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Frank Fahey: Market News for the Prepared Mind: 3.13-3.20.2017

March 13, 2017


“Chance favors the Prepared Mind.” -Louis Pasteur

“I had nothing to offer anybody except my own confusion.” -Jack Kerouac

“Experience is not what happens to a man; it is what a man does with what happens to him.” -Aldous Huxley

“When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.” -PJ O’Rourke

The S&P 500 Index recorded its first weekly loss after six consecutive weeks of gains. A strong jobs report and the glimmerings of inflation all but guarantee a rate hike at this week’s FOMC meeting. It should be noted that job numbers which Trump described as phony, when reported by the previous administration, are now described by the current administrations as “very real,” “great again”, and “great news for American workers.” The Bureau of Labor Statistics has not changed the methodology for computing the employment numbers. As Mike Ditka once famously replied, “Who ya crappin?”

This rosy outlook is threatened by the Trump administration’s impending renegotiation of trade agreements Grumbling by fiscal hawks in the House could throw a wrench in implementation of the president’s legislative agenda. This uncertainty led to a market searching for a trend. The lack of a short-term trend has made it difficult for traders. I ignored one my of my tried and true trading maxims last week – “Doing nothing is a viable trading strategy.” I chose to flail around rather than doing nothing. The comings week’s mantra will be “Do not force trades.”

Here is an overview of the US market behavior last week and for 2017:

Index 10-Mar Change % Weekly 2016 YTD Volatility of Index
Dow Jones Industrials (DJIA) 20,902.98 (102.73) -0.49% 5.77% 11.3% (VXD)
S&P 500 (SPX) 2,371.25 (9.25) -0.39% 5.94% 11.66% (VIX)
NASDAQ 100 (NDX) 5,373.48 0.00 0.00% 10.48% 12.20% (VXN)
Russell 2000 (RUT) 1,365.64 (28.48) -2.04% 0.63% 16.33% (RVX)
S&P 100 (OEX) 1055.24 (1.60) -0.15% 6.44% 10.50% (VXO)
Crude Oil (CLJ7) 48.39 (4.81) -9.04% -10.21% 33.45%(OVX)
CBOE Volatility Index (VIX) 11.66 0.70 6.39% NA

Data Source: OptionVue8

The 2017 high for the CBOE Volatility Index is 13.28. As of Friday March 10, the VIX has gone 46 consecutive session without going above 13.50. This is the longest stretch below 13.5 since the 2008 financial crisis. The longest all time streak of 68 days below 13.50 took place from September 2006 to February. These low VIX levels are indicative of the fact the S&P 500 has gone 103 days without a 1% drop. Beware of complacency.

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

Indexes Ticker 10-Mar 3-Mar Change % Change
CBOE Volatility Index VIX 11.66 10.96 0.70 6.39%
VIX March Future (3/22/2017) VXH7 12.525 12.825 (0.30) -2.34%
VIX April Future (4/19/2017) VXJ7 14.200 14.575 (0.38) -2.57%
VIX May Future (5/17/2017) VXK7 15.125 15.425 (0.30) -1.94%
CBOE Short-term Volatility Index VXST 10.68 8.56 2.12 24.77%
CBOE 3 Month Volatility Index VXV 14.38 14.26 0.12 0.84%
CBOE Mid-term Volatility Index (6 month) VXMT 16.33 16.25 0.08 0.49%
VIX of VIX VVIX 80.27 81.19 (0.92) -1.13%
CBOE SKEW Index SKEW 138.99 136.10 2.89 2.12%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 18.90 20.13 (1.23) -6.11%
iPath S&P 500 VIX Short Term Futures ETN VXX 17.01 17.54 (0.53) -3.02%
ProShares VIX Short Term Futures ETF VIXY 14.18 14.61 (0.43) -2.94%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 28.45 28.96 (0.51) -1.76%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 132.58 128.79 3.79 2.94%
Daily Inverse VIX Short Term ETN XIV 68.42 66.42 2.00 3.01%

Data Source: OptionVue8

The week of March 13 is all about the Federal Reserve. The Federal Reserve will meet ab March 14 and March 5. It will and announce its monetary policy on Wednesday. Release of the FOMC report will be followed by a Janet Yellen press conference. Other national banks in the news this week. The Banks of Japan and England will also meet along with the Swiss National Bank. The Group of 20 (G20) will meet in Baden-Baden on March 17 and 18. China will release industrial production and retail sales data for the first two months of the year.

