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Frank Fahey: Market News for the Prepared Mind: 2.13-2.21.2017

February 13, 2017


“I love to talk about nothing. It’s the only thing I know anything about.”
― Oscar Wilde

“Imagination decides everything.” – Blaise Pascal

“The two most powerful warriors are patience and time.” – Leo Tolstoy

“Chance favors the Prepared Mind.” – Louis Pasteur

As of Fridays close, the S&P 500 had gone for 39 consecutive trading sessions without an intra-day move greater than 1%. This is the longest streak in history. The past few trading weeks summed up by the world’s oldest rock star, Tuli Kupferberg. in the Fug’s classic “Nothing.”

Monday, nothing
Tuesday, nothing
Wednesday and Thursday, nothing
Friday, for a change, a little more nothing
Saturday, once more, nothing
Sunday, nothing
Monday, nothing
Tuesday and Wednesday, nothing
Thursday, for a change, a little more nothing
Friday, once more, nothing.

The march of time may inexorable, but the market will not remain range bound. Patience is required by a trader waiting for something to occur in the markets. My first responsibility goal, as a trader, is to make sure I am not financially hurt by the next move in the market. Short term risk is the foundation for my position risk exposure. Success is not imperative on one’s ability to buy a bottom or sell a top.

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

Index 10-Feb Change % Weekly 2016 YTD Volatility of Index
Dow Jones Industrials (DJIA) 20,269.27 197.81 0.99% 2.56% 10.98% (VXD)
S&P 500 (SPX) 2,313.25 15.83 0.69% 3.35% 10.85% (VIX)
NASDAQ 100 (NDX) 5,226.69 65.09 1.26% 7.47% 12.31% (VXN)
Russell 2000 (RUT) 1,388.84 11.00 0.80% 2.34% 17.91% (RVX)
S&P 100 (OEX) 1020.69 7.00 0.69% 2.95% 10.41% (VXO)
Crude Oil (CLH7) 53.85 0.00 0.00% -0.07% 26.43%(OVX)
CBOE Volatility Index (VIX) 10.85 (0.12) -1.09% NA

Data Source: OptionVue8

The VIX is, also, part of the nothing movement in the markets. The price of the VIX reflects a market which has been extraordinarily quiet. The VIX and associated products have shown minimally lower volatility levels as the SPX moved up this week. The VIX has closed under 12 for 16 days. The VIX is at a significant support level. The major topic of conversation among traders is the question Chubby Checker asked in Limbo Rock; “How low can you go?” I have seen at-the- money index implied volatility with an “8” handle and as high as the 170’s. It should be noted that I saw both of these levels in the same year – 1987.

Trading activity in the VIX options pit has been divided between trades providing portfolio insurance and speculative risk reversals. The risk reversals have seen the purchase of call verticals which are financed through the sale of out-of-the money puts. CBOE TV airs several daily reports from the VIX pit. These reports are valuable in getting a flavor of the daily VIX trade – options and futures.

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

Indexes Ticker 10-Feb 3-Feb Change % Change
CBOE Volatility Index VIX 10.85 10.97 (0.12) -1.09%
VIX February Future (2/15/2017) VXG7 11.725 12.475 (0.75) -6.01%
VIX March Future (3/22/2017) VXH7 13.375 13.925 (0.55) -3.95%
VIX April Future (4/19/2017) VXJ7 15.125 15.225 (0.10) -0.66%
VIX May Future (5/17/2017) VXK7 16.025 16.025 0.00 0.00%
CBOE Short-term Volatility Index VXST 9.02 9.19 (0.17) -1.85%
CBOE 3 Month Volatility Index VXV 13.91 14.05 (0.14) -1.00%
CBOE Mid-term Volatility Index (6 month) VXMT 16.17 16.27 (0.10) -0.61%
VIX of VIX VVIX 85.77 88.97 (3.20) -3.60%
CBOE SKEW Index SKEW 130.47 133.25 (2.78) -2.09%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 21.91 23.53 (1.62) -6.88%
iPath S&P 500 VIX Short Term Futures ETN VXX 18.21 18.82 (0.61) -3.24%
ProShares VIX Short Term Futures ETF VIXY 15.16 15.69 (0.53) -3.38%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 30.06 30.06 0.00 0.00%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 125.40 121.36 4.04 3.33%
Daily Inverse VIX Short Term ETN XIV 64.64 62.69 1.95 3.11%

