The Prepared Mind: December 8th, 2014

P 02

Mario Draghi

By Frank Fahey

The S&P 500 ended the week in positive territory for the seventh consecutive week. Last week brought to new closing highs for the SPX. The current 2014 count for S&P 500 record highs is 49 out of 235 trading days. After flirting with the 18,000 level on Friday, the Dow Jones Industrials closed the week at 17,958.79 – the 34th record high for the year. Minor weakness in the NASDAQ 100 (NDX) was the result of weakness in the energy sector. Market strength came from European Central Bank President Mario Draghi’s Thursday pronouncement the ECB additional weapons to address weakness in the European economy. Friday’s job report from the Labor Department showed a job market more robust than expected. The report fueled a positive U.S. macroeconomic view among both investors and analysts,

Traders, however, remain skeptical. This skepticism is fueled by indicators and traders’ belief the market is”due” for a correction. As always, price is the most important indicator. An old maxim on the trading floor was “Never fade a trend.” The chart for the SPX shows a long term trend with prices heading higher. Fade this trend at your own risk.   Equity only put/call ratio – standard and weighted – is giving sell signals. Market breadth indicators are oscillating in and out of buy and sell signals. Volatility levels remain bullish for the markets.

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

Index Dec 5 Close Weekly Change % Weekly % YTD Volatility of Index
Dow Jones Industrials (DJIA) 17,958.79 130.55 0.73% 8.34% 11.98%(VXD)
S&P 500 (SPX) 2,075.37 7.81 0.38% 12.28% 11.82% (VIX)
NASDAQ 100 (NDX) 4,313.46 (24.01) -0.55% 20.09% 14.37% (VXN)
Russell 2000 (RUT) 1,182.25 10.02 0.85% 1.60% 18.53% (RVX)
S&P 100 (OEX) 919.66 3.42 0.37% 11.63% 11.15%(VXO)
CBOE Volatility Index (VIX) 11.82 (1.51) -11.33% NA

The VVIX is the 30 day implied volatility measure of the VIX. It is commonly referred to as the VIX of the VIX. THE VVIX is generally directly related to the VIX; each moves in the same direction as the other. This week was an aberration. This week was an anomaly. The VVIX went up as the VIX approached new lows. Russell
Rhoads, Senior Instructor at the CBOE’s Options Institute points to put buying activity in front month out-of-the-money puts as being the possible cause of this aberration. On Tuesday a trader paid 9 cents to buy 50,000 VIX December 12.50 puts when VIX futures were at 14.90, then an bought an additional 125,000 December 12.50 puts for 13 cents as futures traded near 14.75. On Friday, 175,000 December 11.50 puts traded 5 cents. There was no confirmation the same trader initiated both trades.

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

 

Index Ticker 5-Dec Change % Change 28-Nov
CBOE Volatility Index VIX 11.82 (1.49) -11.19% 13.31
VIX December Future VXZ4 13.60 (1.25) -8.42% 14.85
VIX January Future VXF5 15.35 (0.60) -3.76% 15.95
VIX February Future VXF5 16.30 (0.45) -2.69% 16.75
CBOE Short-term Volatility Index VXST 10.70 (2.28) -17.57% 12.98
CBOE 3 Month Volatility Index VXV 15.55 (0.38) -2.39% 15.93
CBOE Mid-term Volatility Index VXMT 17.52 (0.42) -2.34% 17.94
VIX of VIX VVIX 85.41 5.57 6.98% 79.84
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures VXX 26.10 (1.30) -4.74% 27.40
pShares VIX Short Term Futures ETF VIXY 17.35 (0.87) -4.77% 18.22
iPath S&P 500 VIX Mid-Tem Futures VXZ 12.28 (0.13) -1.05% 12.41
Short VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 40.07 1.56 4.05% 38.51

 

It is a relatively quite week for global and US economic reports. There is a disconnect between available reports on the state of holiday season retail results. The discrepancy in forecasts appears to be the result of confusion about the size and extent of online sales. This week should bring a better accounting of consumer behavior over Thanksgiving weekend. The impact of retail sales cannot be underestimated. It will be another quiet week for earnings. Major earnings announcements, including those who do not meet my scan criteria, include Autozone, Pep Boys, Analogic, Toll Brothers, Casey’s General Stores, Costco, Adobe, Nordson, and Quicksilver.