The earnings season has entered the quiet time. Adobe and Dollar General are the only stocks announcing earnings this week which meet my criteria. For trading the announcement. This was the second straight ho-hum earnings season. It has been my experience that the post earnings behavior of individual stocks and the associated options usually show a remarkable consistency between individual earnings announcements in movement of the underlying and change in the implied volatility of the options. This consistency within individual stocks has not been apparent the past two earnings cycles. It is as if a “new normal” is being defined.

 

Advice to stimulate your imagination:

“I took a speed-reading course and read War and Peace in twenty minutes. It involves Russia.” -Woody Allen

“I don’t mind going back to daylight saving time.”

With inflation, the hour will be the only thing I’ve saved all year.” –Victor Borge

“Buy the ticket, take the ride.” –Hunter S. Thompson

 

Monday, March 13:

Economic: Labor Market Conditions Index – 10:00.

International Economic: Japan Tertiary Index – 1:30AM, China Industrial Production and Retail Sales – 10:00PM.

 

Tuesday, March 14:

Economic: NFIB Small Business Optimism Index – 6:00, PPI – FD – 8:30, Redbook – 8:55.

International Economic: Germany CPI – 3:00AM, Eurozone Industrial Production – 6:00.

Other: FOMC meeting begins.

 

Wednesday, March 15:

Economic: MBA Mortgage Applications – 7:00, CPI – 8:30, Retail Sales – 8:30, Empire State Manufacturing Survey = 8:30, Business Inventories – 10:00, Housing Market Index 0 10:00, EIA Petroleum Status Report – 10:30.

International Economic: France CPI – 3:45AM, Great Britain Labour Market Report – 5:30AM.

Other: FOMC Meeting Announcement – 2:00, Fed Chair Press Conference – 2:30.

 

Thursday, March 16:

Economic: Housing Starts – 8:30, Jobless Claims – 8:30, Philadelphia Fed Business Outlook Survey – 8:30, Bloomberg Consumer Comfort Index – 9:45, JOLTS – 10:00, EIA Natural Gas Report – 10:30, Money Supply – 4;30.

International Economic: Eurozone HICP – 6:Am.

Other: European Central Bank (ECB) Announcement – 7:45 AM

 

Friday, March 17:

Quadruple Witching – expiration for stock index futures, stock index options, stock options and single stock futures.

Economic: Industrial Production – 9:15, Atlanta Fed Business Inflation Expectations – 10:00, Consumer Sentiment – 10:00, Leading Indicators – 10:00, Baker-Hughes Rig Count – 1:00PM.

International Economic: Eurozone Merchandise Trade – 6:00AM.

 

Monday, March 20:

Economic: Chicago Fed National Activity Index – 8:30.

International Economic: Germany PPI = 3:00AM.

Other: Chicago Federal Reserve Bank President Charles Evans will speak at New York National Association for Business Economics Luncheon followed by audience and then media Q&A in New York – 1:10PM.

 

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Hal Snarr: The end, when falling unemployment starts to bend and ascend

March 10, 2017


Recent labor market news is being hailed as the beginning of the recovery that should have been. Commentators on CNBC and the Fox Business Network are glowing over this week’s ADP report. It showed employment surging by nearly 300 thousand over the previous month. It also showed that goods producers were responsible for over a third of those new jobs. The chart below shows initial jobless claims touching a 44-year low, and unemployment dropping to its lowest rate since before the Great Recession.

Source: Federal Reserve Economic Data

Celebrating the recent labor market news is like appreciating a Monet painting from two inches away. Both are myopic views that mask the real picture. Backing away from a Monet reveals that the dots of many colors become an increasingly beautiful Victorian scene. Backing up in time from today’s lows in jobless claims and unemployment reveals that recession is around the bend when labor market news cannot get much better.

Mainstream economists embrace such news as the ideal time for the Fed to return the federal funds rate to a more normal level. Doing this heads off the inflation produced from monetary stimulus. The chart below shows how setting rates near zero for eight years and counting has put upward pressure on inflation, which is heading north after touching zero in 2015.

