Frank Fahey: Market News for the Prepared Mind: 3.13-3.20.2017

“Chance favors the Prepared Mind.” -Louis Pasteur

“I had nothing to offer anybody except my own confusion.” -Jack Kerouac

“Experience is not what happens to a man; it is what a man does with what happens to him.” -Aldous Huxley

“When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.” -PJ O’Rourke

The S&P 500 Index recorded its first weekly loss after six consecutive weeks of gains. A strong jobs report and the glimmerings of inflation all but guarantee a rate hike at this week’s FOMC meeting. It should be noted that job numbers which Trump described as phony, when reported by the previous administration, are now described by the current administrations as “very real,” “great again”, and “great news for American workers.” The Bureau of Labor Statistics has not changed the methodology for computing the employment numbers. As Mike Ditka once famously replied, “Who ya crappin?”

This rosy outlook is threatened by the Trump administration’s impending renegotiation of trade agreements Grumbling by fiscal hawks in the House could throw a wrench in implementation of the president’s legislative agenda. This uncertainty led to a market searching for a trend. The lack of a short-term trend has made it difficult for traders. I ignored one my of my tried and true trading maxims last week – “Doing nothing is a viable trading strategy.” I chose to flail around rather than doing nothing. The comings week’s mantra will be “Do not force trades.”

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

Index 10-Mar Change % Weekly 2016 YTD Volatility of Index
Dow Jones Industrials (DJIA) 20,902.98 (102.73) -0.49% 5.77% 11.3% (VXD)
S&P 500 (SPX) 2,371.25 (9.25) -0.39% 5.94% 11.66% (VIX)
NASDAQ 100 (NDX) 5,373.48 0.00 0.00% 10.48% 12.20% (VXN)
Russell 2000 (RUT) 1,365.64 (28.48) -2.04% 0.63% 16.33% (RVX)
S&P 100 (OEX) 1055.24 (1.60) -0.15% 6.44% 10.50% (VXO)
Crude Oil (CLJ7) 48.39 (4.81) -9.04% -10.21% 33.45%(OVX)
CBOE Volatility Index (VIX) 11.66 0.70 6.39% NA

Data Source: OptionVue8

The 2017 high for the CBOE Volatility Index is 13.28. As of Friday March 10, the VIX has gone 46 consecutive session without going above 13.50. This is the longest stretch below 13.5 since the 2008 financial crisis. The longest all time streak of 68 days below 13.50 took place from September 2006 to February. These low VIX levels are indicative of the fact the S&P 500 has gone 103 days without a 1% drop. Beware of complacency.

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

Indexes Ticker 10-Mar 3-Mar Change % Change
CBOE Volatility Index VIX 11.66 10.96 0.70 6.39%
VIX March Future (3/22/2017) VXH7 12.525 12.825 (0.30) -2.34%
VIX April Future (4/19/2017) VXJ7 14.200 14.575 (0.38) -2.57%
VIX May Future (5/17/2017) VXK7 15.125 15.425 (0.30) -1.94%
CBOE Short-term Volatility Index VXST 10.68 8.56 2.12 24.77%
CBOE 3 Month Volatility Index VXV 14.38 14.26 0.12 0.84%
CBOE Mid-term Volatility Index (6 month) VXMT 16.33 16.25 0.08 0.49%
VIX of VIX VVIX 80.27 81.19 (0.92) -1.13%
CBOE SKEW Index SKEW 138.99 136.10 2.89 2.12%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 18.90 20.13 (1.23) -6.11%
iPath S&P 500 VIX Short Term Futures ETN VXX 17.01 17.54 (0.53) -3.02%
ProShares VIX Short Term Futures ETF VIXY 14.18 14.61 (0.43) -2.94%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 28.45 28.96 (0.51) -1.76%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 132.58 128.79 3.79 2.94%
Daily Inverse VIX Short Term ETN XIV 68.42 66.42 2.00 3.01%

Data Source: OptionVue8

The week of March 13 is all about the Federal Reserve. The Federal Reserve will meet ab March 14 and March 5. It will and announce its monetary policy on Wednesday. Release of the FOMC report will be followed by a Janet Yellen press conference. Other national banks in the news this week. The Banks of Japan and England will also meet along with the Swiss National Bank. The Group of 20 (G20) will meet in Baden-Baden on March 17 and 18. China will release industrial production and retail sales data for the first two months of the year.

The earnings season has entered the quiet time. Adobe and Dollar General are the only stocks announcing earnings this week which meet my criteria. For trading the announcement. 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.


Advice to stimulate your imagination:

“I took a speed-reading course and read War and Peace in twenty minutes. It involves Russia.” -Woody Allen

“I don’t mind going back to daylight saving time.”

With inflation, the hour will be the only thing I’ve saved all year.” –Victor Borge

“Buy the ticket, take the ride.” –Hunter S. Thompson


Monday, March 13:

Economic: Labor Market Conditions Index – 10:00.

International Economic: Japan Tertiary Index – 1:30AM, China Industrial Production and Retail Sales – 10:00PM.


Tuesday, March 14:

Economic: NFIB Small Business Optimism Index – 6:00, PPI – FD – 8:30, Redbook – 8:55.

International Economic: Germany CPI – 3:00AM, Eurozone Industrial Production – 6:00.

Other: FOMC meeting begins.


Wednesday, March 15:

Economic: MBA Mortgage Applications – 7:00, CPI – 8:30, Retail Sales – 8:30, Empire State Manufacturing Survey = 8:30, Business Inventories – 10:00, Housing Market Index 0 10:00, EIA Petroleum Status Report – 10:30.

International Economic: France CPI – 3:45AM, Great Britain Labour Market Report – 5:30AM.

Other: FOMC Meeting Announcement – 2:00, Fed Chair Press Conference – 2:30.


Thursday, March 16:

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

International Economic: Eurozone HICP – 6:Am.

Other: European Central Bank (ECB) Announcement – 7:45 AM


Friday, March 17:

Quadruple Witching – expiration for stock index futures, stock index options, stock options and single stock futures.

Economic: Industrial Production – 9:15, Atlanta Fed Business Inflation Expectations – 10:00, Consumer Sentiment – 10:00, Leading Indicators – 10:00, Baker-Hughes Rig Count – 1:00PM.

International Economic: Eurozone Merchandise Trade – 6:00AM.


Monday, March 20:

Economic: Chicago Fed National Activity Index – 8:30.

International Economic: Germany PPI = 3:00AM.

Other: Chicago Federal Reserve Bank President Charles Evans will speak at New York National Association for Business Economics Luncheon followed by audience and then media Q&A in New York – 1:10PM.


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