The Prepared Mind: January 20, 2015

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

The markets tumble over 1% last despite a 1% rally on Friday. The market is down less than 4% from all time highs. Declining oil prices, weak consumer spending and weakening global growth provided the impetus for the sell-off.   The weakness in consumer spending was more than expected impact from lower gasoline and oil prices. There is a mixed view on the impact of the decline in oil price US stock indexes. A difference in opinion on the root cause of the price decline is the basis of the confusion. Is it oversupply or weakness in the global economy? The coming weeks will tell us if the slide in oil prices is positive or negative for US corporate earnings. It is expected banks and energy company earnings will take a hit over the next two quarters.

Stock market indicators are giving mixed signals. 1,990, followed by 1975, are new support levels for the S&P 500. Equity only put/call ratios are bullish, while market breadth indicators are bearish. The continued counter-trend rallies counter to make trading difficult. The move movement in the indices is reflected in the VIX and other VIX indices. These VIX indicators reflect in increased volatility in the markets and are in a bearish trend.

Here is an overview of the past week’s market behavior:

Index Jan 16 Close Weekly Change % Weekly % 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17,511.57 (321.42) -1.80% -1.75% 18.27%(VXD)
S&P 500 (SPX) 2,019.42 (38.78) -1.88% -1.92% 20.95% (VIX)
NASDAQ 100 (NDX) 4,130.78 (88.78) -2.10% -2.53% 21.22% (VXN)
Russell 2000 (RUT) 1,173.76 (21.88) -1.83% -2.57% 23.14% (RVX)
S&P 100 (OEX) 889.80 (17.70) -1.95% -2.05% 19.7%(VXO)
CBOE Volatility Index (VIX) 20.95 3.16 17.76% NA

 

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

Index Ticker 16-Jan Change % Change 9-Jan
CBOE Volatility Index VIX 20.95 3.40 19.37% 17.55
VIX January Future VXF5 20.62 2.00 10.74% 18.62
VIX February Future VXF5 20.12 1.44 7.71% 18.68
VIX March Future VXH% 20.02 1.30 6.94% 18.72
CBOE Short-term Volatility Index VXST 21.48 6.28 41.32% 15.20
CBOE 3 Month Volatility Index VXV 21.15 1.83 9.47% 19.32
CBOE Mid-term Volatility Index VXMT 21.59 1.46 7.25% 20.13
VIX of VIX VVIX 111.32 7.55 7.28% 103.77
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures ETN VXX 35.47 3.49 10.91% 31.98
pShares VIX Short Term Futures ETF VIXY 23.55 2.27 10.67% 21.28
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 13.83 0.59 4.46% 13.24
Short VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 30.41 (1.28) -4.04% 31.69

Domestic emphasis will be on housing – a moribund sector which has been stalled recently. The market will focus on single-family starts and existing home sales. FHFA home prices have been a haven of strength in US housing. Analysts are expecting continued strength in prices. Any disappointment in expectations will affect the markets. Seasonality has a major impact on housing.   This impact is greatest in the winter with major swings in data. It is a light week for global economic reports. The focus will be on inflation and employment. All eyes will be on the early snap election to be held in Greece on January 25. The result of this election is a choice between competing economic models and Greece’s financial future. The results of the election will determine the extent and magnitude of assistance to Greece from the European Central Bank.

Earnings announcement will be in full force for the next 3. Do not let earnings catch you unawares. OptionVue provides a column for the date of earnings announcements. Use it. OptionVue tools and charts Be will assist you in determining the effect of these announcements on the historic stock prices and implied volatility of the options. Earnings announcements include: Halliburton, General Dynamics, Baker Hughes, Morgan Stanley, IBM, Coach, Johnson & Johnson, eBay, American Express. Discover, UnitedHealth, Verizon, Starbucks, Capital One, Union Pacific, McDonald’s, GE, Honeywell and Kimberly-Clark.   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

“You don`t need to be a weatherman to know which way the wind blows” – Bob Dylan

“Volatility is greatest at turning points, diminishing as a new trend becomes established.” – George Soros

 

Monday January 19:

All US Markets Closed – Martin Luther Jr. Day

International Economic: China GDP – 9:00 PM, China Industrial Production – 9:00 PM, China Retail Sales – 9:00 PM.

 Optionable Earnings: None meeting criteria.

Tuesday January 20:

Economic: Housing Market Index – 10:00.

International Economic: Germany PPI – 2:00 AM, Germany PPI – 8:00 AM, Japan All Industry Index – 11:30 PM.

Other: Federal Reserve Gov. Jerome Powell and UK Financial Conduct Authority Chief Martin Wheatley discuss financial market conduct and structure, in Washington – 10:00.

Optionable Earnings:

Symbol Company Name Jan 16 Close IV30 B/A XEPS
ATI Allegheny Technologies Incorporated $27.94 47.0 B $0.00
BHI Baker Hughes Incorporated $53.53 34.6 B $1.08
DAL Delta Air Lines, Inc. $45.05 42.0 B $0.75
EDU New Oriental Education & Tech Grp $20.57 43.9 B $0.08
HAL Halliburton Company $37.33 38.5 B $1.12
MS Morgan Stanley $34.58 30.1 B $0.49
MTB M&T Bank Corporation $114.38 22.5 B $1.94
SAP SAP SE (ADR) $66.88 26.6 B $1.40
ADTN ADTRAN, Inc. $22.26 43.2 A $0.07
CA CA, Inc. $30.78 25.9 A $0.56
CREE Cree, Inc. $29.82 56.0 A $0.11
IBKR Interactive Brokers Group, Inc. $28.27 33.7 A $0.05
IBM International Business Machines Corp. $154.57 24.8 A $5.43
NFLX Netflix, Inc. $323.76 53.1 A $0.44

 

Wednesday January 21:

Economic: MBA Purchase Applications – 7:00, Housing Starts – 8:30, Redbook – 8:55.

