The Prepared Mind for July 5, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“Imagination decides everything” – Blaise Pascal

“Any jerk can have short-term earnings. You squeeze, squeeze, squeeze,

and the company sinks five years later.” –  Jack Welch

The residents of the states of Wisconsin and Minnesota have a catch all phrase they use when they are not sure how to respond to a situation. They say “Aw geez.”  It is a very hand conversational tool.  I found myself finding refuge in it this week when people would ask me about the market’s behavior and Brexit.  “Aw geez” pretty well sums up my answer.

Brexit was again the story Great Britain voted to leave the European Union on Thursday June 23.  Major US equity indexes sold off 4% on the next day.  On Monday June 27, the S&P 500 was down an additional 2% intraday and closed down 1.5% for the day.  Markets rallied the rest of the week with major indexes closing 6% to 7% above Monday’s lows.

The running commentary over the past two weeks about Brexit from financial “experts” has been very instructive.  The predictive powers of these experts are very suspect.  Their political and financial narratives the changed from day to day.  It was as if the pundits were spinning roulette wheels where the numbers and colors have been replaced with financial explanations.  After comparing the litany of conflicting explanations provided over the past weeks my all-encompassing response is “Aw Geez.”

The current narrative is that the referendum means very little today.  The capsule summary of the impact of the Brexit follows.  The results were advisory only. Nothing is going to happen immediately.  Negotiations will take six months to two years.  The bulk of the pundits are now saying Britain will remain part of the EU with free trade, but will have control over its borders and internal regulations.  Aw geez.

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

Index 1-Jul Weekly Change % Weekly  2015 YTD Volatility of  Index
Dow Jones Industrials (DJIA) 17,949.37 549.51 3.16% 3.01% 14.26% (VXD)
S&P 500 (SPX) 2,102.95 65.65 3.22% 2.89% 14.77% (VIX)
NASDAQ 100 (NDX) 4,438.75 165.71 3.88% -3.45% 16.83% (VXN)
Russell 2000 (RUT) 1,156.89 39.33 3.52% 2.03% 19.80% (RVX)
S&P 100 (OEX) 929.68 29.24 3.25% 2.00% 13.90% (VXO)
Crude Oil (CL N6) 48.95 1.38 2.90% 32.05% 36.18%(OVX)
CBOE Volatility Index (VIX) 14.77 (10.99) -42.66% NA  

Data Source: OptionVue7

The VIX and related products showed extremes in response to last week’s market movement.  Being a position trader is an exercise in balancing panic and patience or fear and complacency.  Looking backwards it appears the fear may have been overdone.  The question now is whether or not the end of week behavior in the volatility indexes have overshot a reasonable level of complacency.

The VIX dropped 42.66% last week.  The was the largest week-to-week drove in the VIX since the inception of official VIX calculations in 1990.  Wednesday was the 9th largest one day percentage drop in VIX history.  The entire gamut of CBOE VIX indexes – VIX, VXST, VXV, and VXMT – showed similar movement from one extreme to another.  The CBOE SKEW Index (a measurement of out of the money put value vs nearer the money put value) ended the day an all-time high of 153.66 on Tuesday June 28.

The VVIX (the VIX of the VIX) remains at higher than normal levels despite losing nearly 27% in value.  Russell Rhoads, CBOE VIX guru, observed the elevated VVIX level as an outlier as the VIX of VIX has done a good job of being a leading indicator for market volatility.  Russell’s sage observation is a reminder to remain vigilant against trader’s complacency .

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

Indexes Ticker 1-Jul 24-Jun Change % Change
CBOE Volatility Index VIX 14.77 25.76 (10.99) -42.66%
VIX July Future (7/20/2016) VXN6 16.775 22.650 (5.875) -25.94%
VIX August Future (8/17/2016) VXQ6 18.250 22.125 (3.875) -17.51%
VIX September Future (9/21/2016) VXU6 19.325 22.025 (2.700) -12.26%
CBOE Short-term Volatility Index VXST 11.85 30.71 (18.86) -61.41%
CBOE 3 Month Volatility Index VXV 17.65 23.93 (6.28) -26.24%
CBOE Mid-term Volatility Index (6 month) VXMT 19.55 23.55 (4.00) -16.99%
VIX of VIX VVIX 91.70 125.13 (33.43) -26.72%
CBOE SKEW Index SKEW 128.53 142.92 (14.39) -10.07%
Long VIX ETP’s          
 iPath S&P 500  VIX Short Term Futures ETN VXX 13.39 16.92 (3.53) -20.86%
ProShares VIX Short Term Futures ETF VIXY 8.89 11.14 (2.25) -20.20%
 iPath S&P 500  VIX Mid-Tem Futures ETN VXZ 10.78 11.41 (0.63) -5.52%
Inverse VIX ETP’s          
ProShares Short VIX Short Term Future ETF SVXY 50.61 43.06 7.55 17.53%
Daily Inverse VIX Short Term ETN XIV 25.94 22.00 3.94 17.91%

