The Prepared Mind: November 16, 2015

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“The fact that people will be full of greed, fear or folly is predictable.

The sequence is not predictable.” – Warren Buffet

Bad news was finally bad news last week. Weak earnings reports from retailers – Macy’s and Nordstrom’s – combined with lower than expected October retail sales raised the specter of a weakening economy and disappointing holiday sales. The Producer Price Index (PPI) showed a slowing economy. The European Central Bank announced it was willing to do whatever it takes if economic conditions warrant a change. Chinese imports were down nearly 19% while exports fell nearly 7% for the same period. Commodity Prices are in a bear market as Chinese producers respond to lower demand and exports. Copper and aluminum are at multi-year lows. This litany of news led to an across the board selloff of 3.5% to 4.5% for US Indexes. The terror attacks in Paris may disrupt an already skittish market.

 

The bull trend continues even though the S&P 500 is showing signs of being overbought. Technical analysts are pointing to 2060, 2040, 2020 and 2000 as levels of support. I have rarely seen such consistent agreement among the analysts.   Equity put/call are still bullish despite approaching overbought levels. The VIX and associated products are still bullish. In the world of technical analysis, overbought and oversold are technical terms. Please do not take these signals as recommendations to buy or sell the market.

Here is an overview of the market behavior last week:

Index 13-Nov Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17245.24 (665.09) -3.71% -3.24% 19.17% (VXD)
S&P 500 (SPX) 2023.04 (76.16) -3.63% -1.74% 20.08% (VIX)
NASDAQ 100 (NDX) 4501.43 (205.80) -4.37% 6.18% 21.24% (VXN)
Russell 2000 (RUT) 1145.16 (54.59) -4.55% -4.94% 23.30% (RVX)
S&P 100 (OEX) 903.04 (34.53) -3.68% -0.59% 20.57% (VXO)
CBOE Volatility Index (VIX) 20.08 5.75 40.13% NA  

Data Source: OptionVue7

 

The VIX and associated products reacted strongly to the second worst weekly performance of 2015. The longer term products – the VXV and the VXMT – show uncharacteristic strength for this move. The price levels of these products would seem to indicate that traders expect higher implied volatility levels to continue through the beginning of 2016.

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

Indexes Ticker 13-Nov 6-Nov Change % Change
CBOE Volatility Index VIX 20.08 14.33 5.75 40.13%
VIX November Future (11/18/2015) VXX5 20.325 15.675 4.650 29.67%
VIX December Future (12/16/2015) VXZ5 19.875 16.475 3.400 20.64%
VIX January Future (1/1202015) VXF6 20.125 17.400 2.725 15.66%
CBOE Short-term Volatility Index VXST 20.43 12.80 7.63 59.61%
CBOE 3 Month Volatility Index VXV 21.58 17.45 4.13 23.67%
CBOE Mid-term Volatility Index (6 month) VXMT 22.30 19.13 3.17 16.57%
VIX of VIX VVIX 106.06 85.03 21.03 24.73%
Long VIX ETP’s      
iPath S&P 500 VIX Short Term Futures ETN VXX 21.96 18.04 3.92 21.73%
pShares VIX Short Term Futures ETF VIXY 14.60 12.00 2.60 21.67%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 11.92 10.78 1.14 10.58%
Inverse VIX ETP’s      
Daily Inverse VIX Short Term ETN XIV 26.05 32.28 (6.23) -19.30%
ProShares Short VIX Short Term Future ETF SVXY 50.96 63.19 (12.23) -19.35%

Data Source: OptionVue7

The terrorist attacks in France dominated weekend market discussion for the coming week. Domestic economic reports will include numbers for consumer prices, industrial production and housing starts.   Retailer sales and profitability will dominate the earnings announcements. These numbers will be parsed in order to determine the relative strength of the economy. The Wednesday release of FOMC minutes from the last FED meeting will have the ability to move the market. The minutes will be parsed for indications of the timing and magnitude of rate increases by the Fed.

The earning’s season will slow down significantly this coming week.  Retailers will dominate the week’s announcements. Major earnings announcements include JD.com, Dillard’s, Urban Outfitters, Dicks Sporting Gods, Home Depot, Wal-Mart, TJX, Target, salesforce,com, Keurig Green Mountain, Best Buy, Perry Ellis, Ross Stores, Sears Holdings, Williams-Sonoma, Abercrombie & Fitch The Gap and Foot Locker. The selected stocks are the result of a scan for stocks announcing earnings in the coming week using the following criteria: Price > 20, 30 Day Implied Volatility > 22, and Average Daily Option Volume > 200 contracts. Once again, it is your responsibility to confirm these earnings dates. The date and time of earnings announcements can and do change.

Advice to stimulate your imagination:

 

“Chance favors the Prepared Mind.” – Louis Pasteur

“It is not certain that everything is uncertain.” – Blaise Pascal

 

“Economics is extremely useful as a form of employment for economists.'” – JK Galbraith
“The production of too many useful things results in too many useless people.” – Karl Marx

 

 

Monday November 16:

 

Economic: Empire State Manufacturing Survey – 8:30.

