By Frank Fahey
Even a correct decision is wrong when it was taken too late.”
– Lee Iacocca
Last week was not a continuation of the sell-off of the previous week. The major indexes should a minor rebound in prices despite weak earnings form P&G, ExxonMobil and Chevron. A European rally provided the direction for the markets. The US markets showed admirable strength despite week in crude oil and in the energy sector. A weaker than expected US GDP (2.3% annual growth) led to speculation the US economy was to weak for the Fed to raise interest -rates.
The SPX remains range bound. The trading range has been 2040 to 2135 for most of 2015. The current neutral chart is offset by a bullish put/call ratio. Market breadth indicators are mixed. The most bullish indicators are the volatility levels for the market and individual stocks. Technical analysts looking at these indicators are couching their forecast by saying they ”would not be surprised” if there is a breakout to the upside. I expect they “would not be surprised” if the market had another sell-off to the 2045 to 2050 levels. The only fact I can derive from these analysts prognostications is that it is difficult to surprise them.
Here is an overview of the market behavior last week:
|Index||31-Jul||Weekly Change||% Weekly||2015 YTD||Volatility of Index|
|Dow Jones Industrials (DJIA)||17690.46||121.93||0.69%||-0.74%||12.11% (VXD)|
|S&P 500 (SPX)||2103.84||24.19||1.16%||2.18%||11.95% (VIX)|
|NASDAQ 100 (NDX)||4584.29||23.76||0.52%||8.14%||12.93% (VXN)|
|Russell 2000 (RUT)||1238.24||12.70||1.04%||2.78%||14.46% (RVX)|
|S&P 100 (OEX)||931.19||9.98||1.08%||2.51%||11.50% (VXO)|
|CBOE Volatility Index (VIX)||12.12||-1.62||-29.00%||NA|
Data Source: OptionVue7
It appears one can throw anything at this bull market and it will run back to approach previous highs. The S&P 500 is back at the 2100 level (up 1.16% for the week) while the spot VIX was down 11.79% and under 14. The CBOE short-term Volatility Index (VXST) approached 2015 lows while closing at 10.67. The larger spreads executed last week in the VIX and other related products were range based spreads – ratio spreads and condors on the VIX and VXX. These spreads are often described as “non-directional.” This direction is a misnomer. I prefer “range spread.” A range spread will profit if the market moves to or stays within a specific range. One of the larger spreads in the August VIX has an expiration break even range of 13 to 17. The spread is bullish on the VIX and simultaneously mildly bearish in the short term on the SPX. It will be interesting to see if this week’s employment reports will be able to inject more volatility into the markets.
Here is an overview of last week for the VIX and related products:
|CBOE Volatility Index||VIX||12.12||13.74||(1.62)||-11.79%|
|VIX August Future||VXQ5||13.975||14.900||(0.925)||-6.21%|
|VIX September Future||VXU5||15.325||15.800||(0.475)||-3.01%|
|VIX October Future||VX5V||16.075||16.475||(0.400)||-2.43%|
|CBOE Short-term Volatility Index||VXST||10.67||13.05||(2.38)||-18.24%|
|CBOE 3 Month Volatility Index||VXV||14.90||15.65||(0.75)||-4.79%|
|CBOE Mid-term Volatility Index (6 month)||VXMT||16.45||17.12||(0.67)||-3.91%|
|VIX of VIX||VVIX||81.77||88.36||(6.59)||-7.46%|
|Long VIX ETP’s|
|iPath S&P 500 VIX Short Term Futures ETN||VXX||16.02||16.84||(0.82)||-4.87%|
|pShares VIX Short Term Futures ETF||VIXY||10.67||11.24||(0.57)||-5.07%|
|iPath S&P 500 VIX Mid-Tem Futures ETN||VXZ||10.39||10.55||(0.16)||-1.52%|
|Inverse VIX ETP’s|
|Daily Inverse VIX Short Term ETN||XIV||48.04||46.20||1.84||3.98%|
|ProShares Short VIX Short Term Future ETF||SVXY||94.02||90.27||3.75||4.15%|
Data Source: OptionVue7
This is “Earnings Week.” The week will culminate with the announcement of US Non-farm payrolls before the opening on Friday. There is a consensus expectation of the unemployment rate moving down to 5.2%. The markets will continue to take their direction from 2nd Quarter earnings announcements. Last week’s announcement showed 70% of the reporting companies with earnings higher than expected. It should be noted these earnings expectations had been lowered across the board.