Data Source: OptionVue7

It is a holiday shortened US trading week.  Holiday weeks are normally quiet with traders going through the motions.  This week is different.  Brexit will still have the ability to affect market movement.  Domestic economic reports will have the ability to move the US market.  This is employment week. A slew of employment reports will be released every trading day this week culminating with Friday’s release of the Employment Situation Report.  Expectations are for strong June employment numbers after disappointing April and May reports.

The earnings season start this Thursday with the announcement of earnings for Alcoa Inc.(AA.)  It is time to start preparing for trading these announcements.  The earnings highlights this week for widely held and actively traded stocks are International Speedway, Greenbrier, Walgreen, PepsiCo, Helen of Troy and WD-30

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.  Always assess the impact of market factors when making this decision.

Here are the results of my initial scan for double calendar candidates.  The scan has expanded to over 125 candiates this week..  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 24 Close IV30 B/A DATE  OPT VOL
FAST Fastenal Company $44.39 30.97 BMO 12-Jul 2296
YUM Yum! Brands, Inc. $82.92 27.83 AMC 13-Jul 8893
REGN Regeneron Pharmaceuticals Inc $349.23 34.90 BMO 14-Jul 3278
C Citigroup Inc $42.39 31.32 BMO 15-Jul 86729
CALM Cal-Maine Foods Inc $44.32 37.42 BMO 18-Jul 1635
NFLX Netflix, Inc. $91.48 52.75 AMC 18-Jul 131721
CMA Comerica Incorporated $41.13 34.44 BMO 19-Jul 3390
DFS Discover Financial Services $53.59 25.76 BMO 19-Jul 1840
GS Goldman Sachs Group Inc $148.58 26.42 BMO 19-Jul 26648
KSU Kansas City Southern $90.09 31.82 BMO 19-Jul 1553
ILMN Illumina, Inc. $140.38 39.42 AMC 19-Jul 2137
ISRG Intuitive Surgical, Inc. $661.41 30.00 AMC 19-Jul 1562
MSFT Microsoft Corporation $51.17 26.69 AMC 19-Jul 93794
VMW VMware, Inc. $57.22 51.96 AMC 19-Jul 8897
YHOO Yahoo! Inc. $37.56 35.51 AMC 19-Jul 57181
DAL Delta Air Lines, Inc. $36.43 39.34 BMO 20-Jul 35143
HAL Halliburton Company $45.29 30.29 BMO 20-Jul 20468
NEM Newmont Mining Corp $39.12 46.38 BMO 20-Jul 15048
PII Polaris Industries Inc. $81.76 38.61 BMO 20-Jul 1404
AXP American Express Company $60.76 26.02 AMC 20-Jul 10527
FFIV F5 Networks, Inc. $113.84 39.30 AMC 20-Jul 2036
LVS Las Vegas Sands Corp. $43.49 33.14 AMC 20-Jul 16321
QCOM QUALCOMM, Inc. $53.57 29.66 AMC 20-Jul 25867
ALK Alaska Air Group, Inc. $58.29 30.32 BMO 21-Jul 1572
BIIB Biogen Inc $241.82 40.86 BMO 21-Jul 7834
BK Bank of New York Mellon $38.85 28.09 BMO 21-Jul 3928
LUV Southwest Airlines Co $39.21 34.11 BMO 21-Jul 7853
NUE Nucor Corporation $49.41 26.90 BMO 21-Jul 3619
UAL United Continental Holdings $41.04 41.07 BMO 21-Jul 13363
UNP Union Pacific Corporation $87.25 26.31 BMO 21-Jul 10829
WHR Whirlpool Corporation $166.64 33.36 BMO 21-Jul 2375
CMG Chipotle Mexican Grill, Inc. $402.76 49.42 AMC 21-Jul 17937
MXIM Maxim Integrated Products Inc. $35.69 26.69 AMC 21-Jul 1496
SWKS Skyworks Solutions Inc $63.28 46.63 AMC 21-Jul 7791
V Visa Inc $74.17 26.46 AMC 21-Jul 26684
STI SunTrust Banks, Inc. $41.08 27.91 BMO 22-Jul 1736
TXT Textron Inc. $36.56 26.74 BMO 22-Jul 1417
GILD Gilead Sciences, Inc. $83.42 27.87 AMC 25-Jul 38741
NSC Norfolk Southern Corp. $85.13 27.45 AMC 25-Jul 2451
BP BP plc (ADR) $35.51 27.40 BMO 26-Jul 21637
CAT Caterpillar Inc. $75.81 27.99 BMO 26-Jul 31627
CMI Cummins Inc. $112.44 26.89 BMO 26-Jul 6285
CNC Centene Corp $71.37 29.19 BMO 26-Jul 1437
DD E I Du Pont De Nemours $64.80 25.22 BMO 26-Jul 3400
PCAR PACCAR $51.87 27.98 BMO 26-Jul 1564
UA Under Armour Inc $40.13 44.73 BMO 26-Jul 13838
AKAM Akamai Technologies, Inc. $55.93 47.96 AMC 26-Jul 3766