International: Bank of England Minutes – 4:30 AM, China PMI Flash Manufacturing – 8:45 PM.

Optionable Earnings:

 

Symbol Company Name Jan 16 Close IV30 B/A XEPS
AMTD TD Ameritrade Holding Corp. $33.02 27.8 B $0.40
APH Amphenol Corporation $51.93 24.4 B $0.59
ASML ASML Holding NV (ADR) $101.96 33.1 B $0.64
NTRS Northern Trust Corporation $61.79 23.8 B $0.80
UNH UnitedHealth Group Inc. $104.46 24.0 B $1.50
AXP American Express Company $85.88 23.1 A $1.38
DFS Discover Financial Services $60.10 25.5 A $1.30
EBAY eBay Inc $53.02 28.8 A $0.78
FFIV F5 Networks, Inc. $124.22 33.9 A $1.22
SNDK SanDisk Corporation $78.52 42.1 A $1.15
URI United Rentals, Inc. $83.11 46.3 A $2.06
XLNX Xilinx, Inc. $41.04 36.4 A $0.60

Thursday January 22:

Economic: Jobless Claims – 8:30, FHFA House Price Index – 9:00, PMI Manufacturing Index Flash, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30, EIA Petroleum Status Report – 11:00.

International: Great Britain CBI Industrial Trends Survey – 6:00 AM.

Other: EMU European Central Bank Announcement – 7:45 AM.

 

Optionable Earnings:

 

Symbol Company Name Jan 16 Close IV30 B/A XEPS
ALK Alaska Air Group, Inc. $61.47 34.4 B $0.88
AVT Avnet, Inc. $40.97 30.2 B $1.20
BBT BB&T Corporation $35.50 24.4 B $0.73
BPOP Popular Inc $31.10 30.0 B $0.48
COV Covidien plc $102.88 22.5 B $1.03
CP Canadian Pacific Railway Limited $177.12 34.7 B $2.25
JCI Johnson Controls Inc $44.95 26.1 B $0.77
LUV Southwest Airlines Co $38.90 40.6 B $0.54
PCP Precision Castparts Corp. $219.72 31.0 B $3.41
UAL United Continental Holdings Inc $63.83 53.9 B $1.11
UNP Union Pacific Corporation $110.80 27.3 B $1.51
ALTR Altera Corporation $33.98 32.3 A $0.35
CE Celanese Corporation $55.69 34.0 A $1.18
COF Capital One Financial Corp. $76.95 25.1 A $1.73
ETFC E*TRADE Financial Corp $21.77 40.2 A $0.23
ISRG Intuitive Surgical, Inc. $524.38 29.9 A $3.39
KLAC KLA-Tencor Corporation $66.87 35.2 A $0.51
MXIM Maxim Integrated Products Inc. $31.69 31.6 A $0.29
RMD ResMed Inc. $60.27 32.6 A $0.63
SBUX Starbucks Corporation $79.58 24.1 A $0.80
SWKS Skyworks Solutions Inc $71.33 46.8 A $1.09

 

Friday January 23:

 

Economic: Existing Home Sales – 10:00, Leading Indicators – 10:00.

 

International Economic: EMU PMI Compsoite Flash – 4:00 AM.

 

Optionable Earnings:

 

Symbol Company Name Jan 16 Close IV30 B/A XEPS
BK Bank of New York Mellon Corp $37.25 23.3 B $0.59
GE General Electric Company $23.58 23.3 B $0.55
KSU Kansas City Southern $109.23 33.3 B $1.24
STT State Street Corp $72.78 26.4 B $1.24

 

 

Monday January 26:

 

Economic: PMI Services Flash – 9:45, Dallas Fed Manufacturing Survey – 10:30.

 

International Economic: Germany IFO Survey – 4:00 AM.

 

Other: Greek election on Sunday January 25.

 

Optionable Earnings:

 

DHI D.R. Horton, Inc. $23.18 40.9 B $0.35
GWW W W Grainger Inc $237.92 24.4 B $2.83
NSC Norfolk Southern Corp. $101.84 34.0 B $1.66
RCL Royal Caribbean Cruises Ltd $81.50 32.7 B $0.44
STX Seagate Technology PLC $62.28 33.1 B $1.35
ASH Ashland Inc $118.87 23.1 A $1.43
MSFT Microsoft Corporation $45.48 24.6 A $0.69
PKG Packaging Corp Of America $79.03 26.3 A $1.16
SANM Sanmina Corp $22.90 50.3 A $0.58
SIMO Silicon Motion Technology Corp. $23.96 58.9 A $0.32
TXN Texas Instruments Incorporated $52.38 25.7 A $0.69
ZION Zions Bancorporation $24.49 30.8 A $0.42
OLN Olin Corporation $22.88 33.7 A $0.22

 

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