Source: Federal Reserve Economic Data

The recent acceleration in inflation coincides with the S&P 500’s post-election burst. After the election triggered a short-lived sell off between October 24th and Election Day, which is highlighted inside the green circle in the chart below, an epic rally followed. This rally could be from traders pricing in Trump’s pro-business policies. However, it could also be a result of bottled up inflation, in the form of the trillions of dollars in excess reserves that the Fed digitized into existence, finally being unleashed on the economy.

Source: Yahoo Finance

The problem with the mainstream view regarding rate normalization is that the Fed usually goes too far when implementing restrictive monetary policy. Why? For one, it relies on flawed aggregated data that is months, quarters, and years old. Second, the Fed seems to fear low unemployment something fierce. The chart below shows the Fed hiking the federal funds rate substantially after unemployment gets too low. In about a year’s time, the Fed hiked the rate by 50% after unemployment got too low for comfort in 1988. After unemployment dipped to 4.3% in January 1999, it hiked the rate 41% over the next couple of years. It hiked the rate by 430% in the two years following unemployment dropping to 5.6% in May 2004. Each of these hikes preceded recession, the vertical gray bars in the graph.

Source: Federal Reserve Economic Data

Whether or not excessive monetary expansion is driving the recent stock market rally, if history is correct, the Fed will respond to it and the acceleration in CPI and PCE inflation by hiking the federal funds rate. Just this week the Bloomberg World Interest Rate Probability hit 100%. That implies traders are all but certain that the Fed will hike rates.

To normalize rates, the Fed abandons its bubble inflating policy of keeping interest rates too low for far too long. Austrian Business Cycle Theory says the switch to higher rates and slowed money growth busts easy-credit booms. The 5-year and 10-year TIPS spreads, graphed below, suggest that markets could be pricing in this possibility. The recent flattening out of both graphs is suggesting that expected rate hikes are going to slow aggregate demand in the future.

Source: Federal Reserve Economic Data

The graph of excess reserves below shows the expansion may be coming to an end as well. In the aftermath of the 2008 financial crisis, the Fed raises the federal funds rate by setting interest on reserves at a higher rate. When this price floor is increased, banks are more likely to lend to the Fed (in the form of holding more reserves) than to consumers and firms. So perhaps the recent uptick in excess reserves is from banks pricing in recession that rate hikes usher in.

Source: Federal Reserve Economic Data

Low jobless claims, low unemployment, and strong job growth are signaling the Fed’s historic monetary party is coming to an end. If The Doors were still touring today, they might be singing: This is the end, my only friend, the end of the Fed’s elaborate plans, the end.

 

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Frank Fahey: Market News for the Prepared Mind: 3.6-3.13.2017

March 6, 2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“Sometimes paranoia’s just having all the facts.” – William S. Burroughs

“Facts do not cease to exist because they are ignored.” – Aldous Huxley

“The market can remain irrational longer than you can remain solvent.” John Keynes

The Dow Jones Industrials and the S&P 500 are up over 6% since New Year’s Day. The tech-laden NASDAQ 100 is up nearly 10.5% for the same period. The 2009-2017 bull market is the second longest in in history, surpassed on by the bull market running from 1987-2000. In absolute terms this bull market is the third strongest in history. The market rose 582% from 1987-2000 and 267% from 1949 to 1956. This long-term movement leaves the investor in the quandary of “What to do.”

After any major market move, it is a good idea to reassess your financial goals based on age, need, and risk tolerance.
Do not be afraid to adjust and re-balance.

Here is an overview of the US market behavior last week and for 2017:

Data Source: OptionVue8

Concerns about Trump’s speech before Congress led to a Tuesday close of 12.92. The VIX ended the week closing down at 4.45% or 0.51. This was the lowest closing low since February 14. The VXST – CBOE Short-term Volatility Index – show the largest decrease, 9.03%, among the various S&P 500 volatility indexes. Fears of March 15 parliamentary elections in the Netherlands and the April 21 beginning of the French Presidential election process were not reflected in pricing of VIX futures or related products. This could change at any moment. The ephemeral nature of fear and VIX pricing guarantee this.

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

Data Source: OptionVue8

There are just a few economic reports that will be released next week, but they do include one of the biggest – the U.S. Employment Situation report on Friday. Monday starts with Factory Orders followed by the Tuesday release of trade numbers. The focus changes to employment on Wednesday with the release of the ADP Employment Report. Employment remains the focus through Friday when February’s Employment Situation Report is released. The ECB will also release a statement after its regularly scheduled meeting on Thursday. January merchandise trade and industrial output will be released this coming week by a number of countries.

