The Prepared Mind: Oct 6, 2014

All the major indexes market finished down for the week despite a Friday rally of over 1%.  The market has been down three of the last four weeks and is approximately 2% off its highs.  Friday’s positive job report and resulting rally propelled the market off of Thursday’s noon lows.  The small-cap Russell 2000 (RUT) is off 10% from its July 3 high.  Crude Oil close below $90 a barrel and gold closed below $1,200 per ounce.  The US Dollar Index had its biggest quarterly gain since 1992.    There appears to be a the tried and true strategy (4 ½ years long) of buying the dips.  Skeptics are pointing to the end of Quantitative Easing,disappointing economic data in Europe and Asia, protests in Hong Kong . a US case of Ebola as harbingers of the end of the bull market.  Be prepared for more volatility as the market searches for new equilibrium.

 

Index

Oct 3 Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

17,009.39

-103.76

-0.61%

2.61%

12.98%(VXD)

S&P 500 (SPX)

1,967.90

-14.95

-0.75%

6.47%

14.55% (VIX)

NASDAQ 100 (NDX)

4,023.79

-29.46

-0.73%

12.02%

17.54% (VXN)

Russell 2000 (RUT)

1,102.38

-15.12

-1.35%

-5.26%

20.02% (RVX)

S&P 100 (OEX)

878.77

-6.48

-0.73%

6.67%

13.59% (VXO)

The CBOE is changing the methodology use to calculate the VIX.  Anyone who trades or follows the VIX should take to to learn the differences between the new VIX and the legacy VIX.  The following is a link to  an explanation from the CBOE on the changes. http://www.cboeoptionshub.com/wp-content/uploads/2014/10/000-Table-with-SPX-options-used.jpg.    Please make sure you understand the impact of this change.  A summation of the basic changes, per the CBOE follows:

As shown in the table from the CBOE, in the calculations on October 6, the VIX Index will use SPXW options expiring 25 and 32 days out, whereas the legacy VIXMO Index will use SPX options expiring 11 and 46 days out.

 

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

 

Index

Ticker

10/3 Close

Change

% Change

9/26 Close

CBOE Volatility Index VIX

14.55

(0.30)

-2.02%

14.85

VIX October Future VXV4

15.20

(0.15)

-0.98%

15.35

VIX November Future VXX4

15.80

(0.05)

-0.32%

15.85

VIX December Future VXZ4

16.15

0.00

0.00%

16.15

CBOE Short-term Volatility Index VXST

13.86

(1.18)

-7.85%

15.04

CBOE 3 Month Volatility Index VXV

16.04

0.02

0.12%

16.02

CBOE Mid-term Volatility Index VXMT

17.64

0.19

1.09%

17.45

VIX of VIX VVIX

87.77

(2.86)

-3.16%

90.63

Long VIX ETP’s

 S&P 500  VIX Short Term Futures ETN VXX

29.62

0.25

0.85%

29.37

 S&P 500  VIX Mid-Tem Futures ETN VXZ

12.79

0.13

1.03%

12.66

Short VIX ETP’s

Daily Inverse VIX Short Term ETN XIV

39.98

(0.75)

-1.84%

40.73

Short VIX Short Term Futures ETF SVXY

78.42

(1.48)

-1.85%

79.90

The most important piece of news for the week will be the release of the FOMC Minutes at 2:00 PM EDT on Wednesday,  The release of the minutes will provide insight into the internal debate about the timing and extent of the next interest rate increase.  This week will be short on other economic announcements and long of speeches by members of the Fed, the Treasury, and the European Central Bank.

The “official” start of the quarter’s earnings cycle starts with Alcoa  This week starts the earnings cycle with a trickle.  The announcements will start coming out in full force in 2 weeks.  Equity traders need to know if earnings fall before or after the expiration date of any options traded.  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 October 6:

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

International Economic:  Bank of Japan Announcement.

Other: Treasury Secretary Jack Lew chairs meeting of Financial Stability Oversight Council, with Federal Reserve Chair Janet Yellen and others in Washington – 3:00 PM, Kansas City Fed President Esther George speech on the economy, in Albuquerque, New Mexico – 8:30 PM.

Optionable Earnings: 

Symbol

Company Name

Oct 3 Close

IV30

B/A

XEPS

TCS

Container Store Group Inc

$22.49

71.5

A

$0.11

 

Tuesday October 7:   

Economic:  ICSC – Goldman Sachs Store Sales – 7:45, Gallup US ECI – 8:30, Redbook – 8:55, JOLTS – 10:00.

International Economic:  Germany Industrial Production – 4:30 AM, China PMI Composite – 9:45 PM.

OtherMinneapolis Federal Reserve Bank President Narayana Kocherlakota speech on monetary policy objectives, in Rapid City, South Dakota – 2:30 PM, New York Federal Reserve Bank President William Dudley speech on local economy, in Troy, New York – 3:00 PM.

Optionable Earnings: 

Symbol

Company Name

Oct 3 Close

IV30

B/A

XEPS

YUM

Yum! Brands, Inc.

$71.52

27.6

A

$0.87

 

Wednesday October 8:

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

International:  Japan Machine Orders – 7:50 PM.

Other:  Chicago Federal Reserve Bank President Charles Evans speech on the economy, in Plymouth, Wisconsin – 8:30 AM, FOMC Minutes – 2:00 PM

Optionable Earnings:

Symbol

Company Name

Oct 3 Close

IV30

B/A

XEPS

AA

Alcoa

$15.60

37.6

A

MON

Monsanto Company

$110.19

22.7

B

($0.23)

 

Thursday October 9:

Economic:  Challenge Chain Store Sales, Weekly Jobless Claims – 8:30, Wholesale Trade – 10:00 AM, EIA Natural Gas Status Report – 10.30.

International Economic:  Germany Merchandise Trade – 2:00 AM, Japan Tertiary Index – 7:50 PM.

Other:  St Louis Federal Reserve Bank President James Bullard opening remarks at research conference in St. Louis.- 9:45 AM, ECB President Mario Draghi speech and panel discussion with Federal Reserve Vice Chair Stanley Fischer in Washington – 11:00 AM, Federal Reserve Gov. Daniel Tarullo speech on regulatory reform to the Bretton Woods Committee in Washington – 1:10 PM, Richmond Federal Reserve Bank President Jeffrey Lacker speech on growth prospects and labor markets, in Asheville, North Carolina.- 1:15 PM, San Francisco Federal Reserve Bank President John Williams speech on the economic outlook, in Las Vegas – 3:40 PM.

Optionable Earnings: 

Symbol

Company Name

Oct 3 Close

IV30

B/A

XEPS

CUDA

Barracuda Networks Inc

$25.36

66.8

A

$0.01

INFY

Infosys Ltd ADR

$59.62

39.5

A

$0.81

 

Friday October 10:

Economic:  Import and Export Prices – 8:30

International Economic:  Great Britain Merchandise Trade – 4:30 AM.

Optionable Earnings:

FAST

Fastenal Company

$45.47

25.8

B

$0.45

 

Monday October 13:

Economic:  US Holiday – Stocks and Futures Open, Bonds Closed.

International Economic:  Japan Producer Price Index (PPI) – 7:50 PM.

Other: Chicago Federal Reserve Bank President Charles Evans speech to National Council on Teacher Retirement in Indianapolis – 12:30 PM.

Optionable Earnings:  None meeting criteria.

Comments are closed