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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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