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

“The large print giveth and the small print taketh away.” – Tom Waits
 

Monday December 8:

Economic: TD Ameritrade IMX – 12:30 PM.

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

Other: Atlanta Federal Reserve Bank President Dennis Lockhart speech on economic outlook and monetary policy, in Atlanta -12:30 PM.

Optionable Earnings:

Symbol Company Name Dec 5 Close IV30 B/A XEPS
DMND Diamond Foods, Inc. $29.53 46.1 A $0.24
HRB H & R Block Inc $34.14 24.5 A ($0.42)
HTZ Hertz Global Holdings, Inc. $24.25 41.1 $0.47

 

Tuesday December 9:            

Economic: NFIB Small Business Optimism Index – 7:30, ICSC – Goldman Sachs Store Sales – 7:45, Redbook – 8:55, JOLTS (Labor Department Job Openings and Labor Turnover Survey) – 10:00, Wholesale Trade – 10:00.

International Economic: Germany Merchandise Trade – 2:00 AM, Great Britain Industrial Production – 4:30 AM, Japan PPI – 6:50 PM, China PPI – 8:30 PM, China CPI – 8:30 PM.

Other:

Optionable Earnings:

Symbol Company Name Dec 5 Close IV30 B/A XEPS
BURL Burlington Stores Inc $44.41 55.6 B $0.12
CONN CONN’S, Inc. $34.56 80.7 B $0.68
KKD Krispy Kreme Doughnuts $20.53 53.2 A $0.20

 

Wednesday December 10:

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

International: France Industrial Production – 2:45 AM, Japan Tertiary Index – 6:50 PM.

Other:

Optionable Earnings:

Symbol Company Name Dec 5 Close IV30 B/A XEPS
FGP Ferrellgas Partners, L.P. $27.14 33.3 B ($0.23)
LE Lands’ End, Inc. $49.38 83.0 B $0.40
TOL Toll Brothers Inc $34.61 26.9 B $0.72
VRA Vera Bradley, Inc. $21.68 49.8 B $0.19
MW The Men’s Wearhouse, Inc. $45.51 40.6 A $0.87
RH Restoration Hardware Holdings $82.98 53.2 A $0.47

 

Thursday December 11:

Economic: Jobless Claims – 6:30, Retail Sales – 8:30, Import and Export Prices – 8:30, Bloomberg Consumer Comfort Index – 9:45, Business Inventories – 10:00, EIA Natural Gas Report – 10:30.

International Economic: Germany CPI – 2:00.

Other:

Optionable Earnings:

Symbol Company Name Dec 5 Close IV30 B/A XEPS
LULU Lululemon Athletica inc. $45.92 58.9 B $0.38
MEI Methode Electronics Inc. $39.56 60.5 B $0.54
ADBE Adobe Systems Incorporated $73.03 31.0 A $0.17

 

Friday December 5:

Economic: PPI-FD (Producer Price Index for Final Demand) – 8:30, Reuters/University of Michigan Consumer Sentiment – 9:55.

International Economic: China Industrial Production – 1:30 AM, China Retail Sales – 1:30 AM.

Other:

Optionable Earnings: None meeting criteria.

Monday December 15:

Economic: Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15, Housing Market Index – 10:0.

International Economic: China PMI Flash Manufacturing Index – 8:45 PM.

Optionable Earnings:

Symbol Company Name Dec 5 Close IV30 B/A XEPS
PAY VeriFone Systems Inc $35.96 44.7 A $0.31

 

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