The wild card remains the US political climate. Google Trump and read the tweets from Donald Trump (@realDonaldTrump). His tweets have the capability of setting the tenor for an entire trading day.

The earnings season has entered the quiet time. This was the second straight ho-hum earnings season. It has been my experience that the post earnings behavior of individual stocks and the associated options usually show a remarkable consistency between individual earnings announcements in movement of the underlying and change in the implied volatility of the options. This consistency within individual stocks has not been apparent the past two earnings cycles. It is as if a “new normal” is being defined.

Earnings announcements are predictable volatility events providing trading opportunity. It is important to reduce the number of surprises which may occur in any trading campaign. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

I have added a scan of stocks with earnings announcements to the calendar for each day in the coming week. The scan criteria are: Closing price> $20, Implied Volatility > 25, Average daily option volume > 800 contracts. Liquidity, as determined by width of option markets and individual option contract volume, is a crucial component in successfully trading any option strategy. One of the most frustrating experiences is an inability to adjust or exit a strategy due to lack of liquidity in the market. The market uncertainty associated with the election has impacted liquidity. I found it difficult to enter earning trades last week. The bid/ask spreads seemed much larger than usual. Do not force trades in illiquid markets. Data Source for earnings: OptionVue8

Earnings Scan:   March 6 through March 17

Advice to stimulate your imagination:

“I took a speed-reading course and read War and Peace in twenty minutes. It involves Russia.” – Woody Allen

“Nobody should have any illusion about the possibility of gaining military superiority over Russia. We will never allow this to happen.” – Vladimir Putin

“If you do not actively attack the risks, they will actively attack you.” – Tom Gib

Monday March 6:

Economic: Gallup US Spending Measure – 8:30, Factory Orders – 10:00, TD-Ameritrade IMX – 12:30, Durable Goods Orders – 8:30, Dallas Fed Manufacturing Survey – 10:30.

International Economic: No major announcements.

Orders: Minneapolis Federal Reserve Bank President Neel Kashkari speaks at NABE conference in panel titled “A View from the FRB Minneapolis,” in Washington, D.C – 3:00PM.

 

Tuesday March 7:

Economic: International Trade in Goods – 8:30, Gallup US ECI – 8:30. Redbook – 8:55, EIA Petroleum Status Report – 10:30.

International Economic: Germany Manufacturers’ Orders – 2:00AM, Eurozone GDP – 5:00AM.
Other:

 

Wednesday March 8:

Economic: MBA Mortgage Applications – 7:00 ADP Employment Report – 8:15, Productivity and Costs
8:30, Wholesale Trade – 10:00, EIA Natural Gas Report – 10:30.

International Economic: Germany Industrial Production – 2:00AM, France Merchandise Trade – 2:45. China CPI & PPI – 8:30PM,

 

Thursday March 9:

Economic: Challenger Job-Cut Report – 7:30, Jobless Claims – 8:30, Gallup Good Jobs Rate – 8:30, Import and Export Prices – 8:30, Bloomberg Consumer Comfort Index – 9:45, Quarterly Services Survey – 10:00.

International Economic: No major announcements.

Other: European Central Bank (ECB) Announcement – 7:45 AM

 

Friday March 10:

Economic: February Employment Situation – 8:30, Baker-Hughes Rig Count – 1:00PM.

International Economic: Germany Merchandise Trade – 2:00AM, France Industrial Production – 3:45AM, Italy Unemployment Rate – 4:00AM, Great Britain Industrial Production – 5:30AM, Great Britain Merchandise Trade – 5:30AM.

 

Monday March 13:

Economic: Labor Market Situation – 10:00.

International Economic: Japan Tertiary Index – 1:30AM, China Industrial Production and Retail Sales – 10:00PM

 

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Hal Snarr: The Yield Curve Accordion Player

March 3, 2017


The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.

Yield curves flatten out when investors believe a recession is looming. This results from the demand for long-term bonds rising as investor confidence wanes. As demand shifts out along upward sloping supply, long-term bond prices rise and yields fall. On the other end of the yield curve, short-term bond rates rise. This is a result of investors demanding fewer short-term securities and more long-term securities. In response, suppliers of short-term securities lower prices to attract investors. The black dots along the red line in the above figure gives the 2007 yield curve. It is flat because the Great Recession of 2008 and 2009 was just around the bend.

