The Prepared Mind: June 20, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“Everyone will say it is a club of losers. We need a counterweight to France, if the referendum result is negative (Britain votes to leave the EU), then we’ve got a real problem – it will be massive.” – Anonymous EU official

“We would lose the intrinsic value of Great Britain – its global geopolitical vision, economic common sense and financial and legal know-how.”  –  Sylvie Goulard. French MEP

“Britain leaving the European Union would be like a prisoner escaping jail”  Boris Johnson, Mayor of London

“When I go into Downing Street they do what I say; when I go to Brussels they take no notice.”  Rupert Murdoch in support of Brexit

Brexit is the universal excuse for market behavior last week and this coming week.  On Thursday June 23, the United Kingdom will have a referendum on whether to leave the European Union. This referendum has long-term Implications for domestic and European economies.  The impact of the upcoming vote has an impact on global financial market.  This impact was seen last week with increased risk aversion – selling of equities, buying bonds, and significant increase in option implied volatility.

Concerns about US growth added another level of domestic concern.  This was reflected in weakness in major US equity indexes which were down 1% to a bit over 2%..   These domestic concerns were the result of the Federal Reserve not raising rates this past Wednesday while simultaneously lowering projections for  US growth.  This added to investors reasons for avoiding risk.

 

Here is an overview of the US market behavior last week:

Index 17-Jun Weekly Change % Weekly  2015 YTD Volatility of  Index
Dow Jones Industrials (DJIA) 17,675.16 (190.18) -1.06% 1.44% 17.68% (VXD)
S&P 500 (SPX) 2,071.22 (24.85) -1.19% 1.33% 19.41% (VIX)
NASDAQ 100 (NDX) 4,362.84 (102.43) -2.29% -5.10% 20.25% (VXN)
Russell 2000 (RUT) 1,140.11 (24.09) -2.07% 0.55% 20.19% (RVX)
S&P 100 (OEX) 914.95 (11.80) -1.27% 0.39% 22.45% (VXO)
Crude Oil (CL N6) 48.26 (0.62) -1.27% 30.19% 41.35%(OVX)
CBOE Volatility Index (VIX) 19.41 2.38 13.98% NA  

Data Source: OptionVue7

Global and domestic concerns are evident as the VIX climbed to its highest levels since this past February.  Both The VIX futures and associated VIX products (VXST,VXV and VXMT) flirted with backwardization last week.   Normally, the VIX future is at a premium relative to VIX.  This VIX term structure is known as contango.  When VIX is higher than the future the market is in backwardation.  Backwardization generally occurs at high levels of implied volatility,  These increased levels of volatility appear to be in response to Brexit.

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

Indexes Ticker 17-Jun 10-Jun Change % Change
CBOE Volatility Index VIX 19.41 17.03 2.38 13.98%
VIX July Future (7/20/2016) VXN6 20.075 18.425 1.650 8.96%
VIX August Future (8/17/2016) VXQ6 20.475 19.325 1.150 5.95%
VIX September Future (9/21/2016) VXU6 20.925 20.150 0.775 3.85%
CBOE Short-term Volatility Index VXST 22.00 15.83 6.17 38.98%
CBOE 3 Month Volatility Index VXV 21.31 18.97 2.34 12.34%
CBOE Mid-term Volatility Index (6 month) VXMT 22.06 20.74 1.32 6.36%
VIX of VIX VVIX 115.72 103.78 11.94 11.51%
CBOE SKEW Index SKEW 137.94 133.67 4.27 3.19%
Long VIX ETP’s          
 iPath S&P 500  VIX Short Term Futures ETN VXX 15.58 14.39 1.19 8.27%
ProShares VIX Short Term Futures ETF VIXY 10.31 9.52 0.79 8.30%
 iPath S&P 500  VIX Mid-Tem Futures ETN VXZ 11.26 11.06 0.20 1.81%
Inverse VIX ETP’s          
ProShares Short VIX Short Term Future ETF SVXY 52.05 57.75 (5.70) -9.87%
Daily Inverse VIX Short Term ETN XIV 26.63 29.59 (2.96) -10.00%

Data Source: OptionVue7

Brexit, Brexit, Brexit.  Everything else is secondary to Thursday’s referendum.  There is market uncertainly associated with either referendum result – fail or pass. Most analysts expect volatility levels to remain elevated as the markets attempt to digest the referendum results. Other factors will have the potential to move the US markets this week.  The week of June 20 will include reports on existing home sales, new home sales, and durable goods. Fed Chair Janet Yellen testifies to the U.S. Congress on Tuesday and Wednesday.

