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Frank Fahey: Market News for the Prepared Mind: 2.6-2.13.2017

February 6, 2017


‘A Scout is never taken by surprise; he knows exactly what to do when anything unexpected happens.” Robert Baden-Powell

“Imagination decides everything.” – Blaise Pascal

“Every noble acquisition is attended with its risks; he who fears to encounter the one must not expect to obtain the other.” – Pietro Metastasio

“Chance favors the Prepared Mind.” – Louis Pasteur

Major indexes hovered around unchanged at the end of Friday’s trade. The closing prices for the week did not reflect the market’s defensive posture prior to Friday. The indexes responded negatively to President Trump’s bellicose trade talk, while showing no response to Wednesday’s FOMC announcement. The percentage change for the major indexes from the Friday recovery are as follows: DJIA + 0.94%, SPX +0.58%, NDX +0.27%, RUT +1.50%, and the OEX + 0.75%.

Friday’s rally was the result of stronger than expected job growth and President Trump’s announcement he was going to investigate a roll back of Dodd-Frank regulations. The market is starting to show interday and intraday movement. The movement is generally in response to unscheduled Presidential Executive Orders, ruminations, and tweets. These responses to President Trump’s declaration are viewed by many of increased future market volatility.

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

Index 3-Feb Change % Weekly 2016 YTD Volatility of Index
Dow Jones Industrials (DJIA) 20,071.46 (22.32) -0.11% 1.56% 11.36% (VXD)
S&P 500 (SPX) 2,297.42 2.73 0.12% 2.64% 10.97% (VIX)
NASDAQ 100 (NDX) 5,161.60 (6.40) -0.12% 6.13% 12.78% (VXN)
Russell 2000 (RUT) 1,377.84 7.14 0.52% 1.53% 17.06% (RVX)
S&P 100 (OEX) 1013.69 0.76 0.08% 2.25% 10.14% (VXO)
Crude Oil (CLH7) 53.85 0.65 1.22% -0.07% 28.11%(OVX)
CBOE Volatility Index (VIX) 10.97 0.39 3.69% NA

Data Source: OptionVue8

The VIX remains under pressure. The VIX and associated products showed minimally lower volatility levels for the week. The volatility levels were significantly higher before Friday’s market rally. On Friday, the VIX was down 0.96 or just over 8%, The VIX still appears to be planted in a new. lower trading range. Puts in the S&P 500 continue to trade at historically low levels.

A review of Livevol Pro time and sales uncovered a large VIX calendar spread trading at the end of day on Thursday. The spread was 135,000 contracts. The diagonal calendar spread included the purchase of one monthly March 17C against the sale of one monthly April 21C. The price of the trade for the initiator was a 0.08 debit – March purchased @ 1.14 and April sold @ 1.06.

Two different future contracts are the underlyings for these contracts. At the time of the trade, the spread between the March future (VXH7) and the April futures contract (VXJ7) was approximately 1.30 points. This trade benefits in a run up in the price of the VIX.

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

Indexes Ticker 3-Feb 27-Jan Change % Change
CBOE Volatility Index VIX 10.97 10.58 0.39 3.69%
VIX February Future (2/15/2017) VXG7 12.475 12.525 (0.05) -0.40%
VIX March Future (3/22/2017) VXH7 13.925 14.125 (0.20) -1.42%
VIX April Future (4/19/2017) VXJ7 15.225 15.425 (0.20) -1.30%
CBOE Short-term Volatility Index VXST 9.19 9.36 (0.17) -1.82%
CBOE 3 Month Volatility Index VXV 14.05 13.68 0.37 2.70%
CBOE Mid-term Volatility Index (6 month) VXMT 16.27 16.21 0.06 0.37%
VIX of VIX VVIX 88.97 83.63 5.34 6.39%
CBOE SKEW Index SKEW 133.25 129.95 3.30 2.54%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 23.53 23.83 (0.30) -1.26%
iPath S&P 500 VIX Short Term Futures ETN VXX 18.82 18.97 (0.15) -0.79%
ProShares VIX Short Term Futures ETF VIXY 15.69 15.83 (0.14) -0.88%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 30.06 30.56 (0.50) -1.64%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 121.36 120.74 0.62 0.51%
Daily Inverse VIX Short Term ETN XIV 62.69 62.33 0.36 0.58%

Data Source: OptionVue8

The impact of potential executive orders will continue to overshadow a soft week for economic reports. The major reports being released is International Trade before Tuesday’s market open. The other domestic reports released this week elicit yawns for most market observers. Economic reports from Asia and Europe will focus on merchandise trade and industrial production.

