The Prepared Mind: May 31, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“Sometimes a pessimist is only an optimist with extra information.” ― Idries Shah

“What we think, or what we know, or what we believe is, in the end, of little consequence. The only consequence is what we do.” John Ruskin

“The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at or repair.”  – Douglas Adams

The major indexes broke a four week losing streak.  All the major indexes were up over 2%.  This was the best weekly performance since March 4.  The S&P 500 is within 1.5% of the all-time high on May21 of last year.  Stronger than expected durable goods orders and home sales helped fuel the week’s rally.  Oil briefly traded over $50 a barrel.  Friday was trade had all the characteristics of a summer rally.    Summer rallies are characterized anemic trading volume.  Friday’s volume was the lowest since March.

An vintage market saying reminds us to “sell in May.”  Survey’s of investor sentiment show investor apathy.  Most of these surveys are showing neutral investor attitudes in excess of 50%.   Time will tell if current market concerns will help prove the adage correct.  These concerns include warnings of a renewed retreat in oil, tightening credit conditions, British exit from the EU, and, last but not least, the U.S. elections.  Stay nimble.

Here is an overview of the market behavior last week:

Index 27-May Weekly Change % Weekly  2015 YTD Volatility of  Index
Dow Jones Industrials (DJIA) 17,873.22 372.28 2.13% 2.57% 12.44% (VXD)
S&P 500 (SPX) 2,099.06 46.74 2.28% 2.70% 13.12% (VIX)
NASDAQ 100 (NDX) 4,508.43 148.30 3.40% -1.93% 14.55% (VXN)
Russell 2000 (RUT) 1,149.60 38.45 3.46% 1.38% 16.65% (RVX)
S&P 100 (OEX) 929.49 20.34 2.24% 1.98% 12.20% (VXO)
Crude Oil (CL N6) 49.56 1.08 2.23% 33.69% 35.97%(OVX)

Data Source: OptionVue7

The rally in the S&P 500 and other major indexes was reflected in lower levels for the VIX and related products. The CBOE Short-term Volatility Index (VXST) closed below 10 for the first time since July 2015.  The following table shows a sea of red for the long volatility products.  Most of them were down 10% or more.  The VIX at the 13.12 is just above the 2016 closing low of 13.10.  It will be interesting to watch the impact upon volatility indexes in light of the upcoming rate hikes and the BREXIT vote on June 23.

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

Indexes Ticker 27-May 20-May Change % Change
CBOE Volatility Index VIX 13.12 15.20 (2.08) -13.68%
VIX June  Future (6/15/2016) VXM6 15.375 17.325 (1.950) -11.26%
VIX July Future (7/20/2016) VXN6 17.625 18.950 (1.325) -6.99%
VIX August Future (8/17/2016) VXQ6 18.375 19.575 (1.200) -6.13%
CBOE Short-term Volatility Index VXST 9.77 12.73 (2.96) -23.25%
CBOE 3 Month Volatility Index VXV 16.31 18.05 (1.74) -9.64%
CBOE Mid-term Volatility Index (6 month) VXMT 18.72 20.32 (1.60) -7.87%
VIX of VIX VVIX 76.17 85.46 (9.29) -10.87%
CBOE SKEW Index SKEW 129.28 125.81 3.47 2.76%
Long VIX ETP’s
 iPath S&P 500  VIX Short Term Futures ETN VXX 13.59 15.10 (1.51) -10.00%
ProShares VIX Short Term Futures ETF VIXY 8.99 9.99 (1.00) -10.01%
 iPath S&P 500  VIX Mid-Tem Futures ETN VXZ 10.59 11.18 (0.59) -5.28%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 61.87 55.86 6.01 10.76%
Daily Inverse VIX Short Term ETN XIV 31.69 28.65 3.04 10.61%

Data Source: OptionVue7

It is a shortened US trading week.  It is “employment week”, normally a very busy week.  This week will be an even busier week with all the reports compressed into a 4 day trading week.   The week starts on Tuesday with the release of the Case-Shiller Home Price Index.  Home prices are reflecting a strengthening economy.  Other important reports are Construction Spending, ISM Manufacturing, and the Beige Book on Wednesday.  The bulk of the focus will be on employment reports leading up to the US Employment Situation Report on Friday.  A near term interest rate hike seems inevitable.  The coming week’s reports will determine whether the hike is announced after the June or July FMOC meeting.

Tese are the doldrums for earnings announcements. The earnings highlights this week for widely held and actively traded stocks are Medtronic, Semtech, Michael Kors Holdings, Ctrip, Ambarella, Analogic, Donaldson, Cooper Co, Ciena, Broadcom, and American Woodmark.   Announcement dates and times can and do change.  It is your responsibility to confirm these times.

The following table will assist you in preparing for the upcoming earnings announcement cycles.  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 35 days forward for candidates for double calendars. I generally put on earnings double calendars anywhere from one week to thirty days in advance of the announcement.   I usually take the calendars off at the last possible moments prior to the announcement.  I make the final decision exit prior to announcement or hold through the announcement on the last trading day prior to announcement.

I am continually reminded by the importance of liquidity in trading options.  A lack of liquidity in options is enough to make me walk away from a trade.  I have added option volume in to my earnings announcement tables.    I use the daily volume as an indicator of liquidity.  In addition, I have increase the minimum level of average daily option volume from 300 to 1,000 for these reports.

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.  This scan is available as a PDF.  Contact me a if you would like it sent to you or if you would like to be removed from the distribution list.

Symbol Company Name May 27 Close IV30 B/A DATE  OPT VOL
LULU Lululemon Athletica inc. $63.14 46.65 AMC 8-Jun 11,100
RHT Red Hat Inc $76.22 26.30 AMC 15-Jun 2,646
KR The Kroger Co $35.59 28.42 BMO 16-Jun 8,543
KMX CarMax, Inc $53.39 29.16 BMO 16-Jun 4,526
BBBY Bed Bath & Beyond Inc. $43.98 34.27 AMC 17-Jun 4,680
MON Monsanto Company $109.62 37.64 BMO 17-Jun 18,153

Data Source: OptionVue7

Monday May 30:

US Holiday – Memorial Day

All Markets Closed.

International Economic:   France GDP – 1:30Am, Germany CPI – 8:00AM, Japan Household Spending and Unemployment Rate – 7:30PM.

Earnings: None meeting criteria.

Tuesday May 31:

Economic:  Personal Income and Outlays – 8:30, S&P Case-Shiller HPI – 9:00, Chicago PMI – 9:45, Consumer Confidence – 10:00, Sate Street Investor Confidence Index – 10:00, Dallas Fed Manufacturing Survey – 10:30, Farm Prices – 3:00

International Economic:  Germany Retail Sales – 2:00AM, France CPI and PPI – 2:45AM, Germany Unemployment Rate – 3:55AM, EMU Unemployment Rate – 5:00AM, China PMI Manufacturing Index – 9:45PM.



Symbol Company Name May 27 Close IV30 B/A AVGVOL
QIHU Qihoo 360 Technology Co Ltd $74.34 25.00 AMC 11167
WDAY Workday Inc $78.00 51.64 AMC 3583
YY YY Inc (ADR) $42.94 46.80 AMC 3146

Wednesday June 1:

Economic:  Motor Vehicle Sales, MBA Mortgage Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, Redbook – 8:55, PMI Manufacturing Index – 10:00, ISM Manufacturing Index – 10:00, Construction Spending 10:00, Beige Book – 2:00.

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

Other:  Dallas Federal Reserve Bank President Robert Kaplan will speak in a moderated question and answer session in Houston – 1:00PM



Symbol Company Name May 27 Close IV30 B/A AVGVOL
KORS Michael Kors Holdings Ltd $41.82 55.96 BMO 7689
WUBA Inc (ADR) $53.21 44.58 BMO 1440
CTRP International, Ltd. (ADR) $44.68 48.67 AMC 10969

Thursday June 2

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, EIA Petroleum Status Report – 11:00. 

International Economic:   EMU PPI – 5:00AM, EMU European Central Bank Announcement – 7:45AM.

Other:  Federal Reserve Board Gov. Jerome Powell will give a keynote speech at SIFMA’s Prudential Regulation Conference in Washington D.C.



Symbol Company Name May 27 Close IV30 B/A AVGVOL
AMBA Ambarella Inc $40.92 55.11 AMC 6026
AVGO Broadcom Ltd $153.02 38.58 AMC 7555
FIVE Five Below Inc $39.98 50.96 AMC 1774



Friday June 3:

Economic:  Employment Situation – 8:30, International Trade – 8:30, PMI Services Index – 9:45, Factory Orders – 10:00, ISM Non-Manufacturing Index – 10:00, Baker Hughes Rig Count – 1:00.

International Economic:  Germany PMI Composite – 3:55AM, EMU PMI Composite – 4:00AM, AMU Retail Sales – 5:00AM.

Other:  Chicago Federal Reserve Bank President Charles Evans will discuss the economy followed by media availability in London – 3:45AM.

Earnings: None meeting criteria.

Monday June 6:

Economic:  Gallup US Consumer Spending Measure – 8:20, Labor Market Conditions Index – 10:00.

International Economic:   Germany Manufacturers’ Orders – 2:00AM.

Other:  Federal Reserve Chair Janet Yellen speech to the World Affairs Council of Philadelphia – 12:30PM.

Earnings: None meeting criteria.

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