The Prepared Mind: March 9, 2015

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

Friday’s market behavior was the result of good news once again being bad news. The major indexes tumbled 1 to 1.6% last with most of the damage being done on Friday. The employment situation report showed the creation of 295,000 jobs in February with unemployment dropping to 5.5%.   This unexpected strength in job numbers raised speculation the Fed would raise interest rates in June rather than September. The specter of higher interest rates , in a nearer tern than expected, spooked investors. The increase in jobs was marked by the absence of inflation or upward pressure on wages. Economists expect the Fed to remain accommodating and not expedite rate hikes.

My weekly review of technical analysts shows minor changes. Current market conditions are mildly bearish in a continuing upward trending market. Market breadth indicators are neutral with market sentiment showing complacency. A consistent drumbeat the past two weeks has been warnings of the risk of a reversal of the current bullish trend. This disconnect between complacency a potential for a market reversal resulted in upward moves for long volatility products.

Here is an overview of the market behavior last week:

Index Mar 6 Close Weekly Change % Weekly % 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17,856.78 (275.92) -1.52% 0.19% 14.70%(VXD)
S&P 500 (SPX) 2,071.25 (33.25) -1.58% 0.60% 15.20% (VIX)
NASDAQ 100 (NDX) 4,404.57 (41.61) -0.94% 3.93% 16.75% (VXN)
Russell 2000 (RUT) 1,218.52 (14.71) -1.19% 1.15% 17.85% (RVX)
S&P 100 (OEX) 912.00 (13.47) -1.46% 0.40% 15.58%(VXO)
CBOE Volatility Index (VIX) 15.20 1.86 13.94% NA

 

The short term volatility index (VXST) traded a larger than usual discount to the cash VIX. The increase in VIX futures was minimal for the week (and Friday.) This minor increase may have been the result of increased volatility present in the futures since it was “employment week.” The lack of backwardization with respect to the differences in prices of the futures between different delivery months is mildly bearish. The difference between the March and April futures would be much less if there was significant market fear. Mondays opening should point the way for the rest of the week..

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

Indexes Ticker 6-Mar 27-Feb Change % Change
CBOE Volatility Index VIX 15.20 13.34 1.86 13.92%
VIX March Future VXH5 16.22 15.82 0.40 2.53%
VIX April Future VXJ5 17.78 17.38 0.40 2.30%
VIX May Future VXK5 18.02 17.82 0.20 1.12%
CBOE Short-term Volatility Index VXST 14.31 10.60 3.71 35.00%
CBOE 3 Month Volatility Index VXV 17.51 16.89 0.62 3.67%
CBOE Mid-term Volatility Index VXMT 18.70 18.41 0.29 1.58%
VIX of VIX VVIX 86.88 85.23 1.65 1.94%
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures ETN VXX 28.03 27.62 0.41 1.48%
pShares VIX Short Term Futures ETF VIXY 18.66 18.38 0.28 1.52%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 12.45 12.51 (0.06) -0.48%
Inverse VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 32.09 32.75 (0.66) -2.02%
ProShares Short VIX Short Term Future ETF SVXY 62.98 64.33 (1.35) -2.10%

 

 

The coming week is light on Economic releases. Domestic reports will focus on the consumer sector with a dash of employment thrown into the mix. The Labor Market Conditions index will be released on Monday while the JOLTS Report (Job Openings) will be released on Tuesday. February Retail Sales are released on Thursday before the market opening. Will these numbers show increased spending of the savings accrued from lower gas prices? International reports will focus on Chinese inflation data. Japan will be releasing an estimate of economic growth.

The fourth quarter earnings announcement cycle is officially over. Now is the time to start preparing for the next cycle. OptionVue provides a column for the date of earnings announcements. Use it. OptionVue tools and charts assist you in determining the effect of these announcements on the historic stock prices and implied volatility of the options. Major earnings announcements include: Urban Outfitters, Casey’s General Stores, Verifone, Analogic, Barnes & Noble, Williams-Sonoma, Men’s Warehouse, Medifast, Genesco, Dollar General Aeropostale, and EBIX. 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 a problem cannot be solved, enlarge it.” – Dwight Eisenhower

 

Don’t gamble; take all your savings and buy some good stock

and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.” – Will Rogers

 

Monday March 9

 

Economic: Labor Market Conditions Index – 10:00.

