The Prepared Mind: October 20, 2014

"Chance favors the prepared." -- Louis Pasteur

“Chance favors the prepared.” — Louis Pasteur

By Frank Fahey

The weekly overviews I provide for the equity indexes and VIX products mask the huge movement (some would say chaos) in the markets last week. The equity indexes, with the exception of the Russell 2000, closed down far the fourth consecutive week.   The swings in volatility and price were the largest since 2011.   The DJIA showed a 400 point move on Wednesday. The S&P 500 (SPX) nearly entered the 10% correction area on Wednesday when it trade 1820.66 or down 9.5% from the all-time closing high of 2011.36. The Wednesday close for the SPX was down 7.4% from the highs. Friday’s close for the benchmark was 6.2% below its recent all-time high.

Deflation, fear of an Ebola, and a global economic slowdown received the blame for the selloff. Bearish news about Germany’s economy accelerated Wednesday’s selloff. As I mention last week, the third quarter corporate earnings cycle would be the wild card for the markets. Corporate profits came to the rescue on Friday with strong earnings from General Electric. Higher or lower? Analysts are at odds over whether the last week’s market action gave us the market correction.

There is a consensus on market volatility. Analysts expect implied volatility to remain at higher levels with the indexes hypersensitive to the end of quantitative easing and international concerns. The announced earnings have, thus far, have P/E ratios supporting current or higher price levels. Next week’s increase in earnings announcements will provide a road map for future price direction.

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

Index Oct 17 Close Weekly Change % Weekly % YTD Volatility of Index
Dow Jones Industrials (DJIA) 16,380.41 -163.69 -0.99% -1.18% 17.06%(VXD)
S&P 500 (SPX) 1,886.76 -19.37 -1.02% 2.08% 21.99% (VIX)
NASDAQ 100 (NDX) 3,803.62 -54.74 -1.42% 5.89% 23.13% (VXN)
Russell 2000 (RUT) 1,080.24 28.66 2.73% -7.16% 25.48% (RVX)
S&P 100 (OEX) 840.94 -12.42 -1.46% 2.08% 19.93% (VXO)
CBOE Volatility Index (VIX) 21.99 0.78 3.68% NA

 

The volatility traders had a wild week. The VIX reached an intraday high of 31.06 during the week. Volume records were beaten and the VIX reached levels not seen since December 2011. The October VIX future expires in two more trading days, The cash index (VIX ) closed at 21.99 while the October VIX future (VXV4) closed at 21 at 20.99. The spread will narrow quickly as expiration approaches. The question remaining to be answered is whether the cash index will move lower or the futures index move higher. This is an opportunity to learn about the behavior of the cash /futures spread during expiration week.

 

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

 

Index Ticker 10/17 Close Change % Change 10/10 Close
CBOE Volatility Index VIX 21.99 0.75 3.53% 21.24
VIX October Future VXV4 20.99 1.21 6.12% 19.78
VIX November Future VXX4 19.94 1.29 6.92% 18.65
VIX December Future VXZ4 19.28 0.84 4.56% 18.44
CBOE Short-term Volatility Index VXST 23.81 1.86 8.47% 21.95
CBOE 3 Month Volatility Index VXV 21.25 1.32 6.62% 19.93
CBOE Mid-term Volatility Index VXMT 21.62 1.06 5.16% 20.56
VIX of VIX VVIX 118.84 5.46 4.82% 113.38
Long VIX ETP’s
S&P 500 VIX Short Term Futures ETN VXX 38.58 2.73 7.62% 35.85
S&P 500 VIX Mid-Tem Futures ETN VXZ 14.29 0.42 3.03% 13.87
Short VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 28.33 (3.53) -11.08% 31.86
Short VIX Short Term Futures ETF SVXY 55.51 (6.95) -11.13% 62.46

 

The domestic economic focus this week will be on housing. Reports on existing and new home sales will be released. The release of the US CPI will provide an indication of future Fed policy. The primary m Market focus may be changing from global concerns to earnings. The 3rd Quarter earnings season is in full swing. The earnings will have the ability to trump global concerns. Earnings include IBM, Apple, Halliburton, McDonald’s, Coca-Cola, United Technologies, AT&T, Abbot Labs, GM, Dow Chemical, Boeing, Lilly, Cat, 3M, Amazon, Union Pacific, Microsoft, Ford, P&G, UPS, and Bristol-Myers Squibb. A number of other stocks with high implied volatility and higher prices will be announcing earnings this week. 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

“Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.” Bernard Baruch
Monday October 20:

Economic: No major announcements.