The earnings season continues in full force despite earnings announcements from over 67% of S&P 500 companies. 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 Hasbro, Randgold Resources, Tyson Foods, Michael Kors, General Motors, Buffalo Wild Wings, Panera Bread, Zillow, Humana, Prudential Financial, Whole Foods Market, Cummins, Kellogg, Dunkin Brands, Regeneron, Expedia, NVIDIA, Verisign and Yelp.

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

“A life spent making mistakes is not only more honorable but more useful than a life spent in doing nothing.” – George Bernard Shaw “It is an endless procession of surprises. The expected rarely occurs and never in the expected manner.” – Vernon A. Walters

Monday, February 6:

Economic: Gallup US Consumer Spending Measure – 8:30, Labor Market Conditions Index – 10:00, TD Ameritrade IMX – 12:30.

International Economic: Germany Manufacturers’ Orders – 2:00AM.

Other: Philadelphia Federal Reserve Bank President Patrick T. Harker discusses Fintech opportunities at Kona Kai Resort in San Diego, Calif – 4:30PM.

Earnings:

Symbol Company Name Feb 3 Close IV30 B/A AVGOPTVOL
GOLD Randgold Resources Ltd. $85.73 38.89 BMO 1587
HAS Hasbro, Inc. $82.44 30.90 BMO 1116
NOV National-Oilwell Varco, Inc. $37.80 35.70 BMO 3257
NWL Newell Brands Inc $47.81 32.26 BMO 1830
SYY SYSCO Corporation $52.38 25.94 BMO 1850
TSN Tyson Foods, Inc. $65.18 31.90 BMO 4462
FOXA Twenty-First Century Fox Inc $31.46 26.49 AMC 3097
HAIN Hain Celestial Group Inc $39.35 38.55 AMC 4279
TSO Tesoro Corporation $82.51 31.00 AMC 8506

Tuesday, February 7:

Economic: International Trade – 8:30, Gallup US ECI – 8:30, Redbook – 8:55, JOLTS – 10:00.

International Economic: Germany Industrial Production – 2:00AM, French Merchandise Trade – 2:00.

Other: St. Louis Federal Reserve Bank President Bullard speaks about U.S. economy and monetary policy at financial forum at Washington University in St. Louis, MO., with audience and media Q&A – 9:10AM,

Earnings:

Symbol Company Name Feb 3 Close IV30 B/A AVGOPTVOL
AGCO AGCO Corporation $62.40 28.71 BMO 825
ALR Alere Inc $38.23 45.14 BMO 3562
CAH Cardinal Health Inc $74.44 26.21 BMO 1114
CNC Centene Corp $64.01 37.48 BMO 1028
GM General Motors Company $35.73 27.19 BMO 57589
GWPH GW Pharmaceuticals PLC $115.30 40.00 BMO 1899
KORS Michael Kors Holdings Ltd $40.89 45.67 BMO 7437
MNK Mallinckrodt PLC $49.70 56.88 BMO 4159
TDG TransDigm Group $221.77 38.80 BMO 908
AKAM Akamai Technologies, Inc. $69.40 47.98 AMC 3573
BWLD Buffalo Wild Wings $149.25 42.71 AMC 910
GILD Gilead Sciences, Inc. $72.25 26.34 AMC 45533
LITE Lumentum Holdings Inc $37.85 53.28 AMC 994
MCHP Microchip Technology Inc. $68.78 28.71 AMC 802
MDLZ Mondelez International Inc $44.01 28.96 AMC 22849
MOS Mosaic Co $31.45 35.95 AMC 9676
PAA Plains All American Pipeline $31.98 31.62 AMC 5313
PNRA Panera Bread Co $211.22 30.34 AMC 1288
PXD Pioneer Natural Resources $183.46 28.19 AMC 3248
TTWO Take Two Interactive Software $54.80 40.09 AMC 926
TWLO Twilio Inc $30.10 65.38 AMC 12220
VMC Vulcan Materials Company $128.01 31.16 AMC 1314
Z Zillow Group, Inc. Class C $35.35 44.16 AMC 3116
Wednesday, February 8:

Economic: MBA Mortgage Applications – 7:00, EIA Petroleum Status Report – 10:30.

International Economic: Japan Machine Orders – 6:50PM.

