The Prepared Mind: January 4, 2015

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“There are three faithful friends: an old wife, an old dog, and ready money.”
—Benjamin Franklin 

 The year ended with a whimper. The major indices were under low volume selling pressure with the SPX being push into to negative territory for the year. This was for first negative year for the S&P 500 since 2008. The NASDAQ 100 was a bastion of strength among the indices despite an Apple (AAPL) loss of 4.6% for the year. This loss was preceded by 6 consecutive years of gains – 40.62%, 8.07%, 32.57%, 25.26%, 53.07% and 146.90%. Alphabet (GOOGL) was up 46.6% and Facebook (FB) was up 33.8%, Crude oil ended the year down 36% – continuing a 2 year slide. Crude Oil was down 35%. Energy sector equities are officially in a bear market – down nearly 25%. A recovery in oil would have a bullish impact on index prices.

Proponents of the “Dogs of the Dow” strategy argue that blue chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with high dividend relative to price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low yield companies. Under this model, an investor annually reinvesting in high-yield companies should out-perform the overall market. The logic behind this is that a high dividend yield suggests both that the stock is oversold and that management believes in its company’s prospects and is willing to back that up by paying out a relatively high dividend. The “Dogs of the Dow” or the “High Yield 10.” for the 2016 are Verizon (VZ), Chevron (CVX), Caterpillar (CAT), IBM (IBM), Pfizer (PFE), ExxonMobil (XOM), Merck (MRK), Procter&Gamble (PF), Wal-Mart (WMT) and Cisco (CSCO.)

Here is an overview of the market behavior last week:

Index 31-Dec Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17425.03 (127.14) -0.72% -2.23% 17.01% (VXD)
S&P 500 (SPX) 2043.94 (17.05) -0.83% -0.73% 18.21% (VIX)
NASDAQ 100 (NDX) 4597.15 (17.95) -0.39% 8.44% 19.65% (VXN)
Russell 2000 (RUT) 1133.90 (15.37) -1.34% -5.88% 20.31% (RVX)
S&P 100 (OEX) 911.43 (7.41) -0.81% 0.33% 18.17% (VXO)
CBOE Volatility Index (VIX) 18.21 2.47 15.69% NA  

Data Source: OptionVue7

 

The VIX and associated products will continue grow in volume and become more important trading products in 2016. Some analysts suggested the gain in these products was due to the uncertainty associated with this coming Wednesday’s release of the last FOMC minutes and the upcoming “Employment Week.” Traders should learn how to use volatility products and their derivatives to assist in protecting existing portfolios. The first step is to learn what the basic products and how they trade and are priced in relation to time and changes in volatility. A basic awareness and knowledge of implied volatility and volatility products will be invaluable in managing your investment accounts.

 

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

Indexes Ticker 31-Dec 24-Dec Change % Change
CBOE Volatility Index VIX 18.21 15.74 2.47 15.69%
VIX January Future (1/120/2016) VXF6 18.525 18.225 0.300 1.65%
VIX February Future (2/17/2016) VXG6 18.825 18.875 (0.050) -0.26%
VIX March Future (3/16/2016) VXH6 19.075 19.025 0.050 0.26%
CBOE Short-term Volatility Index VXST 17.52 13.47 4.05 30.07%
CBOE 3 Month Volatility Index VXV 19.80 19.69 0.11 0.56%
CBOE Mid-term Volatility Index (6 month) VXMT 20.59 20.75 (0.16) -0.77%
VIX of VIX VVIX 100.20 99.88 0.32 0.32%
Long VIX ETP’s      
iPath S&P 500 VIX Short Term Futures ETN VXX 20.10 19.62 0.48 2.45%
ProShares VIX Short Term Futures ETF VIXY 13.33 13.01 0.32 2.46%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 11.14 11.18 (0.04) -0.36%
Inverse VIX ETP’s      
Daily Inverse VIX Short Term ETN XIV 25.80 26.53 (0.73) -2.75%
ProShares Short VIX Short Term Future ETF SVXY 50.45 51.84 (1.39) -2.68%

Data Source: OptionVue7

 

Finally – a full trading week.  All our market metrics are set back to zero for the new year. Trader and investor interest will pick up as folks come back from vacation and the kids go back to school. The major news releases this week will be the FOMC minutes on Wednesday and a slew of employment reports culminating with the December employment situation on Friday. The FOMC minutes will be dissected to determine the timing and extent of future Fed interest rate increases.

