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Frank Fahey: Market News for the Prepared Mind: 1.23-1.30.2017

January 23, 2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“Imagination decides everything.” – Blaise Pascal

“There are known knowns. These are things we know that we know. There are known unknowns.That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.” – Donald Rumsfeld

“Confidence is ignorance. If you’re feeling cocky, it’s because there’s something you don’t know.” ― Eoin Colfer

If you wake up early on Monday mornings tune in to “Stocks and Jocks” – a financial talk show with sports commentary airing Monday-Friday, 6-8AM CT on stocksandjocks.net. I join host, Tom Haugh, at 6AM CT every Monday. The show has been described as combining “the market insight of Louis Rukeyser, a dash of sports, and the humor of Seinfeld with truly honest stock market and economic advice.” My area of expertise is honesty.

My apologies for the quiet time for the blog. Other responsibilities of a higher priority took precedence over my weekly writing. Rumblings of market volatility are expected by many during the first 100 days of the new administration. The blog is a good starting point for outlining what we do know about the upcoming trading week.

Inauguration week ended with domestic and global markets flat to lower. Uncertainty was tagged by many pundits as the primary source of concern for investors. Janet Yellen said it makes sense for the Fed to withdraw monetary support a “few times a year.” The size and timing of Fed rate increases, combined with uncertainty about President Trump’s policy direction, raised concerns about market volatility. Indexes sold off in response to the content and style of Trump’s inaugural speech. Most of the criticism centered on the absence of details about the President’s ambitious plans.

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

Index 20-Jan Change % Weekly 2017 YTD Volatility of Index
Dow Jones Industrials (DJIA) 19,827.50 (58.23) -0.29% 0.33% 11.47% (VXD)
S&P 500 (SPX) 2,266.50 (8.10) -0.36% 1.26% 11.54% (VIX)
NASDAQ 100 (NDX) 5,063.20 3.70 0.07% 4.10% 13.04% (VXN)
Russell 2000 (RUT) 1,351.85 (20.15) -1.47% -0.39% 16.96% (RVX)
S&P 100 (OEX) 1003.04 (3.56) -0.35% 1.17% 10.50% (VXO)
Crude Oil (CLG7) 53.24 0.09 0.17% -1.21% 29.19%(OVX)
CBOE Volatility Index (VIX) 11.54 0.31 2.76% NA

Data Source: OptionVue8 

The settlement range for the monthly VIX may be entering a new normal. The January exercise-settlement value for VIX options (VRO) was 12.42. This was the seventh straight monthly expiration with the VRO under 16.00. Per Russell Rhoads at the CBOE, the longest streak of monthly settlements under 16.00 is 11. This streak took place from August 2006 through June 2007.

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

Indexes Ticker 20-Jan 13-Jan Change % Change
CBOE Volatility Index VIX 11.54 11.23 0.31 2.76%
VIX February Future (2/15/2017) VXG7 13.825 14.225 (0.40) -2.81%
VIX March Future (3/22/2017) VXH7 15.225 15.725 (0.50) -3.18%
VIX April Future (4/19/2017) VXJ7 16.375 16.975 (0.60) -3.53%
CBOE Short-term Volatility Index VXST 9.72 8.99 0.73 8.12%
CBOE 3 Month Volatility Index VXV 14.49 14.54 (0.05) -0.34%
CBOE Mid-term Volatility Index (6 month) VXMT 17.07 17.16 (0.09) -0.52%
VIX of VIX VVIX 83.63 92.90 (9.27) -9.98%
CBOE SKEW Index SKEW 146.33 132.32 14.01 10.59%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 28.40 30.63 (2.23) -7.28%
iPath S&P 500 VIX Short Term Futures ETN VXX 20.71 21.46 (0.75) -3.49%
ProShares VIX Short Term Futures ETF VIXY 17.25 17.90 (0.65) -3.63%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 32.73 31.90 0.83 2.60%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 107.20 110.95 (3.75) -3.38%
Daily Inverse VIX Short Term ETN XIV 55.28 57.25 (1.97) -3.44%

Data Source: OptionVue8 

About 20% of S&P 500 stocks will be announcing earnings this coming week. Domestic economic reports focus on the housing sector. The release of Real GDP on Friday morning has the ability to move markets. Much of the trade this week will be in anticipation of next week’s Fed meeting and January employment numbers. Many traders are approaching the first week of Trump’s presidency with caution. Expect a flurry of activity with regards to the ACA, trade, immigration and energy’ Be careful with standing open orders.