Earnings:

Symbol Company Name Feb 3 Close IV30 B/A AVGOPTVOL
AGN Allergan plc $229.52 29.89 BMO 18985
ALK Alaska Air Group, Inc. $94.53 30.65 BMO 1022
CTL Centurylink Inc $25.26 30.11 BMO 5346
GT Goodyear Tire & Rubber Co $32.07 32.60 BMO 2001
HUM Humana Inc $199.39 28.16 BMO 12121
ALNY Alnylam Pharmaceuticals, Inc. $41.46 60.76 AMC 1038
CXW Corecivic Inc $29.27 41.39 AMC 2483
GRUB GrubHub Inc $41.38 57.22 AMC 1265
PRU Prudential Financial Inc $104.43 31.78 AMC 4589
RIO Rio Tinto plc (ADR) $44.61 37.43 AMC 5472
WFM Whole Foods Market, Inc. $29.66 32.24 AMC 12019

Thursday, February 9:

Economic: Weekly Jobless Claims – 8:30, Bloomberg Consumer Comfort Index – 9:45, Wholesale Trade 10:00, EIA Natural Gas Report – 10:30, Money Supply – 4:30PM.

International Economic: China Merchandise Trade Balance, Germany Merchandise Trade – 2:00AM, Japan PPI – 6:50PM.

Other: St. Louis Federal Reserve Bank President Bullard speaks about U.S. economy and monetary policy at financial forum at Washington University in St. Louis, MO., with audience and media Q&A – 9:10AM, Chicago Federal Reserve Bank President Charles Evans speaks about current economic conditions or monetary policy at the CFA Society of Chicago Distinguished Speakers Series event in Chicago, Ill., with audience and media Q&A – 10:00PM.

Earnings:

Symbol Company Name Feb 3 Close IV30 B/A AVGOPTVOL
BWA BorgWarner Inc. $40.47 33.08 DMT 966
CMI Cummins Inc. $146.33 26.27 BMO 4013
DNKN Dunkin Brands Group Inc $50.81 28.70 BMO 2270
K Kellogg Company $72.77 25.35 BMO 2033
NLSN Nielsen Holdings PLC $41.65 29.45 BMO 1116
PTEN Patterson-UTI Energy, Inc. $27.75 39.18 BMO 1449
REGN Regeneron Pharmaceuticals $360.56 38.82 BMO 4082
ZAYO Zayo Group Holdings Inc $31.58 35.19 BMO 1340
ACIA Acacia Communications, Inc. $57.34 62.28 AMC 3055
ATVI Activision Blizzard, Inc. $40.47 33.83 AMC 16529
CERN Cerner Corporation $53.62 35.92 AMC 2576
EXPE Expedia Inc $120.59 34.09 AMC 6185
MAS Masco Corp $33.00 31.44 AMC 854
NBIX Neurocrine Biosciences, Inc. $42.15 66.04 AMC 808
NVDA NVIDIA Corporation $115.39 52.73 AMC 94251
UBNT Ubiquiti Networks Inc $62.73 51.57 AMC 808
VIAB Viacom, Inc. $41.58 33.43 AMC 5455
VRSN Verisign, Inc. $81.70 29.95 AMC 1359
YELP Yelp Inc $42.62 54.13 AMC 4649
Friday, February 10:
Economic: Import and Export Prices – 8:30, Consumer Sentiment – 10:00, Baker-Hughes Rig count – 1:00PM.

International Economic: France Industrial Production 2:45AM, Great Britain Industrial Production – 4:30AM, Great Britain Merchandise Trade – 4:30AM.

Other: Vice Chairman of the Federal Reserve Stanley Fischer speaks at Warwick Economics Summit on Saturday February 11 in Coventry, United Kingdom, with audience Q&A – 7:30AM.

Earnings: None meeting scan criteria.

Monday, February 13:

Economic: No major Announcements.
International Economic: Japan GDP 6:50PM Sunday, Chica CPI and PPI – 8:30PM.
Earnings:
Symbol Company Name Feb 3 Close IV30 B/A AVGOPTVOL
CTSH Cognizant Technology Solutions $51.68 32.92 BMO 6491
HCP HCP, Inc. $30.70 29.19 BMO 1470
NBL Noble Energy, Inc. $39.73 28.15 BMO 1934
TEVA Teva Pharmaceutical Industries $34.19 32.44 BMO 27768
AAP Advance Auto Parts, Inc. $162.34 31.65 AMC 1944
CSOD Cornerstone OnDemand, Inc. $41.56 58.36 AMC 1862
LBTYA Liberty Global PLC $36.29 30.00 AMC 1411