International Economic: Germany PPI – 2:00 AM, China GDP – 10:00 PM. China Retail Sales – 10:00 PM. China Industrial Production – 10:PM.

Other: Federal Reserve Gov. Jerome Powell speech to St Louis Fed conference call/webinar on community banking – 10:00, Federal Reserve Gov. Daniel Tarullo speech to New York Fed conference on reforming the financial industry – 12:00 PM.

Optionable Earnings:

Symbol Company Name Oct 3 Close IV30 B/A XEPS
GCI Gannett Co., Inc. $27.33 33.1 B $0.55
HAL Halliburton Company $51.17 41.8 B $1.10
HAS Hasbro, Inc. $54.21 29.2 B $1.47
SAP SAP SE (ADR) $66.45 26.8 B $0.94
VFC VF Corp $63.98 28.0 B $1.09
VRX Valeant Pharmaceuticals Intl Inc $118.54 45.3 B $0.61
AAPL Apple Inc. $96.26 28.0 A $1.30
CE Celanese Corporation $53.57 31.2 A $1.44
CMG Chipotle Mexican Grill, Inc. $645.98 37.8 A $3.86
ILMN Illumina, Inc. $160.23 45.0 A $0.56
PKG Packaging Corp Of America $62.23 31.0 A $1.26
RCII Rent-A-Center Inc $31.86 40.5 A $0.46
STLD Steel Dynamics, Inc. $20.94 38.9 A $0.44
TXN Texas Instruments Incorporated $43.59 27.2 A $0.71
ZION Zions Bancorporation $26.20 30.2 A $0.45

 

Tuesday October 21:

Economic: ICSC – Goldman Sachs Store Sales – 7:45, Redbook – 8:55, Existing Home Sales – 10:00.

International Economic: China Merchandise Trade Balance – 2:00.

Other:

Optionable Earnings:

Symbol Company Name Oct 3 Close IV30 B/A XEPS
ABG Asbury Automotive Group, Inc. $63.96 43.7 B $1.08
APOL Apollo Education Group Inc $24.87 52.4 B $0.27
ARMH ARM Holdings plc (ADR) $41.47 42.1 B $0.24
ATI Allegheny Technologies Incorporated $32.63 43.0 B ($0.05)
CP Canadian Pacific Railway Limited (USA) $193.81 39.6 B $2.23
HOG Harley-Davidson Inc $57.08 35.4 B $0.60
ITW Illinois Tool Works Inc. $83.07 22.5 B $1.23
LMT Lockheed Martin Corporation $174.72 22.7 B $2.74
LXK Lexmark International Inc $39.73 41.3 B $0.93
OMC Omnicom Group Inc. $66.16 24.1 B $0.91
PNR Pentair PLC $61.81 29.5 B $0.94
SNV Synovus Financial Corp. $22.32 29.6 B $0.37
SONC Sonic Corporation $23.46 38.3 B $1.81
WAT Waters Corporation $95.12 30.9 B $1.28
XRS TAL Education Group (ADR) $33.55 53.7 B $0.34
BGS B&G Foods, Inc. $29.18 28.9 A $0.40
BRCM Broadcom Corporation $35.31 33.4 A $0.66
CBST Cubist Pharmaceuticals Inc $63.98 51.0 A $0.36
CNI Canadian National Railway (USA) $63.86 29.1 A $0.96
CREE Cree, Inc. $33.07 48.4 A $0.24
DFS Discover Financial Services $61.82 26.7 A $1.34
FTI FMC Technologies, Inc. $50.81 35.7 A $0.74
IBKR Interactive Brokers Group, Inc. $24.27 31.3 A $0.23
IRBT iRobot Corporation $32.20 57.6 A $0.33
ISRG Intuitive Surgical, Inc. $456.51 47.3 A $2.67
SIX Six Flags Entertainment Corp $33.15 30.9 A $1.51
UTX United Technologies Corporation $99.23 22.4 A $0.33
VMW VMware, Inc. $88.60 40.4 A $0.54
YHOO Yahoo! Inc. $38.12 37.9 A $0.20

