The Prepared Mind: February 29, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“Economics is extremely useful as a form of employment for economists”
– John Kenneth Galbraith

“I will undoubtedly have to seek what is happily known as gainful employment, which I am glad to say does not describe holding public office.” – Dean Acheson

The rally continued last week managing to close above the benchmark 1950 level. The initial bum came from better than expected consumer sentiment. This was reflected in retail sales. There was weakness in the manufacturing sectors. This gave rise to the debate on whether or not the FOMC will raise again raise rates at the March FOMC meetings. A strong February employment report on Friday would increase the likelihood of a March rate increase.

The 1950 is a very important number to the SPX. Market technicians had been predicting another bullish push upward if the SPX could complete a W bottoming formation by closing above 1950.. On Thursday, the SPX completed the formation by closing above 1950. Market technicians are now calling for a bullish outlook in the short-term. Techinical signals – equity only put/call rations and market breadth, are showing buy signals. The VIX needs to go below the 19 level to complete the bullish signals.

Here is an overview of the market behavior last week:

Index 26-Feb Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 16639.97 247.98 1.51% -4.51% 19.09% (VXD)
S&P 500 (SPX) 1948.05 30.27 1.58% -4.69% 19.81% (VIX)
NASDAQ 100 (NDX) 4227.45 219.57 5.48% -8.04% 23.08% (VXN)
Russell 2000 (RUT) 1035.28 27.30 2.71% -8.70% 23.70% (RVX)
S&P 100 (OEX) 866.94 9.69 1.13% -4.88% 21.42% (VXO)
CBOE Volatility Index (VIX) 19.81 (0.72) -3.51% NA  

Data Source: OptionVue7

The VIX reflected the move upwards in the S&P 500 by hitting new 2016 lows on Thursday. Backwardation in the futures ended the week before last. The VIX futures curve has returned to “normal.” The VIX curve is made by connecting prices of VIX futures contracts but different expiration dates. It is displayed on a chart where the X axis represents expiration date of a futures contract and the Y axis represents prices. VIX futures curve is made of prices of individual VIX futures contracts. The first point (the left end of each curve) on the chart on this page is the spot VIX Index value; the others are futures prices. The far right of the curve is very flat (i.e. the futures prices for different expiration months show very little difference in price.) History has shown this type of flatness in futures curves indicates uncertainty.

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

Indexes Ticker 26-Feb 19-Feb Change % Change
CBOE Volatility Index VIX 19.81 20.53 (0.72) -3.51%
VIX March Future (3/16/2016) VXH6 21.475 22.375 (0.900) -4.02%
VIX April Future (4/20/2016) VXJ6 21.825 22.750 (0.925) -4.07%
VIX May Future (5/18/2016) VXK6 22.075 22.825 (0.750) -3.29%
CBOE Short-term Volatility Index VXST 18.56 18.22 0.34 1.87%
CBOE 3 Month Volatility Index VXV 21.86 22.80 (0.94) -4.12%
CBOE Mid-term Volatility Index (6 month) VXMT 23.11 24.11 (1.00) -4.15%
VIX of VIX VVIX 83.26 86.25 (3.00) -3.47%
Long VIX ETP’s      
iPath S&P 500 VIX Short Term Futures ETN VXX 24.50 25.42 (0.92) -3.62%
ProShares VIX Short Term Futures ETF VIXY 16.24 16.84 (0.60) -3.56%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 12.69 12.94 (0.25) -1.93%
Inverse VIX ETP’s      
Daily Inverse VIX Short Term ETN XIV 19.21 18.65 0.56 3.00%
ProShares Short VIX Short Term Future ETF SVXY 36.43 36.14 0.29 0.79%

Data Source: OptionVue7

The entire week is a lead-up to the US Employment Situation at the end of the week. Wednesday and Thursday will see the release of multiple reports based on domestic employment. Any of the earlier reports will show garner an immediate response from the trade in the E-mini’s – futures on the S&P 500. Other news which may elicit a market response are reports on manufacturing in China and US Factory Orders.
The earnings season is tapering off. The earnings highlights for widely held and actively traded stocks are: 2D Systems, Atmel, Magellan Health, Crocs, Ross Stores, Dollar Tree, Kate Spade, Autozone, Medtronic, Abercrombie&Fitch, American Eagle, Costco, Thor Industries, Kroger, Broadcom, Ciena, H&R Block, Staple, Piedmont Natural Gas, and Big Lots, Announcements date and time can and do change. It is your responsibility to confirm these times.
Advice to stimulate your imagination:

“Chance favors the Prepared Mind.” – Louis Pasteur

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

“Infrastructure investment can boost economic growth and employment,
and, in fact, it is fiscally neutral.” – Lou Jiwei
Monday February 29:

Economic: Chicago PMI – 8:30, Pending Home Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30.

International Economic: Germany Retail Sales – 2:00AM, Japan Unemployment Rate and Household Spending – 6:30PM.

Other: Fed Vice Chairman Stanley Fischer speaks before the National Association for Business Economics meeting.

Earnings:

Symbol Company Name Feb 26 Close IV30 B/A
BSFT BroadSoft Inc $31.33 71.94 BMO
EBIX Ebix Inc $33.87 51.32 BMO
ENDP Endo International PLC $52.67 56.98 BMO
ZLTQ Zeltiq Aesthetics Inc $23.05 72.88 BMO
AMC AMC Entertainment Holdings Inc $22.47 43.73 AMC
IEP Icahn Enterprises LP $51.85 50.42 AMC
JUNO Juno Therapeutics Inc $33.91 74.76 AMC
NVRO Nevro Corp $58.96 73.54 AMC
WDAY Workday Inc $59.38 59.98 AMC

Tuesday March 1:

 

 

Economic: Motor Vehicle Sales, Redbook – 8:55, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction Spending, Gallup US ECI – 2:00.

 

International Economic: Germany Unemployment Rate – 3:55AM, EMU Unemployment Rate – 5:00.

 

Other:

 

Earnings:

Symbol Company Name Feb 26 Close IV30 B/A
AZO AutoZone, Inc. $785.15 27.31 BMO
BNS Bank of Nova Scotia $39.55 34.57 BMO
DLTR Dollar Tree, Inc. $82.30 40.20 BMO
JD JD.Com Inc(ADR) $24.93 61.28 BMO
JKS JinkoSolar Holding Co., Ltd. $22.84 79.67 BMO
MDT Medtronic PLC $77.66 23.34 BMO
ROST Ross Stores, Inc. $56.54 39.20 BMO
CNL Cleco Corporation $46.81 30.47 AMC
MIDD Middleby Corp $90.82 41.59 AMC

 

 

 

Wednesday March 2:

 

Economic: MBA Mortgage Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, EIA Petroleum Status Report – 10:30, Beige Book – 2:00.

 

International Economic: EMU PPI – 5:00AM.

 

Other: San Francisco Federal Reserve Bank President John Williams speech on the outlook, in Los Angeles – 10:00.

 

Earnings:

Symbol Company Name Feb 26 Close IV30 B/A
AFAM Almost Family Inc $38.95 44.33 BMO
ANF Abercrombie & Fitch Co. $28.20 69.68 BMO
COST Costco Wholesale Corporation $154.72 23.27 BMO
AMBA Ambarella Inc $43.58 75.10 AMC
SINA SINA Corp $42.75 50.50 AMC

 

 

 

Thursday March 3:

 

Economic: Chain Store Sales, Challenger Job-Cut Report – 7:30, Weekly Jobless Claims – 8:30, Productivity and Costs – 8:30, Gallup Good Jobs Rate – 8:30, PMI Services Index – 9:45, Bloomberg Consumer Comfort Index – 9:45, Factory Orders – 10:00, ISM Non-Manufacturing Index – 10:00, EIA Natural Gas Report – 10:30.

                                                                                                                                                                     

International Economic: EMU Retail Sales – 5:00AM.

 

Earnings:

Symbol Company Name Feb 26 Close IV30 B/A
CIEN Ciena Corporation $20.71 54.49 BMO
KR The Kroger Co $39.46 32.04 BMO
AVGO Broadcom Ltd $132.47 48.30 AMC
COO Cooper Companies Inc $144.96 37.28 AMC
SWHC Smith & Wesson Holding Corp $24.79 55.68 AMC
YY YY Inc (ADR) $52.37 54.69 AMC

 

 

Friday March 4:

 

Economic: Employment Situation – 8:30, International Trade – 8:30, Baker Hughes Rig Count – 1:00.

 

International Economic: No major Announcements.

 

Earnings:

Symbol Company Name Feb 26 Close IV30 B/A
BIG Big Lots, Inc. $39.84 50.08 BMO

 

 

Monday March 7:

 

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

 

International Economic: China Merchandise Trade Balance, Germany Manufacturers’ Orders – 2:00AM.

 

Other: Federal Reserve Vice Chair Stanley Fischer speech to NABE, in Washington – 2:30PM.

 

Earnings:

Symbol Company Name Feb 26 Close IV30 B/A
BIG Big Lots, Inc. $39.84 50.08 BMO

 

 

 

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