APC Anadarko Petroleum $53.25 38.17 AMC 26-Jul 7979
BWLD Buffalo Wild Wings $138.95 31.68 AMC 26-Jul 1733
COF Capital One Financial Corp. $63.51 31.10 AMC 26-Jul 4790
EW Edwards Lifesciences Corp $99.73 30.04 AMC 26-Jul 2139
RRC Range Resources Corp. $43.14 48.09 AMC 26-Jul 5135
VLO Valero Energy Corporation $51.00 31.86   26-Jul 13552
ANTM Anthem Inc $131.34 25.25 BMO 27-Jul 1227
ARMH ARM Holdings plc (ADR) $45.51 31.84 BMO 27-Jul 3122
CRUS Cirrus Logic, Inc. $38.79 52.49 BMO 27-Jul 1954
HES Hess Corp. $60.10 41.30 BMO 27-Jul 11174
STT State Street Corp $53.92 28.26 BMO 27-Jul 1094
AEM Agnico Eagle Mines Ltd (USA) $53.50 41.99 AMC 27-Jul 5033
CAVM Cavium Inc $38.60 45.56 AMC 27-Jul 2335
CTXS Citrix Systems, Inc. $80.09 28.19 AMC 27-Jul 1234
DATA Tableau Software Inc $48.92 64.89 AMC 27-Jul 3045
FB Facebook Inc $114.28 29.78 AMC 27-Jul 282482
LRCX Lam Research Corporation $84.06 25.39 AMC 27-Jul 2170
MDLZ Mondelez International Inc $45.51 28.50 AMC 27-Jul 10906
MET Metlife Inc $39.83 30.21 AMC 27-Jul 10827
NOW ServiceNow Inc $66.40 55.71 AMC 27-Jul 2031
PXD Pioneer Natural Resources $151.21 35.40 AMC 27-Jul 4057
URI United Rentals, Inc. $67.10 47.53 AMC 27-Jul 2921
VRTX Vertex Pharmaceuticals $86.02 46.71 AMC 27-Jul 1150
XLNX Xilinx, Inc. $46.13 31.99 AMC 27-Jul 4701
NXPI NXP Semiconductors NV $78.34 41.32   27-Jul 5363
PYPL Paypal Holdings Inc $36.51 33.27   27-Jul 14104
ALXN Alexion Pharmaceuticals, Inc. $116.76 43.39 BMO 28-Jul 1946
BG Bunge Ltd $59.15 27.95 BMO 28-Jul 1076
BHI Baker Hughes Incorporated $45.13 35.70 BMO 28-Jul 3225
CAB Cabelas Inc $50.06 41.87 BMO 28-Jul 1166
CCE Coca-Cola European Partners PLC $35.69 30.20 BMO 28-Jul 1502
CELG Celgene Corporation $98.63 29.14 BMO 28-Jul 17403
CHTR Charter Communications Inc $228.64 30.54 BMO 28-Jul 5760
CI CIGNA Corporation $127.99 28.65 BMO 28-Jul 1262
COP ConocoPhillips $43.60 35.74 BMO 28-Jul 22307
DOW Dow Chemical Co $49.71 25.54 BMO 28-Jul 11716
ETN Eaton Corporation PLC $59.73 26.11 BMO 28-Jul 1700
GEL Genesis Energy, L.P. $38.37 35.76 BMO 28-Jul 1060
HOG Harley-Davidson Inc $45.30 69.21 BMO 28-Jul 5604
HP Helmerich & Payne, Inc. $67.13 36.01 BMO 28-Jul 2345
HSY Hershey Co $113.49 35.72 BMO 28-Jul 2495
LNG Cheniere Energy, Inc. $37.55 44.87 BMO 28-Jul 8886
MJN Mead Johnson Nutrition CO $90.75 25.61 BMO 28-Jul 1494
RCL Royal Caribbean Cruises Ltd $67.15 33.11 BMO 28-Jul 4316
SHPG Shire PLC (ADR) $184.08 33.93 BMO 28-Jul 5215
TMUS T-Mobile Us Inc $43.27 31.27 BMO 28-Jul 5183
AMZN Amazon.com, Inc. $715.62 40.97 AMC 28-Jul 83493
BIDU Baidu Inc (ADR) $165.15 44.33 AMC 28-Jul 26419
BMRN BioMarin Pharmaceutical Inc. $77.80 60.68 AMC 28-Jul 2356
CBS CBS Corporation $54.44 28.79 AMC 28-Jul 7510
DECK Deckers Outdoor Corp $57.52 46.82 AMC 28-Jul 1648
EMN Eastman Chemical Company $67.90 25.54 AMC 28-Jul 1960
EXPE Expedia Inc $106.30 43.58 AMC 28-Jul 7212
FLR Fluor Corporation (NEW) $49.28 30.16 AMC 28-Jul 2382
GOOG Google  Inc. $692.10 27.57 AMC 28-Jul 22835
GOOGL Alphabet Inc $703.53 27.75 AMC 28-Jul 26675
N NetSuite Inc $72.80 54.53 AMC 28-Jul 1288
OUTR Outerwall Inc $42.00 65.78 AMC 28-Jul 1272
QRVO Qorvo Inc $55.26 40.58 AMC 28-Jul 1411
SYNA Synaptics, Incorporated $53.75 54.41 AMC 28-Jul 1707
TEP Tallgrass Energy Partners LP $46.02 39.63 AMC 28-Jul 1159
TPX Tempur Sealy International Inc $55.32 40.45 AMC 28-Jul 2563
TRIP Tripadvisor Inc $64.30 40.05 AMC 28-Jul 5448
WDC Western Digital Corp $47.26 52.11 AMC 28-Jul 13341
WYNN Wynn Resorts, Limited $90.64 46.54 AMC 28-Jul 25122
MPC Marathon Petroleum Corp $37.96 49.26   28-Jul 11117
ABBV AbbVie Inc $61.91 25.14 BMO 29-Jul 18396
AN AutoNation, Inc. $46.98 32.27 BMO 29-Jul 1067
LYB LyondellBasell Industries NV $74.42 31.47 BMO 29-Jul 5744
PSX Phillips 66 $79.34 25.02 BMO 29-Jul 5740

