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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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