Data Source: OptionVue8

It will be a very heavy week for economic news. The week starts with Janet Yellen’s semi-annual testimony before the Senate Banking Committee followed on Wednesday by her testimony before the House Financial Services Committee. Yellen’s testimony has the potential to break the streak of no daily 1% moves in the SPX. Reports on retail sales, consumer prices and industrial production will be released on Wednesday. Thursday’s highlight will be release of Housing Starts and the Philadelphia Fed Business Outlook Survey. The number in this regional manufacturing survey will be correlated and compared against Wednesday’s Industrial Production report.

The earnings season is starting to wind down. Earnings announcements are predictable volatility events providing trading opportunity. It is important to reduce the number of surprise 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. The earnings highlights this week, for widely held and actively traded stocks, are Teva Pharmaceutical, Noble Energy, Restaurants International, Scorpio Tankers, Rent-A-Center, and Flowers Foods.

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:

“A lot of my work is a matter of reacting to surprises in life.” – Alexander Wang

” Patience is necessary, and one cannot reap immediately where one has sown.” – Soren Kierkegaard

“To learn patience is not to rebel against every hardship.” – Henri Nouwen

Monday February 13:

Economic: No major Announcements.

International Economic: Japan GDP – 6:50PM Sunday, China CPI and PPI – 8:30PM.

Earnings:

Symbol Company Name Feb 10 Close IV30 B/A AVGOPTVOL
NBL Noble Energy, Inc. $38.39 26.97 BMO 1944
TEVA Teva Pharmaceutical $32.25 36.73 BMO 28401
CSOD Cornerstone OnDemand, Inc. $41.55 50.79 AMC 1627

Tuesday February 14:

Last day of Trading for February VIX Futures and Options.

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

International Economic: Germany CPI – 2:00AM, Germany GDP Flash – 2:00AM, Great Britain CPI & PPI – 5:00AM, Eurozone GDP Flash – 5:00AM, Eurozone Industrial Production – 5:00AM.

Other: Richmond Federal Reserve Bank President Jeffrey Lacker speaks at the University of Delaware 2017 Economic Forecast conference in Newark, Del., with media & audience Q&A – 8:50AM, Federal Reserve Chair Janet Yellen will give her semiannual monetary policy testimony before the Senate Banking Committee – 10:00AM, Atlanta Federal Reserve Bank President Dennis Lockhart speaks at Huntsville Rotary Club regarding crisis, recession, and recovery in Huntsville, Ala., with media and audience Q&A – 12:50PM, Dallas Federal Reserve Bank President Robert Kaplan participates in a panel discussion at the Greater Houston Port Bureau luncheon in Houston, Texas, with audience and media Q&A – 1:00PM,.

Earnings:

Symbol Company Name Feb 10 Close IV30 B/A AVGOPTVOL
A Agilent Technologies Inc $50.47 25.05 BMO 1215
DISCA Discovery Communications $27.96 31.26 BMO 1173
DVN Devon Energy Corp $44.75 32.70 BMO 11012
INCY Incyte Corporation $122.96 43.99 BMO 1367
MLM Martin Marietta Materials, Inc. $225.32 30.69 BMO 1108
TMUS T-Mobile Us Inc $62.25 36.44 BMO 9410
ESRX Express Scripts Holding Co $67.48 27.04 AMC 9698

Wednesday February 15:

Economic: MBA Mortgage Applications – 7:00, Consumer Price Index (CPI) – 8:30, Retail Sales – 8:30, Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15, Atlanta Fed Business Inflation Expectations = 10:00, Housing Market Index – 10:00, EIA Petroleum Status Report – 10:30.

International Economic: Great Britain Labour Report – 4:30AM, Eurozone Merchandise Trade – 5:00AM.

Other: Federal Reserve Chair Janet Yellen will give her semiannual monetary policy testimony before the House Financial Services Committee – 10:00, Boston Federal Reserve Bank President Eric Rosengren gives keynote speech at New York Association Economics Luncheon at the Harvard Club in NYC – 12:00PM, Philadelphia Federal Reserve President Patrick Harker speaks on the economic outlook at La Salle University 16th Annual Economic Outlook in Pa., with media and audience Q&A – 12:45PM.

Earnings:

Symbol Company Name Feb 10 Close IV30 B/A AVGOPTVOL
BG Bunge Ltd $68.57 31.32 BMO 1137
CC Chemours Co $27.59 54.32 BMO 2459
MDCO The Medicines Company $48.75 68.45 BMO 1663
SHOP Shopify Inc $54.61 51.82 BMO 1088
TRGP Targa Resources Corp $59.31 31.60 BMO 1486
WMB Williams Companies Inc $28.67 30.04 BMO 6183
WYN Wyndham Worldwide $81.65 27.07 BMO 1036
ADI Analog Devices, Inc. $76.51 25.10 AMC 810
AEM Agnico Eagle Mines Ltd (USA) $50.20 39.39 AMC 4020
AMAT Applied Materials, Inc. $35.41 29.42 AMC 12083
CAR Avis Budget Group Inc. $37.41 53.08 AMC 2641
CF CF Industries Holdings, Inc. $34.49 42.68 AMC 11251
LBTYA Liberty Global PLC $35.19 30.77 AMC 1276
NTAP NetApp Inc. $39.31 37.47 AMC 3836
NTES NetEase Inc (ADR) $257.56 37.91 AMC 3552
TRIP Tripadvisor Inc $52.51 46.61 AMC 2967

Thursday February 16:

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

International Economic: No major announcements

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

Earnings:

Symbol Company Name Feb 10 Close IV30 B/A AVGOPTVOL
ALXN Alexion Pharmaceuticals, Inc. $127.08 39.38 BMO 5807
CAB Cabelas Inc $50.24 39.61 BMO 1058
CHTR Charter Communications Inc $325.07 28.39 BMO 2991
MGM MGM Resorts International $28.62 28.32 BMO 19619
PRGO Perrigo Company PLC $79.44 42.08 BMO 2179
REGN Regeneron Pharmaceuticals $360.00 30.85 BMO 4194
SHPG Shire PLC (ADR) $171.82 26.95 BMO 997
ANET Arista Networks Inc $97.81 38.54 AMC 1095
TPX Tempur Sealy International Inc $45.75 55.02 AMC 3115
TRN Trinity Industries Inc $27.85 41.51 AMC 1430
WBMD WebMD Health Corp. $50.65 34.24 AMC 4529

Friday February 17:

Economic: E-Commerce Retail Sales, Leading Indicators – 10:00, Baker-Hughes Rig count – 1:00PM.

International Economic: Great Britain Retail Sales – 4:30AM

Earnings:

Symbol Company Name Feb 10 Close IV30 B/A AVGOPTVOL
VFC VF Corp $49.47 30.89 BMO 3438
FLR Fluor Corporation (NEW) $55.37 27.55 AMC 1149

Monday February 20:

US Markets Closed: Holiday – Presidents Day

International Economic: Germany PPI – 2:00AM, Great Britain Industrial Trends Survery- 600AM, Japan Consumer Confidence Flash – 7:30PM.

Tuesday February 21:

Economic: PMI Manufacturing Index Flash – 9:45.

International Economic: France CPI – 2:45AM, Germany PMI Composite Flash – 4:00AM, Eurozone PMI Composite Flash,

Earnings:

Symbol Company Name Feb 10 Close IV30 B/A AVGOPTVOL
AER AerCap Holdings N.V. $45.94 26.12 BMO 925
DDS Dillard’s, Inc. $57.29 44.79 BMO 941
DISH DISH Network Corp $61.07 36.54 BMO 4076
M Macy’s Inc $32.37 49.23 BMO 23821
NEM Newmont Mining Corp $37.20 36.02 BMO 21471
XPO XPO Logistics Inc $45.43 45.69 BMO 2225
AAP Advance Auto Parts, Inc. $164.83 31.32 AMC 2077
CXO Concho Resources Inc $139.86 29.44 AMC 906
NFX Newfield Exploration Co. $40.91 37.08 AMC 2023
TEX Terex Corporation $31.32 39.66 AMC 1327