Data Source: OptionVue7

Advice to stimulate your imagination:

“Live everyday as if it were your last because someday you’re going to be right” – Muhammad Ali

Monday July 4:

US Holiday – Independence Day – US markets closed.

International Economic:  EMU PPI – 5:00AM.

Earnings: None meeting criteria.

Tuesday July 5:

Economic:  Gallup US Consumer Spending Measure – 8:30, Gallup US ECI – 8:30, Factory Orders – 10:00. ISM Non-Manufacturing Index – 10:00.

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

Other:  New York Federal Reserve Bank President William Dudley takes part in Binghamton Chamber of Conference roundtable discussion in Binghamton, New York -2:30 PM.

Earnings: None meeting criteria.

Wednesday July 6:

Economic:  MBA Mortgage Applications – 7:00, International Trade – 8:30, Gallup US Job Creation Index – – 8:30, Redbook – 8:55, PMI Services Index – 9:45, ISM Non-Manufacturing Index – 10:00.

International Economic: Germany Manufacturers’ Orders – 2:00AM, All Global Composite PMI – 11:00AM.

Other:  New York Federal Reserve Bank President William Dudley meets with Binghamton University researchers and the Southern Tier Regional Economic Development Council in Vestal, New York – 8:00AM, Federal Reserve Gov. Daniel Tarullo conversation about the intersection of regulation and monetary policy, in Washington – 9:00AM, FOMC Minutes – 2:00PM.

 

Earnings:

Symbol Company Name July 1 Close IV30 B/A AVGOPTVOL
WBA Walgreens Boots Alliance Inc 83.27 29.71 BMO 13109

Thursday June 30:

Economic:  Chain Store Sales, Challenger Job Cut Report – 7:30, ADP Employment Report – 8:15, 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:  German Industrial Production – 2:00, France Industrial Production – 2:45Am, Great Britain Industrial Production – 4:30Am.

Other: European Central Bank Minutes (ECB) – 7:30AM.

Earnings:

Friday July 8:

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

International Economic:  

Other: 

Earnings: None meeting criteria.

Monday July 11:

Economic:  Labor Market Conditions Index – 10:00.

Other: 

International Economic: 

Earnings: None meeting criteria.

 

 

 

 

 

 

 

 

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