The red points in the above figure correspond to the federal funds rate. In 2004, the Fed had set it near 1% for about a year to stimulate the economy out of the 2001 recession. After it kept rates too low for too long, it moved it up to 5% in 2007. As it did this, the yield on the 10-year (120-month) treasury was mostly unaffected. The other treasury yields were all pushed up toward the 10-year yield. The figure implies that the Fed has less and less control over treasury yields as maturity increases.

I call the three-dimensional diagram below the Yield Curve Accordion. The red line is the federal funds rate through time. It has a zero maturity. The gray curves are the yields of various treasuries through time. As the gray darkens, the maturity gets further into the future and your eyes go deeper into the figure. For the year 2004, walking up the gray curves maps out the above 2004 yield curve. Thus, instead of a given year’s yield curve rising from left to right (as it does on the 2004 yield curve), it rises the deeper it goes into the diagram below.

The Yield Curve Accordion tells the same story that the two yield curves in the first figure did. The steps from the red curve to the lightest gray curve are slight. This results from the 1-month yield generally following the federal funds rate. In 2004, going from a lighter gray curve to the next slightly darker gray curve is a step up. In 2007, these steps are all relatively flat.

The Yield Curve Accordion implies that the Fed puts the squeeze on interest rates. After the Fed raises the federal funds rate above the 10-year yield, recessions are triggered about a year later. After a recession occurs, the Fed lowers the federal funds rate. This pulls shorter-term rates below the 10-year yield. The shorter the maturity of a treasury, the closer its yield gets to the federal funds rate.

Critics of what I call Yield Curve Accordion Theory will argue that bond rates rise before the Fed starts to hike rates. This suggests that markets dictate Fed action. However, when the TIPS spread (the difference in the yields of conventional Treasury bonds and Treasury Inflation Protected Securities) and inflation rates (from the CPI and PCE) are on steady upward trends, hawkish Fedspeak becomes increasingly more credible. Consequently, markets price in this information prior to the Fed withdrawing its monetary stimulus. This suggests the Fed plays the Yield Curve Accordion.

Yield Curve Accordion Theory is a visual representation of Austrian Business Cycle Theory (ABCT) that Ludwig von Mises and F.A. Hayek developed. ABCT says the business cycle results from central banks, like the Fed, putting the economies they preside over on unsustainable growth paths. Artificially low interest rates cause an excessive growth in bank credit. This produces malinvestment (the extra investment that would not have otherwise occurred) and overconsumption (the extra spending on consumer goods that would otherwise not have occurred). These represent an unhealthy competition for resources that are limited in the short run. The resulting mal-competition, if you will, pushes home and stock prices ever higher.

The economic boom caused by excessive bank credit is unsustainable because the only known cure to the cancer of rising inflation is the painful rate hikes of central banks. In the US, a sustained upward trend in the TIPS spread, PCE inflation, and CPI inflation tip off investors that the Fed is about to hike rates. When it does, housing and stock bubbles pop, huge positive returns on heavily leveraged assets turn negative. As prices continue their descent, increasingly more leveraged assets are underwater, loan defaults rise, and the boom becomes the bust.

If the Austrians are correct, the Fed is the Yield Curve Accordion player. It pulls its accordion apart to stimulate the economy out of recession. This steepens the yield curve. When it needs to slow the accelerating inflation it previously created, it pushes on its accordion. Doing that flattens the yield curve. At a gut level, investors now this to be true because they “don’t fight the Fed” when allocating their investment funds.

 

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Frank Fahey: Market News for the Prepared Mind: 2.27-3.6.2017

February 27, 2017


“Imagination decides everything.” – Blaise Pascal

“Chance favors the Prepared Mind.” – Louis Pasteur

“This awful catastrophe is not the end but the beginning. History does not end so. It is the way its chapters open.” – St. Augustine

“The market can remain irrational longer than you can remain solvent.” John Keynes

The Dow Jones Industrials were up for the 11th straight day. The string of gains is the product of a string of small daily gains. Treasury yields move to their lowest levels in over 5 weeks. The VIX remains at levels showing little investor concern. Most of the indicators are decidedly bullish, yet I am wary. Over 30 years as a professional options trader has left me permanently wary.