The earnings season is ramping up this week. 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 will start trading announcements this week. The earnings highlights this week for widely held and actively traded stocks are Halliburton, Yahoo!, Alibaba, Alcoa, Capital One, Cree, Eagle Materials, Rockwell Automation, Textron, McKesson, F5 Networks, QUALCOMM, Alphabet, Boeing, McDonald’s, Caterpillar, Microsoft.Xilinx, Biogen, Whirlpool, VMware, PayPal, and American Airlines.

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 > 400 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: Livevol Core and OptionVue8 

Advice to stimulate your imagination:

“Remember what the Dormouse said…feed your head!” – Grace Slick

“Any fool can know. The point is to understand.” – Albert Einstein

Monday January 23: 

Economic: No major announcements

International Economic: Eurozone Consumer Confidence Flash – 10:00AM, Japan PMI Manufacturing Index Flash – 7:30PM.

Other: ECB President Draghi speaks – 6:30AM.

Earnings:

Symbol Company Name Jan 20 Close IV30 B/A AVGOPTVOL
HAL Halliburton Company $55.34 25.88 BMO 25383
SIMO Silicon Motion Technology $42.29 46.92 AMC 406
YHOO Yahoo! Inc. $42.09 27.37 AMC 16406
ZION Zions Bancorp $42.31 30.60 AMC 2350

 

Tuesday January 24: 

Economic: Redbook – 8:55, Existing Home Sales – 10:00, Richmond Fed Manufacturing Index – 10:00.

International Economic: Germany PMI Composite Flash – 3:30AM, Eurozone PMI Composite Flash – 4:00AM

Earnings:

Symbol Company Name Jan 20 Close IV30 B/A AVGOPTVOL
BABA Alibaba Group Holding Ltd $96.17 29.75 BMO 104477
DHI D.R. Horton, Inc. $28.01 29.50 BMO 2876
DFS Discover Financial Services $70.00 25.98 BMO 2154
FITB Fifth Third Bancorp $25.99 28.76 BMO 3601
PII Polaris Industries Inc. $85.90 40.51 BMO 1360
PLD Prologis Inc $52.76 25.81 BMO 889
AA Alcoa Corp $35.42 42.17 AMC 5489
CA CA, Inc. $32.55 25.08 AMC 762
COF Capital One Financial Corp. $86.72 27.94 AMC 7370
CREE Cree, Inc. $27.62 44.32 AMC 2131
HA Hawaiian Holdings, Inc. $55.20 42.80 AMC 584
LOGI Logitech International SA $25.34 44.36 AMC 425
STX Seagate Technology PLC $36.34 42.72 AMC 10214
STLD Steel Dynamics, Inc. $35.79 35.78 AMC 4543
EXP Eagle Materials, Inc. $98.35 32.78 587

 

Wednesday January 25: 

Economic: MBA Mortgage Applications – 7:00, FHFA House Price Index – 9:00, EIA Petroleum Status Report – 10:30.

International Economic: Germany Ifo Survey – 4:00AM, Great Britain Industrial Trends Survey – 6:00AM.

Earnings:

Symbol Company Name Jan 20 Close IV30 B/A AVGOPTVOL
HES Hess Corp. $57.72 34.33 BMO 15415
ROK Rockwell Automation $140.00 26.72 BMO 678
STT State Street Corp $78.75 28.83 BMO 1432
TXT Textron Inc. $49.42 28.76 BMO 1284
CTXS Citrix Systems, Inc. $92.63 31.25 AMC 977
CLB Core Laboratories N.V. $121.24 33.82 AMC 403
EBAY eBay Inc $30.72 33.28 AMC 20652
FFIV F5 Networks, Inc. $142.54 34.94 AMC 923
LRCX Lam Research Corporation $110.84 28.67 AMC 1870
LVS Las Vegas Sands Corp. $55.84 29.66 AMC 22556
MCK McKesson Corporation $147.29 32.68 AMC 1949
MEOH Methanex Corporation (USA) $44.55 36.04 AMC 500
MUR Murphy Oil Corporation $31.60 42.49 AMC 1366
NSC Norfolk Southern Corp. $114.42 27.01 AMC 2844
QCOM QUALCOMM, Inc. $64.44 30.41 AMC 31658
NOW ServiceNow Inc $82.70 47.20 AMC 1757
TER Teradyne, Inc. $26.09 33.15 AMC 832
URI United Rentals, Inc. $110.45 41.65 AMC 4627
VAR Varian Medical Systems, Inc. $89.48 27.16 AMC 449
VRTX Vertex Pharmaceuticals Inc. $80.91 47.63 AMC 1498
WDC Western Digital Corp $71.67 38.03 AMC 18273
XLNX Xilinx, Inc. $57.98 28.64 AMC 5095

 

Thursday January 26: 

Economic: Weekly Jobless Claims – 8:30, International Trade in Goods – 8:30, Chicago Fed National Activity Index – 8:30, Bloomberg Consumer Comfort Index – 9:45, PMI Services Flash – 9:45, New Home Sales – 10:00, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30, Kansas City Fed Manufacturing Index – 11:00.

International Economic: Great Britain GDP – 4:30AM, Great Britain Distributive Trades – 6:00AM.

Earnings:

Symbol Company Name Jan 20 Close IV30 B/A AVGOPTVOL
ASH Ashland Global Holdings Inc $109.77 25.69 BMO 779
BHI Baker Hughes Incorporated $61.96 29.18 BMO 3226
BIIB Biogen Inc $280.35 38.70 BMO 7044
BMY Bristol-Myers Squibb Co $55.49 31.11 BMO 36743
BC Brunswick Corporation $54.90 33.82 BMO 410
CELG Celgene Corporation $113.62 27.46 BMO 22994
DOV Dover Corp $78.25 27.24 BMO 574
EQT EQT Corporation $62.49 31.14 BMO 602
IVZ Invesco Ltd. $30.17 25.80 BMO 1206
LLL L3 Technologies Inc $151.91 25.72 BMO 429
MJN Mead Johnson Nutrition CO $74.85 31.52 BMO 1975
RCL Royal Caribbean Cruises Ltd $84.56 34.73 BMO 3625
SHW Sherwin-Williams Co $283.09 26.08 BMO 1087
LUV Southwest Airlines Co $50.07 31.53 BMO 7499
WHR Whirlpool Corporation $185.23 31.47 BMO 2211
ETFC E*TRADE Financial Corp $36.24 28.28 AMC 4028
EMN Eastman Chemical Company $76.02 26.90 AMC 1572
JNPR Juniper Networks, Inc. $27.42 33.73 AMC 4363
KLAC KLA-Tencor Corp $81.15 27.18 AMC 705
MXIM Maxim Integrated Products $40.58 29.53 AMC 1338
MSCC Microsemi Corporation $55.13 49.92 AMC 979
SYNA Synaptics, Incorporated $53.27 55.57 AMC 783
VMW VMware, Inc. $82.69 34.16 AMC 3253
WRK WestRock Co $51.28 32.23 AMC 755
PYPL Paypal Holdings Inc $41.27 26.85 14829

 

Friday January 27: 

Economic: Durable Goods Orders – 8:30, GDP – 8:30, Consumer Sentiment – 10:00, Baker-Hughes Rig count – 1:00PM.

International Economic: No major announcements.

Earnings:

Symbol Company Name Jan 20 Close IV30 B/A AVGOPTVOL
AAL American Airlines Group Inc $47.26 33.69 BMO 30194
BEN Franklin Resources, Inc. $39.86 27.64 BMO 2226

 

Monday January 30: 

Economic: Personal Income and Outlays – 8:30, Pending Home Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30.

International Economic: Germany CPI – 8:00, Japan Household Spending and Unemployment Rate – 6:30PM, Japan Industrial Production – 6:50PM.

Earnings: None meeting criteria.