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Frank Fahey: Market News for the Prepared Mind: 5.8-5.15.2017

May 8, 2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“Democrats never agree on anything, that’s why they’re Democrats. If they agreed with each other, they’d be Republicans.”.” – Will Rogers

“A man who procrastinates in his choosing will inevitably have his choice made for him by circumstance.” –  Hunter S. Thompson

“The Euro ceases to exist the moment that France leaves.” –  Marie Le Pen

“France is back.” – Emmanuel Macron 

Last week ended with two of the three major indexes hitting new highs.  The S&P 500 rose 14.80 to close at 2399.92 – a new all-time high, The NASDAQ Composite gained nearly 1%, closing at an all-time high of, advancing 6100.76.  The Dow Jones Industrial Average was the laggard.  The DJIA advanced 0.3% to close just above 21,000.  The small cap dominated Russell 2000 continued to underperform when compared to larger cap indices.

Financial talking heads are using the VIX to fan the fires of concern about an impending market sell off.    It seems every market pundit has a “fact” about the VIX or S&P 500 volatility which portends the risk of the end of the bull market.  As of the close this past Thursday, the S&P 500 had gone 7 days without a move of 0.2% in either direction.  According to Bespoke Investment, this was only the fifth time the SPX had ever gone as many days with so little movement.  This concern was followed by a 0,4% gain on Friday.  The VIX hit a post Financial Crisis low of 9.90 on Monday, while again dipping below 10 on Friday.

The weakness in the VIX and the lack of movement in the major indices are not predictors of market direction.  The greatest challenge for me as a trader is avoiding complacency.  Trading requires patience and a sense of urgency.  Trading has been described by long periods of boredom interrupted by moments of panic.  The lethargy of a quiet market can rob a trader of the sense of urgency required to prepare for the reaction required for moments of panic. Hunter S. Thompson summed it up with““A man who procrastinates in his choosing will inevitably have his choice made for him by circumstance.”

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

Low implied volatility is a basic fact of current markets.  Low statistical volatility (movement of the underlying) and low implied volatility (reflected in premium levels of options) are forcing options traders to reevaluate the strategies being used.  The viability of any option strategy must be evaluated against change in time, movement in the price of the underlying and changes in implied volatility of the options.  Low levels in volatility forces the option trader to find strategies fitting their risk/reward comfort zone.

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

Will inflation return in May?  April price readings will be released this week; import and export prices will be released on Wednesday, while the Producer Price Index will be released on Thursday and the Consumer Price Index will be released on Friday.  Economists and investors will be looking for stability in prices and a number near the Fed’s 2% target.

Strong profit reports, along with conference calls with positive forecasts, continue to be a driving force behind stocks moving upward.  First quarter earnings announcement will continue the next two weeks.   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:  Newell Brands, Tyson Foods, Marriott, Trip Advisor, Walt Disney, AON, Priceline, Allergan, NVIDIA, Mylan, Whole Foods, Vulcan Materials, Perrigo, Nordstrom, Kohl’s Macy’s and JC Penney.

 

Advice to stimulate your imagination:

“Patience, Grasshopper” – Master Po

“If you do not actively attack the risks, they will actively attack you.”  – Tom Gib

“The key to risk management is never putting yourself in a position where you cannot live to fight another day.” – Dick Fuld

“The easy way out usually leads back in.” – Peter Senge

“In a closed society where everybody’s guilty, the only crime is getting caught. In a world of thieves, the only final sin is stupidity.”- Hunter S. Thompson

 

Monday, May 8: 

Economic:  Labor Conditions Index – 10:00, TD Ameritrade IMX – 12:30PM.

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

Other:  St. Louis Federal Reserve Bank President James Bullard to speak at a policy session held the Federal Reserve Bank of Atlanta’s 22nd Annual Financial Markets Conference on “Shifting Sands of Low Interest Rates” in Fernandina Beach, Florida, with audience Q&A – 8:35AM,  Cleveland Federal Reserve President Loretta Mester speaks about the economic outlook and monetary policy at the Chicago Council on Global Affairs Public Breakfast Program — From Main Street to Wall Street: Economic Growth, Monetary Policy, and the Federal Reserve, in Chicago IL, with audience and media Q&A, 8:45AM.

 

Tuesday, May 9: 

Economic:   NFIB Small Business Optimism Index – 6:00, Redbook – 8:55, JOLTS – 10:00. Wholesale Trade – 10:00.

International Economic:  Germany Industrial Production and Merchandise Trade – 2:00AM, China CPI and PPI – 9:30PM.

Other:  Boston Federal Reserve Bank President Eric Rosengren will be the Keynote Speaker at the Risk Management for Commercial Real Estate Conference being held at the NYU Stern School of Business in New York, New York – 1:00PM, Dallas Federal Reserve Bank President Robert Kaplan to speak at the Dallas Regional Chamber Lower Middle Market Investment Summit in Dallas, with audience and media Q&A – 4:15PM.

Earnings:

 

Wednesday, May 10: 

Economic:  MBA Mortgage Applications – 7:00, Import and Export Prices – 8:30, Atlanta Fed Business Inflation Expectations – 10:00, EIA Petroleum Status Report – 10:30.

International Economic:  France Merchandise Trade – 2:45AM.

Other:  Boston Federal Reserve Bank President Eric Rosengren will be the Keynote Speaker at a joint meeting of the Lake Champlain Regional Chamber and Central Vermont Chamber of Commerce in South Burlington, VT – 12:00PM.

 

Thursday, May 11: 

Economic:  Weekly Jobless Claims – 8:30, PPI-FD – 8:30, Bloomberg Consumer Confidence – 9:45, EIA Natural Gas Report – 10:30, Money Supply – 4:30.

International Economic:  Great Britain Industrial Production and Merchandise Trade – 4:30AM, Bank of England Announcement and Minutes.

Other: New York Federal Reserve Bank President William Dudley speaks on the Benefits and Challenges from Globalization at the Interaction with President Dudley event held by the U.S. India Business Council, the Confederation of Indian Industry and the Bombay Stock Exchange in Mumbai, India, with audience Q&A – 8:30AM.

 

Friday, May 12: 

Economic:  CPI – 8:30, Retail Sales = 8:30, Business Inventories – 10:00 Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.

International Economic: Germany CPI and GDP Flash – 2:00AM, Eurozone Industrial Production – 5:00AM.

Other: Chicago Federal Reserve President Charles Evans speaks about current economic conditions and monetary policy in panel discussion, with audience and media Q&A, at the 56th ACI Financial Markets Association World Conference in Dublin, Ireland – 9:00AM, Philadelphia Federal Reserve Bank President Patrick T. Harker to speak about “Economic Outlook” at the Drexel University Urban Economics Policy Conference in Philadelphia, with audience and media Q&A – 12:30PM.

Earnings:  None meeting criteria.

 

Sunday, May 14: 

International Economic:  China Fixed Asset Investment, Industrial Production, and Retail Sales – 10:00PM.

 

Monday, May 15: 

Economic:  Empire State Manufacturing Survey – 8:30, Housing Market Index – 10:00.

International Economic:  No major announcements.

Earnings: None meeting criteria.

 

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