The Prepared Mind: December 1, 2014

"Chance favors the prepared mind." -- Louis Pasteur

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

The S&P 500 was up for the sixth consecutive week. The 2014 count for record highs for the S&P 500 (SPX) has reached 47 out 230 total trading days. The SPX has yet to see four consecutive down days this year.   The SPX was down on Friday, but the Dow Jones Industrial Average managed to close at another record high. The number of record highs for the S&P 500 was tempered by OPEC’s decision to not cut oil production, This led to a sell-off in West Texas Intermediate crude oil to $66.15 – the lowest price in five years and down 13.5% for the week and nearly 37% for the year. The weakness in oil led to investors exiting from energy sector stocks and entering airlines, hotels, and retail sectors.

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

Index Nov 28 Close Weekly Change % Weekly % YTD Volatility of Index
Dow Jones Industrials (DJIA) 17,828.24 18.18 0.10% 7.55% 13.27%(VXD)
S&P 500 (SPX) 2,067.56 4.06 0.20% 11.86% 13.33% (VIX)
NASDAQ 100 (NDX) 4,337.47 88.76 2.09% 20.75% 14.74% (VXN)
Russell 2000 (RUT) 1,172.23 2.28 0.19% 0.74% 19.96% (RVX)
S&P 100 (OEX) 916.24 1.46 0.16% 11.22% 12.71%(VXO)
CBOE Volatility Index (VIX) 13.33 0.43 3.33% NA

The VIX ended the week slightly higher, but the CBOE Short-Term Volatility Index finished the week nearly 25% higher.

Sell-offs in oil and gold were pointed to as the catalyst in the significant increase in the VXST. An additional impact of volatility resulted from the upcoming “employment week.” Release of the monthly Employment Situation Report, in conjunction with numerous other employment reports, has led to historical spikes in short term volatility. The VIX trade of the week, per Russell Rhoads at the CBOE, was a spread with the purchase of one VIX Dec 18 call at 0.70 and the sale of 2 Vix Dec 15 puts at 0.35. This short term play was put on for even.

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

Index Ticker 28-Nov Change % Change 21-Nov
CBOE Volatility Index VIX 13.31 0.41 3.18% 12.90
VIX December Future VXZ4 14.85 (0.10) -0.67% 14.95
VIX January Future VXF5 15.95 (0.10) -0.62% 16.05
VIX February Future VXF5 16.75 (0.05) -0.30% 16.80
CBOE Short-term Volatility Index VXST 12.98 2.53 24.21% 10.45
CBOE 3 Month Volatility Index VXV 15.93 0.14 0.89% 15.79
CBOE Mid-term Volatility Index VXMT 17.94 0.18 1.01% 17.76
VIX of VIX VVIX 79.84 0.50 0.63% 79.34
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures ETN VXX 27.40 (0.52) -1.86% 27.92
pShares VIX Short Term Futures ETF VIXY 18.22 (0.35) -1.88% 18.57
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 12.41 (0.09) -0.72% 12.50
Short VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 38.51 0.61 1.61% 37.90

The highlight for the week will be the release of the November employment situation report on Friday. The release of this report is preceded by other employment reports on Wednesday and Thursday. Modest growth is expected in employment. Weak growth in manufacturing has been a concern. The releases of the Markit and PMI reports have the ability to move the markets. Gold and Oil retain the ability to roil the markets. A full slate of speeches by members of the Fed will be parsed for market moving information. Meeting and announcements by central banks will predominate the international economic calendar. The Banks of Australia, India, England, Canada and the European Central Bank will all announce policy decisions this week.

The earnings cycle for the third quarter has ended. 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

“If you’re on the right side of the issue, just keep driving until you hear glass breaking. Don’t quit.”
T. Boone Pickens

Monday December 1:

Economic: Economic: Gallup US Consumer Spending Measure – 8:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00 Global Manufacturing PMI – 11:00.

International Economic: No major announcements.

Other: New York Federal Reserve Bank President William Dudley speech in New York – 12:15 PM.

