavior (selling) in the equity markets..  Option exchanges have received permission from the OCC  to list options for Alibaba Group Holding (BABA, ~ Sep 26 close @ $90.46) s on Monday, Sep. 29th .   Here is an overview of the first listing of BABA options:

Strikes

75 – 100

Increments

5-point

Cycle

January

LEAPS

Yes

Penny Pricing

No

Weeklies

Yes

 

Earnings continue to be a non-event with little expectation of impacting the markets. 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

“There is nothing new in Wall Street. There can’t be, because speculation is as old as the hills.

 Whatever happens in the stock market today has happened before and will happen again.” – Jesse Livermore

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,, Germany CPI – 8:00,   Japan Unemployment Rate – 7:30 PM.

Other:  Chicago Federal Reserve Bank President Charles Evans speech to NABE in Chicago – 9:00.

Optionable Earnings: 

Symbol

Company Name

Sep 26 Close

IV30

B/A

XEPS

HTZ

Hertz Global Holdings, Inc.

$26.31

36.4

$0.37

SNX

SYNNEX Corporation

$60.96

45.2

A

$1.48

 

Tuesday September 30:                                                   

Economic:  ICSC – Goldman Sachs Store Sales – 7:45, Redbook – 8:55, S&P Case-Shiller HPI – 9:00, Chicago PMI – 9:45, Consumer Confidence – 10:00, State Street Investor Confidence – 10:00.

International Economic:  Germany Unemployment Rate – 3:55 AM, EMU Unemployment Rate – 5:00 AM.

Other: 

Optionable Earnings: 

Symbol

Company Name

Sep 26 Close

IV30

B/A

XEPS

WAG

Walgreen Company

$60.49

26.5

B

$0.74

 

 

Wednesday October 1:

Economic:  Motor Vehicle Sales, MBA Purchase Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index 10:00, Construction Spending, EIA Petroleum Status Report – 10:30, Global Manufacturing – PMI – 11:00.

International:  EMU GDP – 5:00 AM.

Other:  Federal Reserve Gov. Jerome Powell on panel discussing Treasury debt management in an era of quantitative easing, in Washington – 9:30.

Optionable Earnings: None meeting criteria.

 

 

Thursday October 2:

Economic:  Challenge Job-Cut Report – 7:30, Gallup US Payroll to Population – 8:10, Weekly Jobless Claims – 8:30, Factory Orders – 10:00 AM EIA Natural Gas Status Report – 10.30.

International Economic:  European Central Bank Announcement – 7:45 AM.

Other: 

Optionable Earnings: 

Symbol

Company Name

Sep 26 Close

IV30

B/A

XEPS

STZ

Constellation Brands, Inc.

$86.76

25.5

B

$1.15

 

 

Friday October 3:

Economic:  Employment Situation – 8:30, International Trade – 8:30, PMI Services Index – 9:45, ISM Non-Manufacturing Index – 10:00, Global Composite PMI – 11:00, Global Services PMI – 11:00.

International Economic:  EMU Retail Sales = 6:00 AM.

Optionable Earnings: None meeting criteria.

Monday October 6:

Economic:  Gallup US Consumer Spending Measure – 8:30, TD Ameritrade IMX – 12:30.

International Economic:  EMU No major announcements.

Optionable Earnings:  None meeting criteria.

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