The Prepared Mind: February 16, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“I’ve found that when the market’s going down and you buy funds wisely, at some point in the future you will be happy. You won’t get there by reading ‘Now is the time to buy.’” – Peter Lynch

“When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale.  When I am buying, the reverse is true. I must buy on a rising scale.  I don’t buy long stocks on a scale down, I buy on a scale up.” – Jesse Livermore

It was a brutal week. The 2% rally on Friday is the only thing keeping it from being a total washout. There specter of negative interest rates pushed the market down to support levels. Worries of a global recession pushed the market down early in the week. Thursday afternoon, an energy minister from the United Arab Emirates said OPEC was ready to cooperate on production cuts. The US market immediately rallied. China markets open Sunday night after being closed a week for the Lunar New Year.

Daily trading range of the SPX for the past 10 days has averaged 34 points. The 24 hour trading range of the E-Mini (the future on the SPX) has been 43 points. The ranges are smaller than the previous week’s trading range. The narrowing of last week’s trading range was probably the impact of the lessening in volatility due to the holiday for the Chinese equity markets.  I expect volatility to remain a hallmark of this market. I will continue trading smaller size and fewer products. Be careful. Attention to detail is one of your greatest allies. Be nimble.

Here is an overview of the market behavior last week:

Index 12-Feb Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 15973.84 (230.99) -1.43% -8.33% 24.58% (VXD)
S&P 500 (SPX) 1864.78 (15.24) -0.81% -8.77%      25.40% (VIX)
NASDAQ 100 (NDX) 4007.88 (13.71) -0.34% -12.82% 29.74% (VXN)
Russell 2000 (RUT) 970.04 (17.00) -1.72% -14.45% 30.35% (RVX)
S&P 100 (OEX) 835.89 (3.86) -0.46% -8.29% 26.99% (VXO)

Data Source: OptionVue7

 

The VIX echoed last week’s market trading range and move down by moving up. The VXST, the CBOE Short-term Volatility Index, was the only “long” VIX product which was down for the week. This is standard behavior for the VXST price prior to a three day weekend. The front month VIX future continues to close higher than the second month future. This backwardization has occurred every trading day in 2016. Per Russell Rhoads of the CBOE, this is the fourth longest backwardization streak since 2007.

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

Indexes Ticker 12-Feb 5-Feb Change % Change
CBOE Volatility Index VIX 25.40 23.38 2.02 8.64%
VIX February Future (2/17/2016) VXG6 26.875 24.125 2.750 11.40%
VIX March Future (3/16/2016) VXH6 25.125 23.050 2.075 9.00%
VIX April Future (4/20/2016) VXJ6 24.850 22.825 2.025 8.87%
CBOE Short-term Volatility Index VXST 22.71 22.96 (0.25) -1.09%
CBOE 3 Month Volatility Index VXV 26.23 24.48 1.75 7.15%
CBOE Mid-term Volatility Index (6 month) VXMT 25.96 25.03 0.93 3.72%
VIX of VIX VVIX 103.25 100.55 2.70 2.69%
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures ETN VXX 28.56 26.36 2.20 8.35%
ProShares VIX Short Term Futures ETF VIXY 18.94 17.48 1.46 8.35%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 13.63 12.83 0.80 6.24%
Inverse VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 16.68 18.16 (1.48) -8.15%
ProShares Short VIX Short Term Future ETF SVXY 32.58 35.47 (2.89) -8.15%

Data Source: OptionVue7

 The week of February of 15 starts with a market holiday – Presidents’ Day. Wednesday’s release of the minutes of the Federal Reserve’s January meeting has the greatest potential to move world markets.   It will be a relatively quite week for domestic and international reports. The major reports are US housing starts, US Industrial Production, Chinese and US consumer prices.

The earnings season is starting to wind down. This is a big earnings week for the retail sector/ The earnings highlights for widely held and actively traded stocks are: Devon Energy, FMC, Genuine Parts, Express Scripts, Agilent Technologies, Public Storage, Dr Pepper Snapple, Priceline.com, NetApp, Host Hotels, Newmont Mining, Marriott, Int’l, CF Industries, Marathon Oil, Waste Management, Wal-Mart, Nordstrom, Perrigo,, and Deere& Co.