Optionable Earnings:

Symbol Company Name Nov 28 Close IV30 B/A XEPS
QUNR Qunar Cayman Islands Ltd $26.05 49.4 A ($0.52)

Tuesday December 2:            

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

International Economic: Japan PMI Composite – 8:35 PM, China PMI Composite – 8:45 PM.

Other: Federal Reserve Vice Chair Stanley Fischer speaks to Wall Street Journal CEO conference in Washington – 8:15 AM, Federal Reserve Vice Chair Stanley Fischer conversation on the Fed, in New York – 1:00PM.

Optionable Earnings:

Symbol Company Name Nov 28 Close IV30 B/A XEPS
GWPH GW Pharmaceuticals PLC- ADR $80.20 59.6 B ($0.46)
BOBE Bob Evans Farms Inc $54.08 32.5 A $0.34
OVTI OmniVision Technologies, Inc. $28.15 33.0 A $0.37

 

Wednesday December 3:

Economic: MBA Purchase Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, Productivity and Costs – 8:30, PMI Services Index – 9:45, ISM Non-Manufacturing Index – 10:00, EIA Petroleum Status Report – 10:30, Global Composite PMI – 11:00, Global Services PMI – 11:00, Beige Book – 2:00. .

International: EMU GDP – 5:00 AM, EMU Retail Sales – 5:00 AM.

Other: Philadelphia Federal Reserve Bank President Charles Plosser speech on the economic outlook, Charlotte, NC – 12:30 PM, Federal Reserve Gov. Lael Brainard conversation on financial stability in Washington – 2:00 PM, Dallas Federal Reserve Bank President Richard Fisher speech on Texas economy and monetary policy, in Dallas – 7:30 PM.

Optionable Earnings:

Symbol Company Name Nov 28 Close IV30 B/A XEPS
ANF Abercrombie & Fitch Co. $29.32 52.6 B $0.41
LDOS Leidos Holdings Inc $40.12 35.7 B $0.53
OSTK Overstock.com, Inc. $25.21 41.4 B $0.25
AVGO Avago Technologies Ltd $93.78 39.2 A $1.52
PVH PVH Corp $124.49 31.9 A $2.49

 

Thursday December 4:

Economic: Chain Store Sales, Challenger Job-Cut Report – 7:30, Gallup US Payroll to Population – 8:30, Jobless Claims – 6:30, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30.

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

Other: Cleveland Federal Reserve Bank President Loretta Mester welcoming remarks at Cleveland Fed research conference in Washington – 8:30 AM.

Optionable Earnings:

Symbol Company Name Nov 28 Close IV30 B/A XEPS
BKS Barnes & Noble, Inc. $23.18 47.3 B $0.17
DG Dollar General Corp. $65.91 45.5 B $0.80
MEI Methode Electronics Inc. $39.49 55.7 B $0.54
SHLD Sears Holdings Corp $36.09 84.0 B N/A
UNFI United Natural Foods, Inc. $75.29 33.8 B $0.63
AMBA Ambarella Inc $54.85 58.4 A $0.44
COO The Cooper Companies, Inc. $169.15 29.7 A $2.03
FIVE Five Below Inc $46.03 52.4 A $0.06
ULTA Ulta Salon, Cosmetics & Fragrance $125.80 49.2 A $0.83

 

Friday December 5:

Economic: Employment Situation – 8:30, International Trade – 8:30, Factory Orders – 10:00.

International Economic: No major announcements.

Other: Cleveland Federal Reserve Bank President Loretta Mester speech at Cleveland Fed research conference in Washington – 8:45 AM, Federal Reserve Vice Chair Stanley Fischer remarks to IMF Fiscal Affairs Dept. 50th anniversary, in Washington – 2:45 PM.

Optionable Earnings:

Symbol Company Name Nov 28 Close IV30 B/A XEPS
BIG Big Lots, Inc. $49.80 43.9 B ($0.05)

 

Monday December 8:

Economic: TD Ameritrade IMX – 12:30 PM.

International Economic: Germany Industrial Production – 2:00 AM.

Optionable Earnings:

Symbol Company Name Nov 28 Close IV30 B/A XEPS
DMND Diamond Foods, Inc. $29.58 45.7 A $0.24
HRB H & R Block Inc $33.42 24.6 A ($0.42)

 

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