Here is an overview of the US market behavior last week and for 2017:

Index 24-Feb Change % Weekly 2016 YTD Volatility of Index
Dow Jones Industrials (DJIA) 20,821.76 197.71 0.96% 5.36% 11.34% (VXD)
S&P 500 (SPX) 2,367.34 16.18 0.69% 5.77% 11.47% (VIX)
NASDAQ 100 (NDX) 5,343.31 18.59 0.35% 9.86% 12.75% (VXN)
Russell 2000 (RUT) 1,394.52 (5.34) -0.38% 2.76% 16.90% (RVX)
S&P 100 (OEX) 1047.81 8.58 0.83% 5.69% 10.65% (VXO)
Crude Oil (CLJ7) 54.02 0.29 0.54% 0.24% 25.72%(OVX)
CBOE Volatility Index (VIX) 11.47 (0.02) -0.17% NA

Data Source: OptionVue8

THE VIX was down for the week. The March VIX future was down, while the April and May futures showed increases of over 6%. Russell Rhoads, CBOE VIX guru, pointed to the upcoming first round of the French presidential election as impetus for the strength of the April and May VIX futures. This strength was reflected in the VIX 3 month and 6 month Volatility Indexes. The VXV (CBOE 3 Month Volatility Index) was up 7.58%,

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

Indexes Ticker 24-Feb 17-Feb Change % Change
CBOE Volatility Index VIX 11.47 11.49 (0.02) -0.17%
VIX March Future (3/22/2017) VXH7 13.325 13.125 0.20 1.52%
VIX April Future (4/19/2017) VXJ7 15.250 14.350 0.90 6.27%
VIX May Future (5/17/2017) VXK7 16.075 15.150 0.92 6.11%
CBOE Short-term Volatility Index VXST 9.41 9.03 0.38 4.21%
CBOE 3 Month Volatility Index VXV 14.76 13.72 1.04 7.58%
CBOE Mid-term Volatility Index (6 month) VXMT 16.68 15.79 0.89 5.64%
VIX of VIX VVIX 83.31 81.25 2.06 2.54%
CBOE SKEW Index SKEW 138.66 141.15 (2.49) -1.76%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 21.44 20.25 1.19 5.88%
iPath S&P 500 VIX Short Term Futures ETN VXX 18.09 17.54 0.55 3.14%
ProShares VIX Short Term Futures ETF VIXY 15.08 14.65 0.43 2.94%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 29.84 28.49 1.35 4.74%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 125.25 129.05 (3.80) -2.94%
Daily Inverse VIX Short Term ETN XIV 64.52 66.54 (2.02) -3.04%

Data Source: OptionVue8

The first trading week of March does not end with the the employment situation report. Instead of the usual first Friday of the month, the Bureau of Labor Statistics won’t release employment figures for February until the following Friday, March 10.. The coming week includes reports on durable goods and the CoreLogic Case-Shiller Home Price Index. The absence of the monthly employment numbers will allow extra attention to other economic releases” Durable goods orders on Monday, the second estimate for fourth-quarter GDP will follow on Tuesday as will January trade data on goods, and Wednesday will see personal income & outlays. The week closes with the ISM non-manufacturing report.
The international focus is on Dutch Parliamentary elections on March 15 and the first round of the French presidential election on April 23. European investors are jittery.

The earnings season is starting to wind down. This is the second straight ho-hum earnings season. It has been my experience that the post earnings behavior of individual stocks and the associated options have shown a remarkable consistency in movement of the underlying and change in the implied volatility of the options. This consistency within individual stocks has not been apparent the past two earnings cycles. It is as if a “new normal” is being defined.