 

Wednesday October 22:

Economic: MBA Purchase Applications – 7:00, Consumer Price Index (CPI) – 8:30, EIA Petroleum Status Report – 10:30.

International: Great Britain Bank of England Minutes – 4:30, China PMI Flash Manufacturing – 9:45 PM.

Other:

Optionable Earnings:

Symbol Company Name Oct 3 Close IV30 B/A XEPS
ABB ABB Ltd (ADR) $20.37 25.7 B $0.31
ABT Abbott Laboratories $39.99 24.3 B $0.60
APH Amphenol Corporation $47.20 25.3 B $0.57
BA The Boeing Company $120.29 25.0 B $1.97
BEAV B/E Aerospace Inc $73.80 43.2 B $1.15
BIIB Biogen Idec Inc $302.74 37.2 B $3.22
BPOP Popular Inc $28.05 33.6 B $0.60
DOW The Dow Chemical Company $44.76 34.5 B $0.67
EMC EMC Corporation $26.89 28.4 B $0.37
GRA W.R. Grace & Co. $85.12 31.4 B $0.99
IR Ingersoll-Rand PLC $54.91 30.9 B $1.04
LL Lumber Liquidators Holdings Inc $58.37 72.5 B $0.68
MDCO The Medicines Company $21.97 45.3 B ($0.10)
NOC Northrop Grumman Corporation $121.60 25.3 B $2.17
NSC Norfolk Southern Corp. $104.80 30.9 B $1.81
OC Owens Corning $29.85 35.4 B $0.50
PII Polaris Industries Inc. $144.91 35.5 B $2.01
R Ryder System, Inc. $81.92 30.9 B $1.63
SWK Stanley Black & Decker, Inc. $82.88 33.8 B $1.44
TMO Thermo Fisher Scientific Inc. $109.69 26.6 B $1.69
TUP Tupperware Brands Corporation $68.27 29.7 B $0.93
USB U.S. Bancorp $39.10 22.3 B $0.78
ALB Albemarle Corporation $53.89 44.1 A $1.02
BCR C.R. Bard, Inc. $144.77 27.6 A $2.10
CA CA, Inc. $25.82 26.5 A $0.59
CAKE The Cheesecake Factory $46.77 27.2 A $1.51
CLB Core Laboratories N.V. $139.88 38.7 A $1.51
CTXS Citrix Systems, Inc. $64.01 32.0 A $0.51
FTK Flotek Industries Inc $20.70 51.8 A $0.25
FTNT Fortinet Inc $23.77 48.8 A $0.05
LRCX Lam Research Corporation $69.69 37.7 A $0.94
MLNX Mellanox Technologies, Ltd. $42.42 65.9 A ($0.01)
NOW ServiceNow Inc $57.25 56.5 A ($0.19)
NXPI NXP Semiconductors NV $61.06 52.9 A $1.18
ORLY O’Reilly Automotive Inc $149.46 28.2 A $1.96
OTEX Open Text Corporation (USA) $52.85 39.8 A $0.86
SCSS Select Comfort Corp. $20.88 54.6 A $0.40
SKX Skechers USA Inc $53.60 54.2 A $0.91
TAL TAL International Group, Inc. $40.72 33.0 A $0.97
TSCO Tractor Supply Company $58.53 33.3 A $0.51
YELP Yelp Inc $67.00 67.1 A $0.03

 

Thursday October 23:

Economic: Weekly Jobless Claims – 8:30, Chicago Fed National Activity Index- 8:30, FHFA House Price Index – 9:00, PMI Manufacturing Index Flash – 9:45, Leading Indicators – 10:00, EIA Natural Gas Status Report – 10.30 EIA, Kansas Fed Manufacturing Index – 11:00.

