The Prepared Mind: December 7, 2015

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

A good many things go around in the dark besides Santa Claus.” – Herbert Hoover

It was anything but a quiet week. One financial pundit described it as stomach churning. During the day on Wednesday the US equities were up around 0.7%. The indexes tumble nearly 3.0% over the ensuing 24 hours as investors were underwhelmed by the details of Mario Draghi’s announcement of another rate cut and more bond purchases. Friday’s rally of nearly 2% was in response to the Friday morning’s Employment Situation Report which showed the US economy added 211,000 jobs with unemployment holding steady at 5%. The markets still seemed unsettled despite the end-of-week rally.

When the markets start churning traders start looking for any port in a storm. Charts and technical analysis are a refuge many traders use.   A good friend and survivor of the 1929 Crash once cautioned, “Frankie, every boat which ever sank had charts.” I use charts to see basic support and resistance. The S&P 500 is hitting heavy resistance in the 2080 to 2100 range. Support is at the November lows of 2020. On Friday morning Equity put/call ratios were giving sell signals with market breadth bearish. Friday’s rally was described by one technical analyst as “bs” because they were no buy signals and if there had been buy signals they were not confirmed. This is where he lost me.

The technical analysts I speak with cannot agree on anything. Will there or won’t there be a Santa Claus rally? The prognostications range from short term bearish to the upward trend is intact to new highs before the end of the year to be afraid, very afraid. Be wary. Be nimble. Trade with a very clear understanding of your risk. Know how you will manage your positions for every prediction from my analyst buddies.

Here is an overview of the market behavior last week:

Index 4-Dec Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17847.63 49.14 0.28% 0.14% 14.96% (VXD)
S&P 500 (SPX) 2091.69 1.58 0.08% 1.59% 14.81% (VIX)
NASDAQ 100 (NDX) 4712.24 30.08 0.64% 11.16% 16.66% (VXN)
Russell 2000 (RUT) 1181.19 (18.37) -1.53% -1.95% 17.46% (RVX)
S&P 100 (OEX) 933.77 2.24 0.24% 2.79% 15.31% (VXO)
CBOE Volatility Index (VIX) 14.81 (0.31) -2.05% NA  

Data Source: OptionVue7

 

The VIX and associated products show minimal change if viewed on a week-to-week basis. The VIX levels showed extreme movement on Thursday and Friday. On Wednesday the VIX was up over 3 points with a near equivalent sell-off on Friday. Market downturns and the associated VIX rallies are attracting sellers of options.   On Thursday a seller sold VIX Dec 19 Calls for 1.66 who also purchased the VIX Dec 35 Calls at 0.22 and a net credit of 1.44.  These options expire on Wednesday December 16. The spread closed on Friday at 0.38 (0.43 and 0.05.)

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

Indexes Ticker 4-Dec 27-Nov Change % Change
CBOE Volatility Index VIX 14.81 15.12 (0.31) -2.05%
VIX December Future (12/16/2015) VXZ5 16.225 17.175 (0.950) -5.53%
VIX January Future (1/120/2016) VXF6 17.325 18.275 (0.950) -5.20%
VIX February Future (2/17/2016) VXG6 18.025 18.875 (0.850) -4.50%
CBOE Short-term Volatility Index VXST 13.65 14.21 (0.56) -3.94%
CBOE 3 Month Volatility Index VXV 18.17 17.35 0.82 4.73%
CBOE Mid-term Volatility Index (6 month) VXMT 19.65 19.51 0.14 0.72%
VIX of VIX VVIX 89.19 88.35 0.84 0.95%
Long VIX ETP’s      
iPath S&P 500 VIX Short Term Futures ETN VXX 18.22 18.91 (0.69) -3.65%
ProShares VIX Short Term Futures ETF VIXY 12.09 12.57 (0.48) -3.82%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 10.84 11.14 (0.30) -2.69%
Inverse VIX ETP’s      
Daily Inverse VIX Short Term ETN XIV 30.34 29.63 0.71 2.40%
ProShares Short VIX Short Term Future ETF SVXY 59.41 58.08 1.33 2.29%

Data Source: OptionVue7

It will be a very light week for economic reports and releases. The major reports are Chinese inflation, Japanese GDP, and US retail sales. The FOMC meeting the following week on December 15 and 16 should hold up implied volatility of options during the coming week.