Earnings announcements are predictable volatility events providing trading opportunity. It is important to reduce the number of surprises which may occur in any trading campaign. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

I have added a scan of stocks with earnings announcements to the calendar for each day in the coming week. The scan criteria are: Closing price> $20, Implied Volatility > 25, Average daily option volume > 800 contracts. Liquidity, as determined by width of option markets and individual option contract volume, is a crucial component in successfully trading any option strategy. One of the most frustrating experiences is an inability to adjust or exit a strategy due to lack of liquidity in the market. The market uncertainty associated with the election has impacted liquidity. I found it difficult to enter earning trades last week. The bid/ask spreads seemed much larger than usual. Do not force trades in illiquid markets. Data Sources for earnings: Livevol Core and OptionVue8

Advice to stimulate your imagination:

“The fact that people are full of greed, fear, or folly is predictable. The sequence is not predictable.” Warren Buffett

“If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes” – Peter Lynch

“If you do not actively attack the risks, they will actively attack you.” – Tom Gib

Monday February 27:

Economic: Durable Goods Orders – 8:30, Pending Home Sales – 10:00, Dallas Fed Manufacturing Survey – 10:30

International Economic: Japan Industrial Production and Retail Trade – 6:50PM.

Other: Dallas Federal Reserve Bank President Robert Kaplan participates in a moderated discussion at the University of Oklahoma Price College of Business in Norman, Okla., with audience and media Q&A – 11:00AM.

Earnings:

Symbol Company Name Feb 24 Close IV30 B/A AVGOPTVOL
PRGO Perrigo Company PLC $84.07 40.82 BMO 2235
WUBA 58.com Inc (ADR) $32.68 53.75 BMO 3570
ALB Albemarle Corporation $92.41 34.07 AMC 1198
EOG EOG Resources Inc $97.57 28.39 AMC 7699
HAIN Hain Celestial Group Inc $34.84 35.57 AMC 3360
OKE ONEOK, Inc. $54.64 27.91 AMC 1057
PCLN Priceline Group Inc $1,637.26 25.03 AMC 15745
WDAY Workday Inc $88.19 43.69 AMC 3671
PBYI Puma Biotechnology Inc $34.70 174.27 1290

 

Tuesday February 28:

Economic: GDP – 8:30AM, International Trade in Goods – 8:30, Redbook – 8:55, S&P Corelogic Case-Shiller HPI 0 9:00, Chicago PMI – 9:45, Consumer Confidence – 10:00, Richmond Fed Manufacturing Index – 10:00, State Street Investor Confidence – 10:00, Farm Price – 3:00.

International Economic: Germany Retail Sales – 2:00AM, France GDP, CPI, PPI – 2:45AM.

Other: Kansas City Federal Reserve Bank President Esther George gives keynote speech about the U.S. Economy and Monetary Policy at Banking and the Economy: A Forum for Women in Banking in Midwest City, Okla., with audience Q&A – 12:45PM, San Francisco Federal Reserve Bank President John Williams gives outlook speech at the Santa Cruz Chamber of Commerce in Santa Cruz, Calif., with audience and media Q&A – 3:30PM, St. Louis Federal Reserve Bank President Bullard speaks about U.S. economy and monetary policy at Spring 2017 GWU Alumni Lecture in Economics at George Washington University in D.C., with audience and media Q&A – 6:30PM.

Earnings:

Symbol Company Name Feb 24 Close IV30 B/A AVGOPTVOL
ALR Alere Inc $40.37 64.40 BMO 2697
DPZ Domino’s Pizza, Inc. $186.30 34.62 BMO 1322
GLNG Golar LNG Limited (USA) $27.20 54.67 BMO 3694
IONS Ionis Pharmaceuticals Inc $44.35 67.63 BMO 1839
LNG Cheniere Energy, Inc. $47.35 34.07 BMO 9020
MDCO The Medicines Company $51.84 76.94 BMO 1453
NXST Nexstar Media Group Inc $69.50 35.00 BMO 889
PTLA Portola Pharmaceuticals Inc $32.16 70.13 BMO 916
ROST Ross Stores, Inc. $67.64 27.91 BMO 966
TASR TASER International, Inc. $25.47 47.03 BMO 1949
TGT Target Corporation $64.98 25.53 BMO 18152
TSRO TESARO Inc $185.94 62.60 BMO 2512
ACAD ACADIA Pharmaceuticals Inc. $39.56 65.98 AMC 5335
AMBA Ambarella Inc $57.03 45.56 AMC 5362
CBI Chicago Bridge & Iron Company $33.89 41.32 AMC 3728
CRM salesforce.com, inc. $82.07 31.72 AMC 25239
DXCM DexCom, Inc. $77.96 45.62 AMC 1172
PANW Palo Alto Networks Inc $152.74 41.60 AMC 7766
SRPT Sarepta Therapeutics Inc $30.15 81.60 AMC 6283
VEEV Veeva Systems Inc $43.58 40.11 AMC 1351
KITE Kite Pharma Inc $52.97 72.81 1497

 

Wednesday March 1:

Economic: Motor Vehicle Sales, MBA Mortgage Applications – 7:00, Personal Income and Outlays – 8:30, Gallup US Job Creation Index – 6:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction – 10:00, EIA Petroleum Status Report – 10:30. Beige Book – 2:00.