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

Other:

Optionable Earnings:

Symbol Company Name Oct 3 Close IV30 B/A XEPS
AAL American Airlines Group Inc $32.97 63.4 B $1.68
ALK Alaska Air Group, Inc. $43.80 41.3 B $1.39
ALV Autoliv Inc. $90.84 32.8 B $1.41
ALXN Alexion Pharmaceuticals, Inc. $163.25 48.2 B $1.05
ASPS Altisource Portfolio Solutions S.A. $93.74 56.8 B $2.37
AVT Avnet, Inc. $37.65 30.4 B $0.97
BC Brunswick Corporation $40.88 37.5 B $0.57
CAB Cabelas Inc $58.49 40.2 B $0.86
CAM Cameron International Corporation $57.57 40.4 B $1.11
CAT Caterpillar Inc. $93.24 25.8 B $1.33
CCE Coca-Cola Enterprises Inc $40.01 33.4 B $0.88
CELG Celgene Corporation $86.38 40.1 B $0.82
CERN Cerner Corporation $56.65 31.6 B $0.39
CFX Colfax Corp $54.81 36.9 B $0.62
CHKP Check Point Software Technologies $67.00 26.4 B $0.83
CMCSA Comcast Corporation $49.59 25.6 B $0.71
CMCSK Comcast Corporation $49.52 25.1 B $0.71
CRI Carter’s, Inc. $79.36 36.3 B $1.24
CSH Cash America International Inc $42.84 37.0 B $0.78
CVE Cenovus Energy Inc (USA) $23.43 33.8 B $0.46
DGX Quest Diagnostics Inc $57.93 27.4 B $1.08
DNKN Dunkin Brands Group Inc $44.73 30.0 B $0.47
DO Diamond Offshore Drilling Inc $37.93 47.8 B $0.77
DPS Dr Pepper Snapple Group Inc. $61.85 29.8 B $0.88
EQT EQT Corporation $85.27 38.3 B $0.71
GM General Motors Company $29.94 32.1 B $0.96
IMAX IMAX Corporation (USA) $27.94 36.0 B $0.06
JAH Jarden Corp $56.63 32.6 B $1.17
LAZ Lazard Ltd $46.58 33.4 B $0.65
LLY Eli Lilly and Co $61.90 25.6 B $0.67
LTM Life Time Fitness, Inc. $48.86 47.2 B $0.86
LUV Southwest Airlines Co $30.94 47.2 B $0.52
MJN Mead Johnson Nutrition CO $91.21 48.2 B $0.91
MMM 3M Co $135.05 22.5 B $1.96
NUE Nucor Corporation $49.55 29.4 B $0.75
OSIS OSI Systems, Inc. $61.27 41.7 B $0.57
OXY Occidental Petroleum Corporation $86.44 27.5 B $1.73
PCP Precision Castparts Corp. $222.77 27.4 B $3.29
POT Potash Corp./Saskatchewan (USA) $31.70 26.4 B $0.42
PTEN Patterson-UTI Energy, Inc. $24.12 67.7 B $0.43
RCL Royal Caribbean Cruises Ltd $56.36 49.9 B $2.19
RS Reliance Steel & Aluminum $62.28 32.7 B $1.36
RTN Raytheon Company $95.32 24.2 B $1.61
RYL The Ryland Group, Inc. $32.55 42.1 B $0.49
SLAB Silicon Laboratories $38.48 43.6 B $0.28
TROW
  1. Rowe Price Group Inc
$75.43 26.7 B $1.15
UA Under Armour Inc $64.63 51.0 B $0.40
UFS Domtar Corp (USA) $34.76 33.5 B $0.82
UNP Union Pacific Corporation $104.03 24.5 B $1.51
YNDX Yandex NV $25.79 52.5 B $0.29
ZMH Zimmer Holdings, Inc. $95.95 26.1 B $1.30
ALGN Align Technology, Inc. $45.16 49.6 A $0.43
ALTR Altera Corporation $31.68 35.6 A $0.37
AMZN Amazon.com, Inc. $302.82 39.7 A ($0.74)
BMRN BioMarin Pharmaceutical Inc. $70.59 39.4 A ($0.19)
CBI Chicago Bridge & Iron Company $46.61 47.7 A $1.39
DECK Deckers Outdoor Corp $89.21 51.5 A $1.01
EW Edwards Lifesciences Corp $98.03 31.7 A $0.72
FLS Flowserve Corp $63.49 31.4 A $1.00
GRUB GrubHub Inc $37.02 61.9 A $0.04
IM Ingram Micro Inc. $23.30 37.7 A $0.62
INFA Informatica Corporation $32.29 39.8 A $0.24
KLAC KLA-Tencor Corporation $68.23 31.6 A $0.46
LOGM LogMeIn Inc $42.82 55.6 A $0.09
MSFT Microsoft Corporation $42.74 24.5 A $0.48
MXIM Maxim Integrated Products Inc. $25.99 34.8 A $0.37
N NetSuite Inc $88.68 45.9 A ($0.25)
OLN Olin Corporation $24.11 31.8 A $0.42
P Pandora Media Inc $22.00 65.2 A $0.00
PFG Principal Financial Group Inc $48.13 28.5 A $1.05
QLIK Qlik Technologies Inc $23.73 65.6 A ($0.06)
RMD ResMed Inc. $46.25 43.9 A $0.58
SWN Southwestern Energy Company $31.97 44.6 A $0.52
SYNA Synaptics, Incorporated $71.21 55.8 A $0.98
TV Grupo Televisa SAB (ADR) $33.03 29.5 A $0.17

