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Frank Fahey: Market News for the Prepared Mind: 4.3-4.10.2017

April 3, 2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“I accept chaos, I’m not sure whether it accepts me.” – Bob Dylan

“Chaos is the score upon which reality is written.” – Henry Miller

“You can’t overlook the volatility, but you don’t let it push you around in the market” – Boone Pickens

Major indexes had a stellar first quarter in 2017. Financial news for the past week is dominated by articles rife with superlatives. The S&P 500 (SPX) had its best performance since the fourth quarter of 2013 with gains of 5.56%. (The quarterly gains are under the heading “2016 YTD” in the accompanying table.) The Dow Jones Industrials (DJIA) gained 4.56% ,while registering its sixth consecutive quarterly gain. This string of quarterly gains is the best in 11 years. Both the DJIA and the SPX saw only one daily decline of 1% or more during the first quarter. This decline took place on March 21.

The technology laden NASDAQ 100 was the star for the quarter. It gained over 10%.. The NDX has registered over 20 all-time closing highs in 2017 and 30 record closes since the November election. Apple, Microsoft, Amazon.com, Facebook, and Alphabet comprise over 39% of the weighting of the NDX. The stellar performance of this index reflects the amazing performance of 4 impressive companies.

These performances have revived talk among market professionals about the likelihood of a market correction. Contrarians are pointing to recent consumer confidence levels as the harbinger of a market downturn. The Conference Board’s consumer confidence index reading was 125.6 in March – up from 116.1 in February. This number for consumer confidence in March was the highest level in more than 16 years.

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

Index 31-Mar Change % Weekly 2016 YTD Volatility of Index
Dow Jones Industrials (DJIA) 20,663.32 66.60 0.32% 4.56% 11.44% (VXD)
S&P 500 (SPX) 2,362.72 18.74 0.80% 5.56% 12.37% (VIX)
NASDAQ 100 (NDX) 5,436.23 72.24 1.35% 11.77% 11.75% (VXN)
Russell 2000 (RUT) 1,385.92 31.28 2.31% 2.12% 16.16.% (RVX)
S&P 100 (OEX) 1046.06 6.98 0.67% 5.51% 10.47% (VXO)
Crude Oil (CLK7) 50.85 2.71 5.63% -5.64% 27.59%(OVX)
CBOE Volatility Index (VIX) 12.37 (0.59) -4.55% NA

Data Source: OptionVue8

The VIX had the second lowest quarterly average daily close of all-time. The lowest average closing price was in the 4th quarter of 2006.The VIX exhibited the tightest low to high range of all-time for the Q12017. The first quarter range was 2.54. According to Russell Rhoads, CBOE VIX guru, the average range of VIX closing prices for a quarter is 10.54. The rubber band of volatility is wound very tight.

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

Indexes Ticker 31-Mar 24-Mar Change % Change
CBOE Volatility Index VIX 12.37 12.96 (0.59) -4.55%
VIX April Future (4/19/2017) VXJ7 13.275 13.925 (0.65) -4.67%
VIX May Future (5/17/2017) VXK7 13.575 14.400 (0.83) -5.73%
VIX June Future (6/21/2017) VXM7 14.250 15.125 (0.88) -5.79%
CBOE Short-term Volatility Index VXST 9.66 13.43 (3.77) -28.07%
CBOE 3 Month Volatility Index VXV 13.60 14.55 (0.95) -6.53%
CBOE Mid-term Volatility Index (6 month) VXMT 15.25 16.28 (1.03) -6.33%
VIX of VIX VVIX 78.31 89.74 (11.43) -12.74%
CBOE SKEW Index SKEW 138.31 136.62 1.69 1.24%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 16.17 18.22 (2.05) -11.25%
iPath S&P 500 VIX Short Term Futures ETN VXX 15.79 16.77 (0.98) -5.84%
ProShares VIX Short Term Futures ETF VIXY 13.17 13.97 (0.80) -5.73%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 26.30 27.90 (1.60) -5.73%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 141.15 133.82 7.33 5.48%
Daily Inverse VIX Short Term ETN XIV 73.03 69.16 3.87 5.60%

Data Source: OptionVue8

It is first and foremost employment week. In addition to employment, the first week of April also includes a report on factory orders and the minutes of the last Fed meeting. The focus of the majority of domestic market participants will be focused on the Employment Situation report on Friday. The ADP Employment Report on Wednesday is viewed by many analysts as an accurate predictor of Friday’s release of the Employment Situation data.. The release on Wednesday afternoon of the minutes of the most recent FOMC meeting will be closely watched as attempts are made to divine the size and timing of future interest rate hikes. Political fireworks will continue to be the wildcard in play.