 

International Economic: EMU HICP – 5:00 AM

 

Earnings:

Symbol Company Name Nov 13 Close IV30 B/A
A Agilent Technologies Inc $37.49 32.58 BMO
DDS Dillard’s, Inc. $84.96 50.17 BMO
JD JD.Com Inc(ADR) $28.78 72.25 BMO
URBN Urban Outfitters, Inc. $26.15 54.48 BMO
NOAH Noah Holdings Limited (ADR) $29.59 64.55 AMC

 

 

 

Tuesday November 17:

 

Economic: CPI – 8:30, Redbook – 8:55, Industrial Production – 9:15, Housing Market Index – 10:00, E-Commerce Retail Sales – 10:00.

 

International Economic: Great Britain CPI and PPI – 4:30 AM.

 

Other: Federal Reserve Gov. Jerome Powell speech to Clearing House Payments System Risk Symposium, in New York – 12:35PM.

 

Earnings:

Symbol Company Name Nov 13 Close IV30 B/A
DKS Dicks Sporting Goods Inc $42.78 47.04 BMO
HD Home Depot Inc $123.81 26.06 BMO
TJX TJX Companies Inc $68.25 43.93 BMO
WMT Wal-Mart Stores, Inc. $56.95 26.10 BMO
WUBA 58.com Inc (ADR) $54.16 61.92 BMO
JACK Jack in the Box Inc. $73.26 48.51 AMC

 

 

Wednesday November 18:

 

Economic: MBA Mortgage Applications – 7:00, Housing Starts – 8:30, Atlanta Fed Business Inflation Expectation s- 10:00, EIA Petroleum Status Report – 10:30, FOMC Minutes – 2:00.

 

International Economic: No major announcements.

 

Other: New York Federal Reserve Bank President William Dudley , Atlanta Fed President Dennis Lockhart, and Cleveland Fed President Loretta Mester on panel at Clearing House Payments System Risk Symposium, in New York – 7:30AM, Dallas Federal Reserve Bank President Rob Kaplan speech on economic conditions and monetary policy, in Houston – 12:00PM.

 

Earnings:

Symbol Company Name Nov 13 Close IV30 B/A
LOW Lowe’s Companies, Inc. $72.71 29.56 BMO
TGT Target Corporation $74.93 35.60 BMO
ARMK Aramark $30.30 32.32 AMC
CRM salesforce.com, inc. $78.30 46.56 AMC
CTRP Ctrip.com International, Ltd. (ADR) $99.58 65.13 AMC
GMCR Keurig Green Mountain Inc $45.41 88.70 AMC
LB L Brands Inc $93.02 33.92 AMC
NTAP NetApp Inc. $31.84 40.29 AMC
SINA SINA Corp $48.13 58.20 AMC

 

 

Thursday November 19:

 

Economic: Weekly Jobless Claims – 8:30, Philadelphia Fed Business Outlook Survey – 8:30, Bloomberg Consumer Comfort Index – 9:45, Leading Indicators, EIA Natural Gas Report – 10:30.

 

International Economic: Great Britain CBI Industrial Trends Survey – 6:00AM, European Central Bank (ECB) Minutes – 7:30AM.

 

Other: Atlanta Federal Reserve Bank President Dennis Lockhart speech in Atlanta – 12:30PM.

 

Earnings:

Symbol Company Name Nov 13 Close IV30 B/A
BBY Best Buy Co Inc $33.99 53.30 BMO
BKE Buckle Inc $32.41 38.54 BMO
JKS JinkoSolar Holding Co., Ltd. $22.56 79.07 BMO
PERY Perry Ellis International, Inc. $20.58 61.82 BMO
ROST Ross Stores, Inc. $48.11 49.39 BMO
SHLD Sears Holdings Corp $23.52 72.39 BMO
TFM The Fresh Market Inc $24.99 53.41 BMO
ADSK Autodesk, Inc. $61.75 45.56 AMC
GPS Gap Inc $26.52 40.96 AMC
INTU Intuit Inc. $98.05 29.38 AMC
NMBL Nimble Storage Inc $21.48 74.51 AMC
SPLK Splunk Inc $58.78 56.00 AMC
WDAY Workday Inc $81.92 50.53 AMC
WSM Williams-Sonoma, Inc. $70.75 44.61 AMC
ZOES Zoe’s Kitchen Inc $34.65 89.95 AMC

 

 

 

Friday November 20

 

Economic: Kansas City Fed Manufacturing Index – 11:00, Baker-Hughes Rig Count – 1:00.

 

International Economic: Germany PPI – 2:00 AM, EMU GDP Flash – 5:00 AM, EMU Merchandise Trade – 5:00 AM.

 

Earnings:

Symbol Company Name Nov 13 Close IV30 B/A
ANF Abercrombie & Fitch Co. $21.04 72.35 BMO
HIBB Hibbett Sports, Inc. $31.40 61.37 BMO
FL Foot Locker, Inc. $61.35 51.43 AMC

 

 

 

Monday November 23:

 

Economic: Chicago Fed National Activity Index – 8:30, PMI Manufacturing Index Flash – 9:45 AM, Existing Home Sales – 10:00.

 

International Economic: Japan PMI Manufacturing Index Flash – 8:35PM.

 

Earnings: No major announcements.

 

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