 

International Economic: Germany Merchandise Trade – 3:00AMChina CPI and PPI – 9:30 PM.

 

Other: Cleveland Federal Reserve Bank President Loretta Mester speech to NABE conference in Washington – 2:25 PM

 

Optionable Earnings:

Symbol Company Name March 6 Close IV30 B/A XEPS
BITA Bitauto Hldg Ltd (ADR) $73.46 71.5 B $0.57
WUBA 58.com Inc (ADR) $41.96 55.3 B ($0.08)
QIHU Qihoo 360 Technology Co Ltd $47.39 64.6 A $0.54
URBN Urban Outfitters, Inc. $38.74 37.4 A $0.57

 

 

Tuesday March 10:

 

Economic: Redbook – 8:55, NFIB Small Business Optimism Index – 9:00, JOLTS – 10:00, Wholesale Trade – 10:00.

 

International Economic: Japan Machine Orders – 7:50 PM, Japan PPI – 7:50 PM.

 

Other:

 

Optionable Earnings:

Symbol Company Name March 6 Close IV30 B/A XEPS
BKS Barnes & Noble, Inc. $24.92 47.1 B $1.19
PAY VeriFone Systems Inc $34.69 42.6 A $0.32
SINA SINA Corp $37.24 38.0 A $0.15

 

 

 

Wednesday March 11:

 

Economic: MBA Purchase Applications – 7:00, Quarterly Services Survey – 10:00, EIA Petroleum Status Report – 10:30, Treasury Budget – 2:00 PM.

.

International Economic: China Retail Sales, Great Britain Industrial Production – 5:30 AM.

 

Optionable Earnings:

Symbol Company Name March 6 Close IV30 B/A XEPS
KKD Krispy Kreme Doughnuts $21.65 48.4 A $0.17
MW Men’s Wearhouse Inc $49.13 42.8 A ($0.07)
ZOES Zoe’s Kitchen Inc $34.34 49.5 A ($0.04)

 

 

Thursday March 12:

 

Economic: Weekly Jobless Claims – 8:30, 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: Germany CPI – 3:00 AM, EMU Industrial Production – 6:00 AM.

 

Other:

 

Optionable Earnings:

Symbol Company Name March 6 Close IV30 B/A XEPS
CSTM Constellium NV $20.04 46.5 B $0.31
DG Dollar General Corp. $71.71 24.6 B $1.17
PLCE Childrens Place Inc $57.09 36.8 B $0.93
QIWI Qiwi PLC $22.54 63.8 B $0.22
ANAC Anacor Pharmaceuticals Inc $46.82 52.1 A ($0.59)
IMOS ChipMOS Technologies (Bermuda) $23.55 40.0 A $0.41
LOCO El Pollo LoCo Holdings Inc $24.62 54.8 A $0.12
ULTA Ulta Salon, Cosmetics & Fragrance, $140.86 47.0 A $1.26

 

 

Friday March 13:

 

Economic: PPI Final Demand – 8:30, University of Michigan/ Reuters Consumer Sntiment– 10:00

International Economic: No Major Announcements.

 

Other:

 

Optionable Earnings:

Symbol Company Name March 6 Close IV30 B/A XEPS
ANN Ann Inc $36.79 51.6 B ($0.02)
EBIX Ebix Inc $25.37 46.1 B $0.37
STON StoneMor Partners L.P. $28.15 29.8 B ($0.08)

 

Monday March 16

Economic: Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15, Housing Market Index – 10:00, Treasury International Capital – 4:00.

International Economic: Bank of Japan Announcement.

Other:

Optionable Earnings:

Symbol Company Name March 6 Close IV30 B/A XEPS
NOAH Noah Holdings Limited (ADR) $21.20 61.4 A $0.23

 

 

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