The earnings season continue full bore this week. Announcements (including those not meeting my earnings criteria) include: Allstate, AIG, Loews, Disney, Kellogg, Archer Daniels Midland, Coach, Mosaic, CVS Health, Emerson, Electric, CBS, Priceline.com, Time Warner, Transocean, Prudential, Duke Energy, Consolidated Edison, Viacom, Apache, Becton Dickinson, and Marathon Oil. It is imperative for an option trader to know the date of earnings announcements in relationship to the expiration date of options being traded. It is your responsibility to know the dates of announcements. You should call an confirm earnings dates with the individual company’s investor relations department. The July and August monthly expirations encompass over 90% of the 2nd quarter earnings announcements for the S&P 500. OptionVue provides information on the effect of individual earnings announcements on the historic stock price and the pre and post earnings implied volatility of the options. These OptionVue tools designed to help the trader successfully trade options around earnings plays. There are five different kinds of earnings play which OptionVue tracks.
For the past 5 years, I have provided a list of major earning announcements along with Friday’s closing price and implied volatility, and time of announcement. I am not available to provide the information in my preferred format this week. My data provider (not OptionVue) is offline this weekend. Hopefully, this is a one time occurrence. Remember, it is your responsibility to confirm these earnings dates. The date and time of earnings announcements can and d
“Chance favors the Prepared Mind.” – Louis Pasteur
“Yesterday’s bullet won’t kill you. Tomorrow’s bullet just might.” Bernie Provan
“Volatility is a symptom that people have no idea of the underlying value” – Jeremy Grantham
Monday August 3:
Economic: Motor Vehicle Sales, Personal Income and Outlays – 8:30, Gallup US Consumer Spending Measure – 8:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction Spending – 10:00.
International Economic: Germany Retail Sales – 2:00 AM, EMU PMI Manufacturing Index – 4:00 AM.
Other: Federal Reserve Gov. Jerome Powell speech on structural issues with U.S. bond markets, in Washington –
Tuesday August 4:
Economic: Gallup US ECI – 8:30, Redbook – 8:55.
International Economic: EMU PPI – 5:00 AM, Japan PMI Composite – 9:35 PM, China PMI Composite – 9:45 PM.
Wednesday August 5:
Economic: MBA Mortgage Applications – 7:00, ADP Employment Report – 8:15, International Trade – 8:30, Gallup US Job Creation Index – 8:30, PMI Services Index – 9:45, ISM Non-Manufacturing Index- 10:00, EIA Petroleum Status Report – 10:30.
International Economic: EMU PMI Composite – 3:55 AM, EMU Retail Sales – 5:00 AM, All Global Composite and Services PMI – 11:00 AM.
Thursday August 6:
Economic: Chain Store Sales, Challenger Job Cut Report – 7:30, Weekly Jobless Claims – 8:30, Gallup US Payroll to Population – 8:30 Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30, Farm Prices – 3:00 PM.
International Economic: Bank of Japan Announcement, Germany Manufacturer’s Orders – 2:00 AM, Great Britain Industrial Production – 4:30 AM.
Other: Bank of England Announcement – 7:00 AM.
Friday August 7:
Economic: July Employment Situation – 8:30.
International Economic: Germany Industrial Production – 2:00 AM.
Monday August 10:
Economic: Labor Market Conditions – 10:00, TD Ameritrade IMX – 12:30.
International Economic: Sunday at 9:30 PM – Chinese CPI and PPI
Other: Atlanta Federal Reserve Bank President Dennis Lockhart speech in Atlanta – 12:25 PM.