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Frank Fahey: Market News for the Prepared Mind: 7.17-7.24.2017

July 17, 2017

“Chance favors the Prepared Mind.” – Louis Pasteur

“I don’t necessarily agree with everything that I say.” – Marshall McLuhan

“The more injuries you get, the smarter you get.” – Mikhail Baryshnikov

” Smooth seas do not make skillful sailors” – African Proverb

This weekend’s financial headlines were not encouraging – “Summer Swoon?”, “Workers squeezed as inflation outstrips wage growth,” “Dangers of a Record Dow,” and “Stocks Continue their Long and Eerie Ascent.” These alarms are raised on a quarterly basis as the markets reach new heights. Further compounding the concern is the extend period we have gone without a correction.

Successful options traders look at risk first. I have added an additional adjective – “surviving.” There is a camaraderie among market-makers who stood in the pits during the market meltdown in 1987. The survivors share the stories and, most importantly, share the lessons. I learned to always look at my dollar risk first. If I can control risk, rewards should naturally follow. Be wary.

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

Data Source: OptionVue8

The VIX close was the lowest since 1993. The July future (VXN7), which goes of the board on the market open on Wednesday, traded as high 13.00. The CBOE history for non-VIX SPX related indexes goes back until 2007-2008. The VXST, VXMT, and VXV each made all-time lows. The VIX closed at an all-time non-holiday low. Two previous lower VIX lows included multiple three day weekends. Three day weekends and holidays all have a negative impact on the VIX.

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

Data Source: OptionVue8

All eyes will be on the housing sector. Optimism in the home has been an important factor in consumer confidence levels. Housing starts and permits have not reflected this confidence. The Housing Market Index will be released on Tuesday, while Housing Starts and Building Permits will be released on Wednesday. Both were weaker than expected in April and May. Continued weakness would require analysts to reevaluate the contribution of Housing to Q2 and Q3 GDPs.

It is earnings season! The traditional start of a quarterly earnings season is the earnings announcement by Alcoa (NYSE:AA). This announcement will take place after the market close on Wednesday, July 19, 2017. You do not have to wait until Wednesday to trade significant earnings announcements. Earnings highlights for the coming week include Charles Schwab, Blackrock, Kinder Morgan, Lockheed martin, IBM, Bank of America, Goldman Sachs, UnitedHealth, Johnson&Johnson, Morgan Stanley, Qualcomm, WW Grainger, Abbott Labs, eBay, Visa, Intuitive Surgical, Sherwin Williams, Microsoft, Bank of New York Mellon, PPG, Capital one, General Electric, Honeywell, Schlumberger, and Colgate-Palmolive. 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.

Advice to stimulate your imagination:

“Don’t wait. The time will never be just right.” – Napoleon Hill

“Always go too far, because that’s where you’ll find the truth” – Albert Camus

“A point of view can be a dangerous luxury when substituted for insight and understanding.” – Marshall McLuhan

“I’ve met enough KGB colonels in my life.” – Garry Kasparov

Monday, July 17:

Economic: Empire State Manufacturing Survey – 8:30.

International Economic: No major announcements.

Earnings:

Tuesday, July 18:

Economic: Import and Export Prices – 8:30, Redbook – 8:55, Housing Market Index – 10:00.

International: Great Britain CPI and PPI – 4:30AM.

Other: Last day of trading for July VIX (VXN7) and associated options.

Earnings:

Wednesday, July 19:

Economic: MBA Mortgage Applications – 7:00, Housing Starts – 8:30, EIA Petroleum Status Report – 10:30.

International Economic: Japan All Industry Index – 1:30AM.

Other: July VIX settles on opening.

Earnings:

Thursday, July 20:

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

International Economic: China Merchandise Trade Balance – 2:00AM, Germany PPI – 2:00Am, Great Britain Retail Sales – 4:30AM.

Other: European Central Bank Announcement – 7:45AM.

Earnings: