The Prepared Mind: March 21, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“To think creatively, we must be able to look afresh at what we normally take for granted” – George Keller

“Extraordinary claims require extraordinary evidence.”  –  Carl Sagan

“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate;  the federal funds rate is likely to remain for some time, below levels that are expected to prevail in the longer run.”  – FOMC March 16, 2016

“Extraordinary claims require extraordinary evidence.”  –  Carl Sagan

The major indexes rose for the fourth straight week. Crude oil, also, was up for the sixth consecutive week.   Higher crude oil prices and dovish policy from the Fed propelled equity indexes up 1%.  The 5 week rally has pushed the Dow Jones Industrial and the S&P 500 into the black for 2016.   The rally has heightened the levels of skepticism among market analysts.  Headlines this weekend included many questioning the likelihood of a continued rally.  The Fed fueled further skepticism with Janet Yellen’s answer to a question about the monthly changes in Fed policy.  Dent Research summed it up with “She made it clear the Fed makes no plans, no promises, and has no preset action from meeting to meeting.”  I do not think I agree with the conclusion.  However, I do like the turn of the phrase.

Here is an overview of the market behavior last week:

Index 18-Mar Weekly Change % Weekly  2015 YTD Volatility of  Index
Dow Jones Industrials (DJIA) 17602.30 388.99 2.26% 1.02% 13.25% (VXD)
S&P 500 (SPX) 2049.56 27.37 1.35% 0.27% 14.02% (VIX)
NASDAQ 100 (NDX) 4400.45 47.84 1.10% -4.28% 17.20% (VXN)
Russell 2000 (RUT) 1098.33 11.53 1.06% -3.14% 18.14% (RVX)
S&P 100 (OEX) 907.88 11.33 1.26% -0.39% 14.66% (VXO)
CBOE Volatility Index (VIX) 14.02 (2.48) -15.03% NA  

Here is the Prepared Mind video hosted by Steve Lentz

 

Data Source: OptionVue7

The difference between the spot VIX and the April is 3.70.  A number of pundits have pointed to this higher than usual spread as an indication of VIX traders skepticism about the strength of the current rally into SPX.  Russell Rhoads of the CBOE, has proposed an alternative explanation which makes a lot of sense.  Generally there are 4 weeks in between the expiration dates for the monthly VIX futures.  There are five weeks between the expiration of the March future (expired on March 16) and the expiration of the April future which expires on April 20.  It will be easier to analyze the premium next week when there are 4 weeks until expiration.

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

Indexes Ticker 18-Mar 11-Mar Change % Change
CBOE Volatility Index VIX 14.02 16.50 (2.48) -15.03%
VIX April Future (4/20/2016) VXH6 17.725 19.100 (1.375) -7.20%
VIX May  Future (5/18/2016) VXJ6 18.875 19.750 (0.875) -4.43%
VIX June  Future (6/15/2016) VXM6 19.575 20.275 (0.700) -3.45%
CBOE Short-term Volatility Index VXST 12.47 15.20 (2.73) -17.96%
CBOE 3 Month Volatility Index VXV 17.93 19.47 (1.54) -7.91%
CBOE Mid-term Volatility Index (6 month) VXMT 19.78 21.30 (1.52) -7.14%
VIX of VIX VVIX 86.20 92.35 (6.15) -6.66%
Long VIX ETP’s          
 iPath S&P 500  VIX Short Term Futures ETN VXX 19.35 20.90 (1.55) -7.42%
ProShares VIX Short Term Futures ETF VIXY 12.80 13.85 (1.05) -7.58%
 iPath S&P 500  VIX Mid-Tem Futures ETN VXZ 11.33 11.67 (0.34) -2.91%
Inverse VIX ETP’s          
Daily Inverse VIX Short Term ETN XIV 23.71 22.09 1.62 7.33%

Data Source: OptionVue7

 It will be a shortened trading week.  Markets will close on Friday in observation of Good Friday.  The week will be very light on domestic and international economic news.  The major housing reports for the week are existing home sales on Monday and new home sales on Wednesday.  The manufacturing sector will see reports from the Richmond Fed and the Manufacturing PMI. The highlight of the week is Thursday’s release of US Durable Goods.  Expectations are for a weakening in the month-to-month number.  This would run counter to last week’s strong industrial production numbers. Germany will report manufacturing numbers this week, while Great Britain will release CPI and PPI on Tuesday.

We are experiencing the earnings doldrums – the time between earnings announcement cycles.  . The earnings highlights this week for widely held and actively traded stocks are: Carnival Cruise Lines, Nike, Worthington Industries, Cintas, Red Hat, General Mills, Fred’s, Oxford Industries, KB Home, GameStop and Winnebago.   Announcements date and time can and do change.  It is your responsibility to confirm these times.

OptionVue7 has the ability to identify stocks 30 days out with a new enhanced Earnings Search feature.  I have done a quick search 7 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 Mar 11 Close IV30 B/A DATE
SNP China Petroleum & Chemical Corp $63.54 34.85 DMT 28-Mar
CALM Cal-Maine Foods Inc $52.28 45.35 BMO 28-Mar
LEN Lennar Corporation $47.23 28.10 BMO 29-Mar
LULU Lululemon Athletica inc. $62.80 44.13 AMC 30-Mar
WBA Walgreens Boots Alliance Inc $83.30 25.53 BMO 5-Apr
DRI Darden Restaurants, Inc. $67.58 27.61 AMC 5-Apr
AYI Acuity Brands, Inc. $224.62 39.26 BMO 6-Apr
MON Monsanto Company $92.92 28.95 BMO 6-Apr
STZ Constellation Brands, Inc. $146.84 25.27 BMO 6-Apr
BBBY Bed Bath & Beyond Inc. $49.33 34.80 AMC 6-Apr
CAG ConAgra Foods Inc $43.67 25.30 BMO 7-Apr
KMX CarMax, Inc $49.31 49.25 BMO 7-Apr
FAST Fastenal Company $48.94 31.38 BMO 12-Apr
DAL Delta Air Lines, Inc. $48.62 31.78 BMO 13-Apr
NOW ServiceNow Inc $60.80 44.22 AMC 13-Apr
CE Celanese Corporation $66.61 26.63 BMO 14-Apr
C Citigroup Inc $42.85 28.72 BMO 15-Apr

Data Source: OptionVue7

Advice to stimulate your imagination:

“Chance favors the Prepared Mind.” – Louis Pasteur

Monday March 21:

Economic:  Chicago Fed National Activity Index – 8:30, Existing Home Sales – 10:00.

International Economic:  Great Britain CBI Industrial Trends Survey – 7:00, EMU Consumer Confidence Flash – 11:00AM.

 Other:  Atlanta Federal Reserve Bank President Dennis Lockhart speech in Savanna, Georgia – 12:30PM, St Louis Federal Reserve Bank President James Bullard outlook speech in St. Louis – 8:30PM.

Earnings:

Symbol Company Name Mar 18 Close IV30 B/A
MFRM Mattress Firm Holding Corp $41.73 76.11 AMC
YY YY Inc (ADR) $57.46 34.94 AMC

  Tuesday March 22

Economic: Redbook – 8:55, FHFA House Price Index – 9:00, PMI Manufacturing Index Flash – 9:45, Richmond Fed Manufacturing Index – 10:00.

International Economic: China Merchandise Trade Balance – 3:00AM, Germany ZEW Survey – 5:00AM, Great Britain PPI and CPI – 5:30AM.

 

Other:  Chicago Federal Reserve Bank President Charles Evans speech, in Chicago – 12:30PM, Philadelphia Federal Reserve Bank President Patrick Harker speech, in New York – 6:30PM.

Earnings:

Symbol Company Name Mar 18 Close IV30 B/A
ALR Alere Inc $49.82 24.77 BMO
FIVE Five Below Inc $39.71 51.86 AMC
GIII G-III Apparel Group, Ltd. $53.73 53.83 AMC
HQY Healthequity Inc $22.51 61.74 AMC
IHS IHS Inc. $110.30 29.32 AMC
NKE Nike Inc $63.18 29.66 AMC
RHT Red Hat Inc $72.74 38.30 AMC

 Wednesday March 23:

Economic:  MBA Mortgage Applications – 7:00, New Home Sales – 10:00, EIA Petroleum Status Report – 10:30.

 International Economic:  No major announcements.

 Other: 

 Earnings:

Symbol Company Name Mar 18 Close IV30 B/A
PTR PetroChina Company Limited (ADR) $70.62 35.54 BMO
CXRX Concordia Healthcare Corp. $29.21 94.77 AMC
VRNT Verint Systems Inc. $34.85 43.23 AMC
WOR Worthington Industries, Inc. $35.99 44.33 AMC

Thursday March 24:

Economic: Durable Goods Orders – 8:30, Weekly Jobless Claims – 8:30, PMI Services Flash – 9:45, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30, Kansas City Fed Manufacturing Index – 11:00.                                                                                                

International Economic:  Great Britain Retail Sales – 5:30AM, Japan CPI =- &:30PM.

 Other:   St. Louis Federal Reserve Bank President James Bullard speech, in New York.

 Earnings:

Symbol Company Name Mar 18 Close IV30 B/A
SIG Signet Jewelers Ltd. $116.05 46.09 DMT
ACN Accenture Plc $108.56 27.35 BMO
GME GameStop Corp. $31.36 50.29 BMO
PVH PVH Corp $89.21 35.10 AMC

 

 Friday March 25:

 Good Friday – Markets closed , Banks Open

Economic:  GDP – 8:30, Corporate Profits – 8:30,   Baker Hughes Rig Count – 1:00.

 International Economic: France GDP – 3:45AM.

 Other: 

 Earnings:

Symbol Company Name Mar 18 Close IV30 B/A
RH Restoration Hardware Holdings Inc $36.65 62.60 AMC

Monday March 28:

Economic:  International Trade in Goods – 8:30, Personal Income and Outlays – 6:30, Dallas Fed Manufacturing Survey – 10:30.

 

International Economic:  Jape Unemployment – 7:30PM, Japan House hold Spending – 7:30PM.

 

Earnings:

Symbol Company Name Mar 18 Close IV30 B/A
SNP China Petroleum & Chemical Corp $63.54 34.85 DMT
CCL Carnival Corp $48.97 31.22 BMO

 

 

 

 

 

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