 

Friday October 24:

Economic: New Home Sales – 10:00.

International Economic: No major announcements.

Optionable Earnings:

Symbol Company Name Oct 3 Close IV30 B/A XEPS
AVY Avery Dennison Corp $42.56 32.0 B $0.74
BMY Bristol-Myers Squibb Co $49.22 29.0 B $0.42
COG Cabot Oil & Gas Corporation $31.18 41.1 B $0.23
EDU New Oriental Education & Tech Grp $21.05 53.4 B $0.82
LEA Lear Corporation $80.82 33.0 B $1.90
LYB LyondellBasell Industries NV $89.33 35.8 B $2.26
MCO Moody’s Corporation $90.19 29.2 B $0.89
NDAQ NASDAQ OMX Group, Inc. $39.73 27.1 B $0.70
OCR Omnicare, Inc. $61.53 29.3 B $0.93
SHPG Shire PLC (ADR) $178.46 35.5 B $2.48
STT State Street Corporation $66.19 26.6 B $1.22
WYN Wyndham Worldwide Corporation $74.00 29.6 B $1.63

 

Monday October 27:

Economic: PMI Services Flash 9:45, Pending Homes Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30.

International Economic: Germany PPI – 2:00 AM, China GDP – 10:00 PM. China Retail Sales – 10:00 PM. China Industrial Production – 10:PM.

Other:

Optionable Earnings:

Symbol Company Name Oct 3 Close IV30 B/A XEPS
AWI Armstrong World Industries, Inc. $46.15 41.9 B $0.80
BEN Franklin Resources, Inc. $50.92 28.3 B $0.92
HUN Huntsman Corporation $22.58 40.3 B $0.54
LGND Ligand Pharmaceuticals Inc. $48.86 59.6 B $0.20
MRK Merck & Co., Inc. $53.43 26.0 B $0.88
STX Seagate Technology PLC $52.38 36.4 B $1.25
AMGN Amgen, Inc. $130.45 30.5 A $2.06
ARLP Alliance Resource Partners, L.P. $43.75 36.4 A $1.06
BWLD Buffalo Wild Wings $130.98 44.8 A $1.06
GGP General Growth Properties Inc $24.03 24.2 A $0.32
HIG Hartford Financial Services Group Inc $35.57 27.4 A $0.84
MAS Masco Corporation $21.22 37.3 A $0.31
TWTR Twitter Inc $48.23 67.9 A ($0.27)
UHS Universal Health Services, Inc. $103.24 36.3 A $1.39

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