The Prepared Mind: June 6, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“Impossible is just a word thrown around by small men who find it easier to live in the world they’ve been given than to explore the power they have to change it. Impossible is not a fact. It’s an opinion. Impossible is potential. Impossible is temporary. Impossible is nothing.” – Muhammad Ali

“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 turned in a mixed performance for the week.  The S&P 500 showed gains for the third straight month since the 12-month low in February.  The May jobs report showed job creation fell to its lowest level in six years.  The report was described by many as bad news which is good news for the market.  The weak jobs report lead many to discount the probability of the Fed to increase interest rates at the FOMC meeting on June 14 and 15.  This is the longest period in 40 years between a first rate hike and the second rate hike.  The last time the Fed had only a single rate hike was in 1997.

Traders will be positioning themselves for the FOMC meeting and announcement concerning interest rates. A referendum is being held on Thursday, June 23 to decide whether Britain should leave or remain in the European Union.  Concern about this referendum will be reflected in US and International markets.  Volatility levels will be held up in anticipation of the Fed interest rate announcement and Brexit.

Here is an overview of the market behavior last week:

Index 3-Jun Weekly Change % Weekly  2015 YTD Volatility of  Index
Dow Jones Industrials (DJIA) 17,807.06 (66.16) -0.37% 2.19% 12.66% (VXD)
S&P 500 (SPX) 2,099.13 0.07 0.00% 2.70% 13.47% (VIX)
NASDAQ 100 (NDX) 4,507.97 (0.46) -0.01% -1.94% 15.03% (VXN)
Russell 2000 (RUT) 1,161.53 11.93 1.04% 2.44% 17.42% (RVX)
S&P 100 (OEX) 927.46 (2.03) -0.22% 1.76% 12.59% (VXO)

Data Source: OptionVue7

Both the S&P 500 and the VIX were slightly higher last week.  The monthly VIX futures, June through January, were lower. Per the CBOE’s Russell Rhoads, the VIX trade of the week was the purchase on Friday of 2,500 VIX June 15th 16 puts at 1.40.  These puts make money if the settlement price of the June contract is below 14.60.  The cash VIX finished the week at 13.47, the June future finished the week at 14.725, and the 16 put finished the week at 1.55.

An interesting video is available from CBOE TV at http://bit.ly/1t6qbsb.  It is titled “Volatility 411: Jamie Tyrrell, Group One Trading.”  Group One is the Designated Primary Market-maker for VIX options at the CBOE.  The DPM is a market-maker who is obligated to make continuous bid and ask prices in all option series in his appointed option classes. In return, the DPM is guaranteed certain rights to participate in each trade, either electronic or in open-outcry.  Volatility 411 is a daily video from CBOE TV.  Anybody trading the VIX futures or options should get in the habit of religiously watching these videos.

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

Indexes Ticker 3-Jun 27-May Change % Change
CBOE Volatility Index VIX 13.47 13.12 0.35 2.67%
VIX June  Future (6/15/2016) VXM6 14.725 15.375 (0.650) -4.23%
VIX July Future (7/20/2016) VXN6 17.125 17.625 (0.500) -2.84%
VIX August Future (8/17/2016) VXQ6 18.075 18.375 (0.300) -1.63%
CBOE Short-term Volatility Index VXST 10.11 9.77 0.34 3.48%
CBOE 3 Month Volatility Index VXV 16.49 16.31 0.18 1.10%
CBOE Mid-term Volatility Index (6 month) VXMT 19.01 18.72 0.29 1.55%
VIX of VIX VVIX 79.08 76.17 2.91 3.82%
CBOE SKEW Index SKEW 125.04 129.28 (4.24) -3.28%
Long VIX ETP’s          
 iPath S&P 500  VIX Short Term Futures ETN VXX 13.02 13.59 (0.57) -4.19%
ProShares VIX Short Term Futures ETF VIXY 8.61 8.99 (0.38) -4.23%
 iPath S&P 500  VIX Mid-Tem Futures ETN VXZ 10.44 10.59 (0.15) -1.42%
Inverse VIX ETP’s          
ProShares Short VIX Short Term Future ETF SVXY 64.38 61.87 2.51 4.06%
Daily Inverse VIX Short Term ETN XIV 33.00 31.69 1.31 4.13%

Data Source: OptionVue7

The high point of the coming week will be on Monday at 12:30PM.   Janet Yellen will speak on the economy and monetary issues at the World Affairs Council of Philadelphia.   This speech will be Yellen’s first opportunity to address the weak May employment situation report.  The Tuesday release of the estimate of 1st Quarter Productivity and Costs will have the ability to move the market.  Yellen previously described productivity as being “miserable.”  A combination of low investment combined with increased labor costs would raise warning flags for the economy.  It will be a quiet week for international economic reports.

This is the quietest week for earnings’ reports.  The earnings highlights this week for widely held and actively traded stocks are Thor Industries, Casey’s Gen’l Stores, Seneca Foods, Verifone, Oxford Industries, Brown-Forman, H&R Block, Korn/Ferry, and J.M. Smucker.   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.

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 fjfahey@gmail.com if you would like it sent to you or if you would like to be removed from the distribution list.

Symbol Company Name June 3Close IV30 B/A DATE  OPT VOL
KR The Kroger Co $36.44 28.53 BMO 16-Jun 7122
ORCL Oracle Corporation $38.66 26.66 AMC 16-Jun 24460
KMX CarMax, Inc $52.09 33.66 BMO 21-Jun 4104
BBBY Bed Bath & Beyond Inc. $44.94 34.28 AMC 22-Jun 4820
RHT Red Hat Inc $78.23 26.08 AMC 22-Jun 2707
CCL Carnival Corp $48.33 26.37 BMO 23-Jun 2988
NKE Nike Inc $54.53 30.04 AMC 23-Jun 34444
MON Monsanto Company $110.36 36.32 BMO 29-Jun 19654

Data Source: OptionVue7

Monday June 6:

Economic:  Gallup US Consumer Spending Measure – 8:20, Labor Market Conditions Index – 10:00. TD Ameritrade IMX – 12:3o..

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

Other:  Boston Federal Reserve Bank President Eric Rosengren on panel discussing QE in Europe and the US, in Helsinki – 2:15 AM, Federal Reserve Chair Janet Yellen speech to the World Affairs Council of Philadelphia – 12:30PM, Federal Reserve Chair Janet Yellen participates in roundtable discussion at the West Philadelphia Skills Initiative – 2:00PM.

Earnings: None meeting criteria.

Tuesday June 7:

Economic:  Productivity and Costs – 8:30, Gallup US ECI – 8:30, Consumer Credit – 3:00.

International Economic:  China Merchandise Trade Balance, Germany Industrial Production – 2:00, WMU GDP – 5:00AM.

Earnings:

Symbol Company Name June 3 Close IV30 B/A AVGVOL
PAY VeriFone Systems Inc $27.01 38.03 AMC 1226

 

Wednesday June 8:

Economic:  MBA Mortgage Applications – 7:00, JOLTS – 10:00, Quarterly Services Survey – 10:00, EIA Petroleum Status Report – 10:30.  

International Economic:  Great Britain Industrial Production – 4:30am, Japan Machine Orders – 7:50PM, China CPI and PPI – 9:30PM.

Earnings:

Symbol Company Name June 3 Close IV30 B/A AVGVOL
CTRP Ctrip.com International, Ltd. (ADR) $44.68 48.78 AMC 11099
LULU Lululemon Athletica inc. $67.13 49.54 AMC 10838
RH Restoration Hardware Holdings Inc $34.56 60.32 AMC 3427

 

Thursday June 9:

Economic:  Weekly Jobless Claims – 8:30,  Bloomberg Consumer Comfort Index – 9:45, Wholesale Trade – 10:00, EIA Natural Gas Report – 10:30, EIA Petroleum Status Report – 11:00.        

International Economic:   Germany Merchandise Trade – 2:00Am. Japan PPI – 7:50PM.

Earnings:

Symbol Company Name June 3 Close IV30 B/A AVGVOL
HRB H & R Block Inc $21.72 44.55 AMC 2775

 

Friday June 10:

Economic:  Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.

International Economic:  Germany CPI and PPI – 2:00AM, France Industrial Production – 2:45AM.

Earnings: None meeting criteria.

Monday June 13:

Economic:  No major announcements.

International Economic:   China Industrial Production and Retail Sales – 1:30AM on Sunday.

Earnings: None meeting criteria.

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