OptionVue7 has the ability to identify stocks 30 days out with a new enhanced Earnings Search feature. I have done a quick search 14 to 28 days forward for candidates for double calendars. Here are the results of my initial scan for double calendar candidates. You should further filter any of the stocks with your own risk/reward criteria.

Symbol Company Name Feb 12 Close IV30 B/A DATE
BRK.B Berkshire Hathaway Inc. class B $125.09 25.26 AMC 27-Feb
ENDP Endo International PLC $48.49 73.01 BMO 29-Feb
ICPT Intercept Pharmaceuticals Inc $94.29 84.94 AMC 29-Feb
WDAY Workday Inc $50.33 74.80 AMC 29-Feb
AZO AutoZone, Inc. $712.75 30.58 BMO 1-Mar
BNS Bank of Nova Scotia $37.36 40.67 BMO 1-Mar
DKS Dicks Sporting Goods Inc $36.57 49.30 BMO 1-Mar
MDT Medtronic PLC $72.62 27.68 BMO 1-Mar
ROST Ross Stores, Inc. $52.56 41.40 BMO 1-Mar
COST Costco Wholesale Corporation $146.65 25.87 BMO 2-Mar
KR The Kroger Co $36.43 34.54 BMO 2-Mar
AMBA Ambarella Inc $36.30 88.09 AMC 3-Mar
AVGO Broadcom Ltd $116.31 56.63 AMC 3-Mar
YY YY Inc (ADR) $47.52 74.39 AMC 3-Mar
WUBA 58.com Inc (ADR) $43.96 70.61 BMO 8-Mar
ANAC Anacor Pharmaceuticals Inc $68.57 85.49 BMO 10-Mar
DG Dollar General Corp. $68.75 34.09 BMO 10-Mar
SINA SINA Corp $40.27 59.95 AMC 10-Mar
ULTA Ulta Salon, Cosmetics & Fragrance $153.31 54.77 AMC 10-Mar

 

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

Monday February 15:

 

US Holiday – Presidents Day

Markets Closed

 

International Economic: EMU Merchandise Trade – 5:00AM.

 

Earnings: None meeting criteria.

 

Tuesday February 16:

 

 

Economic: Empire State Manufacturing Survey – 8:30, Housing Market Index – 10:00.

 

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

 

Other: Philadelphia Federal Reserve Bank President Patrick Harker speech to economic forecast conference, in Newark, Delaware – 9:00AM, Minneapolis Federal Reserve Bank President Neel Kashkari speech on lessons from the financial crisis, in Washington – 10:30AM, Boston Federal Reserve Bank President Eric Rosengren speech on the economic outlook, in Waterville, Maine – 7:30PM.

 

Earnings:

 

Wednesday February 17:

 

Economic: MBA Mortgage Applications – 7:00, Housing Starts – 8:30, PPI-FD – 8:30,Recbook – 8:55, Industrial Production – 9:15, Atlanta Fed Business Inflation Expectations – 10:00, E-Commerce Retail Sales – 10:00.

 

International Economic: China CPI and PPI – 8:30PM.

 

Other: FOMC Minutes – 2:00PM. St Louis Federal Reserve Bank President James Bullard outlook speech in St. Louis – 5:00PM.

 

Earnings:  

 

 

Thursday February 18:

 

Economic: Weekly Jobless Claims – 8:30, Philadelphia Fed Business Outlook Survey – 8:30, Bloomberg Consumer Comfort Index – 9:45, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30, EIA Petroleum Status Report – 11:00.

 

International Economic: European Central Bank Minutes (ECB) – 7:30AM.

 

 

Other: San Francisco Federal Reserve Bank President John Williams speech on the outlook, in Los Angeles – 3:30PM.

 

Earnings:

 

Friday February 19:

 

Economic: Consumer Pric3e Index – 8:30, Baker-Hughes Rig Count – 1:00.

 

International Economic: Germany PPI – 2:00.

 

Other: Cleveland Federal Reserve Bank President Loretta Mester speech on the economic outlook, in Sarasota, Florida – 8:00AM.

 

Earnings:

 

Monday February 22:

 

Economic: Chicago Fed National Activity Index – 8:30, PMI Manufacturing Index Flash – 9:45.

 

International Economic: EMU PMI Composite Flash – 4:00AM.

 

Other:

 

Earnings:

 

 

 

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