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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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