The earning’s season has slowed to a crawl and will remain this way until the second week in January. The unofficial start of the earnings seasons is the announcement by Alcoa (AA) after the market close on Monday January 11,   Start looking at earnings 30 days out for trading. The list is extensive for the next 28 to 49 days. OptionVue7 has the ability to identify stocks 30 days out with a new enhanced Earnings Search feature. I have done a quick search 21 to 28 days forward for candidates for double calendars. Here are the results of my initial scan:

Symbol Company Name Dec 31 Close IV30 B/A DATE
KSU Kansas City Southern $74.27 33.54 BMO 22-Jan
STT State Street Corp $66.57 25.28 BMO 22-Jan
STI SunTrust Banks, Inc. $43.31 23.30 BMO 22-Jan
SYF Synchrony Financial $30.43 27.01 BMO 22-Jan
DHI D.R. Horton, Inc. $32.44 34.86 BMO 25-Jan
HAL Halliburton Company $34.13 37.84 BMO 25-Jan
MCD McDonald’s Corporation $119.43 22.83 BMO 25-Jan
STX Seagate Technology PLC $37.18 41.31 AMC 25-Jan
CIT CIT Group Inc. $39.98 25.78 BMO 26-Jan
COH Coach Inc $32.67 40.84 BMO 26-Jan
DD E I Du Pont De Nemours And Co $67.33 26.53 BMO 26-Jan
LXK Lexmark International Inc $33.50 51.86 BMO 26-Jan
NUE Nucor Corporation $40.34 29.75 BMO 26-Jan
PH Parker-Hannifin Corp $98.34 27.69 BMO 26-Jan
PII Polaris Industries Inc. $86.31 36.59 BMO 26-Jan
GWW W W Grainger Inc $204.70 23.70 BMO 26-Jan
AMGN Amgen, Inc. $163.29 26.86 AMC 26-Jan
CNI Canadian National Railway (USA) $56.45 23.05 AMC 26-Jan
COF Capital One Financial Corp. $73.21 28.39 AMC 26-Jan
ILMN Illumina, Inc. $191.07 45.05 AMC 26-Jan
PKG Packaging Corp Of America $64.00 27.31 AMC 26-Jan
VMW VMware, Inc. $57.03 43.05 AMC 26-Jan
WDC Western Digital Corp $61.09 40.90 AMC 26-Jan
YHOO Yahoo! Inc. $33.37 39.37 AMC 26-Jan
AAL American Airlines Group Inc $42.80 36.01 BMO 27-Jan
ANTM Anthem Inc $140.96 26.44 BMO 27-Jan
BXLT Baxalta Inc $39.10 53.39 BMO 27-Jan
BIIB Biogen Inc $308.34 35.90 BMO 27-Jan
BOKF BOK Financial Corporation $60.40 25.11 BMO 27-Jan
CRUS Cirrus Logic, Inc. $30.69 57.51 BMO 27-Jan
DFS Discover Financial Services $54.25 23.56 BMO 27-Jan
EPC Edgewell Personal Care Co $79.03 27.30 BMO 27-Jan
HES Hess Corp. $48.17 43.26 BMO 27-Jan
IP International Paper Co $38.20 26.49 BMO 27-Jan
ROK Rockwell Automation $103.98 25.19 BMO 27-Jan
RGLD Royal Gold, Inc USA) $35.93 43.87 BMO 27-Jan
TXT Textron Inc. $42.45 23.88 BMO 27-Jan
AMP Ameriprise Financial, Inc. $107.29 24.03 AMC 27-Jan
AAPL Apple Inc. $107.32 32.23 AMC 27-Jan
CTXS Citrix Systems, Inc. $76.96 30.14 AMC 27-Jan
CLB Core Laboratories N.V. $107.07 41.43 AMC 27-Jan
FB Facebook Inc $106.22 31.35 AMC 27-Jan
FTNT Fortinet Inc $31.45 35.84 AMC 27-Jan
HOLX Hologic, Inc. $39.34 29.07 AMC 27-Jan
LRCX Lam Research Corporation $80.17 27.49 AMC 27-Jan
LVS Las Vegas Sands Corp. $43.99 37.43 AMC 27-Jan
NSC Norfolk Southern Corp. $84.86 27.66 AMC 27-Jan
QCOM QUALCOMM, Inc. $50.41 34.33 AMC 27-Jan
SNDK SanDisk Corporation $76.07 23.18 AMC 27-Jan
NOW ServiceNow Inc $87.38 33.52 AMC 27-Jan
TXN Texas Instruments Incorporated $56.16 29.22 AMC 27-Jan
TSCO Tractor Supply Company $86.29 26.42 AMC 27-Jan
VRTX Vertex Pharmaceuticals Incorporated $126.40 47.05 AMC 27-Jan
APD Air Products & Chemicals, Inc. $132.26 22.86 BMO 28-Jan
ALXN Alexion Pharmaceuticals, Inc. $191.31 37.25 BMO 28-Jan
BABA Alibaba Group Holding Ltd $81.68 38.92 BMO 28-Jan
BLL Ball Corporation $73.33 32.50 BMO 28-Jan
BAX Baxter International Inc $38.05 22.84 BMO 28-Jan
BMY Bristol-Myers Squibb Co $69.52 22.50 BMO 28-Jan
CAT Caterpillar Inc. $68.69 30.16 BMO 28-Jan
CELG Celgene Corporation $120.68 31.75 BMO 28-Jan
CHKP Check Point Software Technologies $82.36 24.21 BMO 28-Jan
COP ConocoPhillips $46.60 38.95 BMO 28-Jan
LLY Eli Lilly and Co $86.20 25.77 BMO 28-Jan
BEN Franklin Resources, Inc. $37.03 29.49 BMO 28-Jan
HOG Harley-Davidson Inc $45.56 28.09 BMO 28-Jan
HP Helmerich & Payne, Inc. $52.76 45.61 BMO 28-Jan
HSY Hershey Co $90.60 23.15 BMO 28-Jan
IVZ Invesco Ltd. $33.38 24.40 BMO 28-Jan
MJN Mead Johnson Nutrition CO $79.33 28.44 BMO 28-Jan
NS NuStar Energy L.P. $37.55 43.30 BMO 28-Jan
OXY Occidental Petroleum Corporation $67.02 31.16 BMO 28-Jan
PSX Phillips 66 $82.01 30.23 BMO 28-Jan
RCL Royal Caribbean Cruises Ltd $102.73 30.43 BMO 28-Jan
SHW Sherwin-Williams Co $262.45 24.72 BMO 28-Jan
TWC Time Warner Cable Inc $185.77 24.00 BMO 28-Jan
ZBH Zimmer Biomet Holdings Inc $102.47 22.29 BMO 28-Jan
GOOGL Alphabet Inc $790.30 32.85 AMC 28-Jan
AMZN Amazon.com, Inc. $689.07 42.73 AMC 28-Jan
BRCM Broadcom Corporation $58.22 28.27 AMC 28-Jan
DECK Deckers Outdoor Corp $47.85 45.03 AMC 28-Jan
EMN Eastman Chemical Company $67.80 25.72 AMC 28-Jan
EA Electronic Arts Inc. $69.65 42.10 AMC 28-Jan
GOOG Google Inc. $771.00 32.45 AMC 28-Jan
HAR Harman International Industries $94.77 33.89 AMC 28-Jan
HA Hawaiian Holdings, Inc. $36.48 42.29 AMC 28-Jan
MSFT Microsoft Corporation $56.31 28.77 AMC 28-Jan
NFG National Fuel Gas Co. $42.26 29.04 AMC 28-Jan
PKI PerkinElmer, Inc. $53.93 23.22 AMC 28-Jan
QRVO Qorvo Inc $51.66 48.21 AMC 28-Jan
SYNA Synaptics, Incorporated $81.33 51.39 AMC 28-Jan
V Visa Inc $78.35 23.07 AMC 28-Jan

 

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

 

We sail within a vast sphere, ever drifting in uncertainty, driven from end to end.” – Blaise Pascal

 

Monday January 4:

 

Economic: PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction Spending – 10:00, TDAmeritrade IMX – 12:30, Gallup US Consumer Spending Measure – 2:00PM.

 

International Economic: Germany PMI Manufacturing Index – 3:55AM, EMU PMI Manufacturing Index – 4:00 AM.

 

Earnings: None meeting criteria.

 

 

 

 

Tuesday January 5:

 

Economic: Motor Vehicle Sales, Gallup US ECI, Redbook – 8:55.

 

International Economic: Germany Unemployment Rate – 3:50AM.

 

Earnings: None meeting criteria.

 

 

Wednesday January 6:

 

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 o 9:45, Factory Orders – 10:00, EIA Petroleum Status Report – 10:30.

 

International Economic: No major announcements.

 

Other: FOMC Minutes – 2:00.

 

 

Earnings:

Symbol Company Name Dec 31 Close IV30 B/A
MON Monsanto Company $98.89 23.70 BMO

 

 

Thursday January 7:

 

Economic: Chain Store Sales, Challenger Job-Cut Report – 7:30, Weekly Jobless Claims – 8:30, Gallup Good Jobs Rate – 8:30, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30.

 

International Economic: Germany Manufacturer’s Orders – 2:00, EMU Retail Sales – 5:00AM, EMU Unemployment Rate – 6:00.

 

Other:

 

Earnings:

Symbol Company Name Dec 31 Close IV30 B/A
STZ Constellation Brands, Inc. $144.17 26.03 BMO
WBA Walgreens Boots Alliance Inc $86.39 29.87 BMO
BBBY Bed Bath & Beyond Inc. $48.61 33.69 AMC

 

 

Friday January 8:

 

Economic: December Employment Situation – 8:30, Wholesale Trade – 10:00, Baker-Hughes Rig Count – 1:00.

 

International Economic: Germany Industrial Production – 2:00AM, Germany Merchandise Trade and Retail Sales – 2:00AM, France Industrial Production – 2:00AM, China CPI and PPI – 8:30PM.

 

Earnings: None meeting criteria.

 

Monday January 11:

 

Economic: Labor Market Conditions Index – 10:00.

 

International Economic: No major announcements.

 

Other: Atlanta Federal Reserve Bank President Dennis Lockhart speech in Atlanta -12:40PM.

 

Earnings: None meeting criteria.

 

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