This week and last week are the quietest weeks for earnings’ reports.  The earnings highlights this week for widely held and actively traded stocks are Adobe Systems, Car Max, La-Z Boy, Carnival, FedEx, Barnes & Noble, HB Fuller, Actuant, Hermann Mill, Red Hat, Winnebago, Bed Bath & Beyond, Sonic, Accenture, and SYNNEX..  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 17 Close IV30 B/A DATE  AVGOPTVOL
NKE Nike Inc $53.47 30.55 AMC 28-Jun 34300
MON Monsanto Company $108.90 35.51 BMO 29-Jun 21245
CAG ConAgra Foods Inc $47.04 29.23 BMO 30-Jun 3051
STZ Constellation Brands, Inc. $156.76 29.46 BMO 30-Jun 3736
DRI Darden Restaurants, Inc. $67.53 28.32 AMC 30-Jun 1953
WBA Walgreens Boots Alliance Inc $83.15 33.45 BMO 6-Jul 12442
YUM Yum! Brands, Inc. $82.92 28.34 AMC 13-Jul 9563
FAST Fastenal Company $44.30 26.62 BMO 14-Jul 2327
JPM JPMorgan Chase & Co. $62.22 26.81 BMO 14-Jul 56727
C Citigroup Inc $42.12 35.05 BMO 15-Jul 76971
KSU Kansas City Southern $87.33 29.38 BMO 15-Jul 1655
PNC PNC Financial Services Group Inc $83.87 26.05 BMO 15-Jul 1715

Data Source: OptionVue7

Monday June 20:

Economic:  No major announcements.

International Economic:   Germany PPI – 2:00AM, Bank of Japan Minutes – 7:50PM.

Other:  Minneapolis Federal Reserve President Neel Kashkari will give opening remarks at the afternoon session of a forum on too big to fail, in Washington – 12:15PM.

Earnings: None meeting criteria.

Tuesday June 21:

Economic:  Redbook 8:55.

International Economic:  Germany ZEW Survey = 6:00AM, Great Britain – Industrial trends Survey – 6:00AM.

 

Other:  Federal Reserve Chair Janet Yellen semi-annual testimony before Senate Banking Committee, in Washington – 10:00AM.

Earnings:

Symbol Company Name June 17 Close IV30 B/A AVGOPTVOL
FDX FedEx Corporation $161.87 27.31 BMO 6631
KMX CarMax, Inc $49.20 44.74 BMO 3484
LEN Lennar Corporation $45.64 29.63 BMO 2115
ADBE Adobe Systems Incorporated $97.19 31.70 AMC 4334

Wednesday June 22:

Economic:  MBA Mortgage Applications – 7:00, FHFA House Price Index – 9:00, Existing Home Sales = 10:00, EIA Petroleum Status Report – 10:30.          

International Economic:  EMU – EC Consumer Confidence – 10:00AM.

Other:  Federal Reserve Chair Janet Yellen semi-annual testimony before Senate Banking Committee, in Washington. – 10:00AM.

Earnings:

Symbol Company Name June 17 Close IV30 B/A AVGOPTVOL
BBBY Bed Bath & Beyond Inc. $42.45 36.95 AMC 4949
RHT Red Hat Inc $76.97 37.09 AMC 3253

Thursday June 23:

Brexit vote in Great Britain.  Polls close at 5:00PM EDT.

Economic:  Weekly Jobless Claims – 8:30, Chicago Fed National Activity Index – 8:30, PMI Manufacturing Index Flash – 9:45, Bloomberg Consumer Comfort Index – 9:45, New Home Sales – 10:00, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30.

International Economic:   Germany PMI Composite Flash – 3:30AM, EMU – PMI Composite Flash – 4:00AM.

Other:   Dallas Federal Reserve Bank President Robert Kaplan speech, in New York – 6:30PM.

Earnings:

Symbol Company Name June 17 Close IV30 B/A AVGOPTVOL
ACN Accenture Plc $118.30 25.79 BMO 3428
CCL Carnival Corp $47.47 31.44 BMO 3023

Friday June 24:

Economic:  Durable Goods Orders – 8:30, Consumer Senitment – 10:00, Baker Hughes Rig Count – 1:00.

International Economic:  France – GDP – 2:45.

Earnings: None meeting criteria.

Monday June 27:

Economic:  International Trade in Goods – 8:30, PMI Services Flash = 9:45, Dallas Fed Manufacturing Survey – 10:20

International Economic:  No major announcements.

Earnings: None meeting criteria.

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