The first glimmer of the new earning season start this week. Earnings announcements are predictable volatility events providing trading opportunity. It is important to reduce the number of surprise 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. The earnings highlights this week, for widely held and actively traded stocks, are: International Speedway, Acuity Brands, Walgreen’s Boots Alliance, Monsanto, Greenbrier, Bed Bath and Beyond, CarMax, Fred’s Ruby Tuesday, Constellation Brands and RPM International.

Advice to stimulate your imagination:

 

It’s a cruel and random world, but the chaos is all so beautiful.” – Hiromu Arakawa

“Man approaches the unattainable truth through a succession of errors.” – Aldous Huxley

“The sky is falling” – Chicken little

“The world is still a weird place, despite my efforts to make clear and perfect sense of it.”
– Hunter S. Thompson

Monday, April 3: 

Economic: PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction Spending – 10:00, Gallup US Consumer Spending Measure – 8:30,

International Economic: France PMI Manufacturing Index – 3:50AM, Germany PMI manufacturing Index, Eurozone PMI Manufacturing Index – 4:00Am, Great Britain CIPS/PMI Manufacturing Index – 4:30AM, Eurozone – Unemployment Rate – 5:00AM,

Other: New York Federal Reserve Bank President William Dudley hosts a press briefing on household borrowing, student debt trends and the impact of student debt and educational attainment on homeownership, followed by Q&A, in New York, N.Y. – 10:30AM,Richmond Federal Reserve Bank President Jeffrey Lacker gives speech entitled “From ‘Real Bills’ to ‘Too Big to Fail’: H.Parker Willis and the Federal Reserve’s First Century”, followed by media Q&A, at Washington & Lee University, in Lexington, Virginia – 5:00PM.

 

Tuesday, April 4: 

Economic: Motor Vehicle Sales, International Trade – 8:30, Gallup US ECI – 8:30, Redbook – 8:55, Factory Orders – 10:00.

International Economic: Eurozone Employment Rate – 5:00AM, Japan PMI Composite – 8:30PM.

Other: On his next to the last day in office as Federal Reserve Governor, Daniel Tarullo addresses Princeton University in Princeton, N.J., with audience Q&A – 4:30PM.

 

Wednesday, April 5:

Economic: MBA Mortgage Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, PMI Services Index – 9:45, ISM Non-Manufacturing Index – 10:00, EIA Petroleum Status Report – 10:30.

International Economic: France PMI Composite – 3:66, Eurozone PMI Composite – 4:00AM.

Other: FOMC Minutes – 2:00PM.

 

Thursday, April 6:

Economic: Chain Store Sales, Weekly Jobless Claims – 8:30, Gallup Good Jobs Rate – 8:30, – 8:30, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30, Money Supply – 4;30.

International Economic: Germany Manufacturers’ Orders – 2:00AM.

Other: European Central Bank Minutes – 7:30AM.

 

Friday, April 7:

Economic: March Employment Situation, Wholesale Trade 0 10:00, Consumer Sentiment – 10:00. Baker-Hughes Rig Count – 1:00PM.

International Economic: Germany Industrial Production – 2:00AM, Germany Merchandise Trade – 2:00, France Industrial Production – 2:45AM, Great Britain Industrial Production – 4:30AM.

Other: New York Federal Reserve Bank President William Dudley speaks about the State of Financial Regulation and the Potential for Reform at Princeton University’s Griswold Center for Economic Policy Studies event held at the Princeton Club of New York, with moderated Q&A, in New York, N.Y. – 12:15PM.

 

Monday, April 10:

Economic: Labour Market Conditions Index – 10:00.

International Economic: No major announcements.

 

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