International Economic: Germany Unemployment Rate – 3:55AM, Eurozone Manufacturing Index – 4:00AM, Germany CPI – 8:00Am.

Other: Dallas Federal Reserve Bank President Robert Kaplan discuss local and national issues with Paul Quinn College President Michael Sorrell in Dallas, Texas – 12:00PM.

Earnings:

Symbol Company Name Feb 24 Close IV30 B/A AVGOPTVOL
BBY Best Buy Co Inc $44.31 48.03 BMO 12114
DLTR Dollar Tree, Inc. $77.57 44.73 BMO 7573
MYL Mylan NV $42.33 33.26 BMO 11743
PCRX Pacira Pharmaceuticals Inc $43.90 108.69 BMO 1091
AVGO Broadcom Ltd $210.58 29.52 AMC 9588
MNST Monster Beverage Corp $43.91 34.50 AMC 2474
SHAK Shake Shack Inc $36.61 41.64 AMC 1501

 

Thursday March 2:

Economic: Chain Store Sales, Weekly Jobless Claims – 8:30, Bloomberg Consumer Comfort Index – 9:45, PMI Services Flash – 9:45, EIA Natural Gas Report – 10:30, Money Supply – 4:30PM.

International Economic: Eurozone Unemployment Rate – 5:00AM, Eurozone PPI – 5:00AM, Global Composite PMI – 11:00AM.

Other: Federal Reserve Bank of Cleveland President Loretta Mester participates in a Power Talk event at Barnard College in New York, N.Y., with audience Q&A – 7:00PM

Earnings:

Symbol Company Name Feb 24 Close IV30 B/A AVGOPTVOL
BURL Burlington Stores Inc $85.39 38.82 BMO 1202
CNQ Canadian Natural Resource Ltd $29.40 31.48 BMO 3559
JD JD.Com Inc(ADR) $30.61 35.65 BMO 22659
KR Kroger Co $32.99 27.51 BMO 6572
ADSK Autodesk, Inc. $87.10 42.30 AMC 5291
NTNX Nutanix Inc $30.15 77.50 AMC 1812

 

Friday March 3:

Economic: PMI Service Index – 9:45, ISM Non-Manufacturing Index – 10:00, Baker-Hughes Rig Count – 1:00PM.

International Economic: Eurozone Retail Sales – 5:00AM, Global Composite PMI – 11:00AM.

Other: Vice Chairman Stanley Fischer of the Board of Governors of the Federal Reserve System gives keynote speech on this year’s report on inflation expectations and dynamics at Chicago Booth’s 2017 US Monetary Policy Forum in New York City, Chicago Federal Reserve Bank President Charles Evans and Richmond Federal Reserve Bank President Jeffrey Lacker discuss this year’s report on inflation expectations and dynamics at Chicago Booth’s 2017 US Monetary Policy Forum in New York City, with audience Q&A – 10:15AM, Federal Reserve Chair Janet Yellen speaks at the Executives’ Club of Chicago – 1:00PM.

Earnings:

Symbol Company Name Feb 24 Close IV30 B/A AVGOPTVOL
BIG Big Lots, Inc. $51.35 45.82 BMO 959

 

Monday March 6:

Economic: Gallup US spending Measure – 8:30, Factory Orders – 10:00, TD-Ameritrade IMX – 12:30PM, Durable Goods Orders – 8:30, Dallas Fed Manufacturing Survey – 10:30.

International Economic: No major announcements.

Orders: Minneapolis Federal Reserve Bank President Neel Kashkari speaks at NABE conference in panel titled “A View from the FRB Minneapolis,” in Washington, D.C – 3:00PM.

Earnings:

Symbol Company Name Feb 24 Close IV30 B/A AVGOPTVOL
CASY Casey’s General Stores Inc $116.60 30.08 AMC 958
THO Thor Industries, Inc. $110.16 36.21 AMC 848

 

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