The earning’s season has slowed to a crawl. The biggest earning new for the week is the possible breakup of Alcao. Alcoa earnings are considered the start of every quarterly earnings season. It will be interesting to wee which stock will take its place. Start looking at earnings 30 days out for trading opportunities – i.e. Nike (NKE) on December 17 after the market close (AMC), Bed Bath &Beyond on Jan7 AMC, or Intel on Jan 14 AMC.   Major earnings announcements this week include: H&R Block, Diamond Foods, Autozone, Toll Brothers, Children’s Place, Casey’s General Stores, Costco, Analogic, Pep Boys, Mean’s Wearhouse, Adobe Systems, and Ciena.  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 Pasteu

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

Nobody shoots at Santa Claus.” – Samuel Butler

Monday December 7:

 

Economic: Gallup US Consumer Spending Measure – 8:30, US Labor Market Conditions Index – 10:00, TD Ameritrade IMX – 12:30PM.

 

International Economic: Germany Industrial Production – 2:00AM. Japan GDP – 6:50PM

 

Other: St Louis Federal Reserve Bank President James Bullard speech on the economic outlook, in Muncie, Indiana 11:30.

 

Earnings:

Symbol Company Name Dec 4 Close IV30 B/A
GWPH GW Pharmaceuticals PLC- ADR $85.86 92.50 BMO
MTN Vail Resorts, Inc. $122.72 30.43 BMO
UNFI United Natural Foods, Inc. $42.23 45.24 BMO
CASY Casey’s General Stores Inc $117.62 34.79 AMC
HRB H & R Block Inc $36.68 28.17 AMC
MFRM Mattress Firm Holding Corp $50.00 53.17 AMC

 

 

 

Tuesday December 8:

 

Economic: NFIB Small Business Optimism Index – 6:00, Redbook – 8:55, JOLTS – 10:00.

 

International Economic: Great Britain Industrial Production – 4:30AM, Japan Machine Orders – 6:50PM, China CPI and PPI – 8:30PM.

 

Other:

 

Earnings:

Symbol Company Name Dec 4 Close IV30 B/A
AZO AutoZone, Inc. $757.37 25.11 BMO
CONN CONN’S, Inc. $26.01 84.10 BMO
TOL Toll Brothers Inc $36.64 28.21 BMO
QIHU Qihoo 360 Technology Co Ltd $70.96 24.11 AMC

 

 

 

Wednesday December 9:

 

Economic: MBA Mortgage Applications – 7:00, Wholesale Trade – 10:00, EIA Petroleum Status Report – 10:30.

 

International Economic: Germany Merchandise Trade – 2:00AM, Japan PPI – 6:50PM.

 

Other: Bank of England Announcement and Minutes – 7:00AM.

 

Earnings:

Symbol Company Name Dec 4 Close IV30 B/A
LULU Lululemon Athletica inc. $49.12 58.31 AMC
MW Men’s Wearhouse Inc $20.31 66.44 AMC

 

 

Thursday December 10:

 

Economic: Weekly Jobless Claims – 8:30, Import and Export Prices – 8:30 AM, Bloomberg Consumer Comfort Index – 9:45, Quarterly Services Survey – 10::00, EIA Natural Gas Report – 10:30.

 

International Economic: France Industrial Production – 2:30AM, Great Britain Merchandise Trade – 4:30AM.

 

Other:

 

Earnings: None meeting criteria.

 

Friday December 11:

 

Economic: PPI FD – 8:30, Retails Sales – 8:30, Business Inventories – 10:00, Consumer Sentiment – 10:00, Baker-Hughes Rig Count – 1:00.

 

International Economic: China Industrial Production, China Retail Sales, Germany CPI – 2:00

Earnings: None meeting criteria.

 

 

Monday December 14:

 

Economic: No major announcements.

 

International Economic: Japan Tertiary Index – 12:30Am, EMU Industrial Production – 5:00.

 

Earnings: None meeting criteria.

 

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