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Frank Fahey: Market News for the Prepared Mind: 1.30-2.6.2017

January 30, 2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“Imagination decides everything.” – Blaise Pascal

“Risk is like fire: If controlled it will help you; if uncontrolled it will rise up and destroy you.” – Theodore Roosevelt

“To make a mistake is only human; to persist in a mistake is idiotic.” – Cicero

The stock market enjoyed a solid week. The Dow Jones Industrials, the S&P 500, and the NASDAQ composite gained 1% to 2% while achieving record highs. The Dow broke 20,000 this week. The DJIA was just under 3,000 when I started trading on the floor of the Chicago Board Options Exchange in 1985. It was just above 8,000 at the beginning of Barack Obama’s presidency. These numbers have always been little more to me than as the benchmark I use to measure my own personal performance.

Announced earnings were strong last week. Stronger than expected earnings were counterbalanced be a lackluster Q4 US GDP. Q4 GDP grew at an annualized rate of 1.9%. Consensus for the quarter was 2.2%. The economy grew at a 1.6% in 2016 vs. 2.6% in 2015. This was the 11th straight year the economy failed to reach an annualized 3% growth rate for the year. The economy and economic reports did not dominate the news last week. All eyes were on the Beltway.

Traditional media and social media were dominated by President Trump and a litany of executive orders and appointments. The background noise reached a roar this weekend with an executive order temporarily barring citizens of seven Muslim-majority countries from entering the United States. Domestic blowback came from both sides of the aisle and from the CEO’s from a cross section of the Fortune 100.

The most disconcerting aspect is how ill-prepared the relevant government agencies were to handle the impact of the this announcement. It does not auger well for the market if bold policy moves are met with incompetent implementation. It will be very interesting to gauge market reaction when the S&P 500 E-mini futures open for trading at 5:00PM on Sunday.

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

Index 27-Jan Change % Weekly 2016 YTD Volatility of Index
Dow Jones Industrials (DJIA) 20,093.78 266.28 1.34% 1.68% 10.56% (VXD)
S&P 500 (SPX) 2,294.69 28.19 1.24% 2.52% 10.58% (VIX)
NASDAQ 100 (NDX) 5,168.00 104.80 2.07% 6.26% 12.30% (VXN)
Russell 2000 (RUT) 1,370.70 18.85 1.39% 1.00% 16.58% (RVX)
S&P 100 (OEX) 1012.93 9.89 0.99% 2.17% 9.87% (VXO)
Crude Oil (CLH7) 53.20 (0.04) -0.08% -1.28% 29.78%(OVX)
CBOE Volatility Index (VIX) 10.58 (0.96) -8.32% NA

Data Source: OptionVue8

The VIX and associated products showed lower volatility levels for the week. The VIX appears to have found a new lower trading range. The index appears to be headed towards the eighth straight monthly expiration with the VRO under 16.00. The VIX futures and index seemed oblivious to moderate down market movements during the week. Puts in the S&P 500 are trading at historically low levels. There is an aura of invincibility surrounding the bull market. The put-call call ratio in the S&P 500 is at its lowest levels since 2009. Short interest in domestic equities is at 3.5% – its lowest level since 2014.

This is an observation, not a recommendation. I become wary when indicators and prices are at the wings of their normal distribution. My experience tells me to be wary and be nimble. Do not worry about missing a move. Legendary New York financier Bernard Baruch summed up his approach, “Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.”

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

Indexes Ticker 27-Jan 20-Jan Change % Change
CBOE Volatility Index VIX 10.58 11.54 (0.96) -8.32%
VIX February Future (2/15/2017) VXG7 12.525 13.825 (1.30) -9.40%
VIX March Future (3/22/2017) VXH7 14.125 15.225 (1.10) -7.22%
VIX April Future (4/19/2017) VXJ7 15.425 16.375 (0.95) -5.80%
CBOE Short-term Volatility Index VXST 9.36 9.72 (0.36) -3.70%
CBOE 3 Month Volatility Index VXV 13.68 14.49 (0.81) -5.59%
CBOE Mid-term Volatility Index (6 month) VXMT 16.21 17.07 (0.86) -5.04%
VIX of VIX VVIX 83.63 83.63 0.00 0.00%
CBOE SKEW Index SKEW 129.95 146.33 (16.38) -11.19%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 23.83 28.40 (4.57) -16.09%
iPath S&P 500 VIX Short Term Futures ETN VXX 18.97 20.71 (1.74) -8.40%
ProShares VIX Short Term Futures ETF VIXY 15.83 17.25 (1.42) -8.23%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 30.56 32.73 (2.17) -6.63%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 120.74 107.20 13.54 12.63%
Daily Inverse VIX Short Term ETN XIV 62.33 55.28 7.05 12.75%

Data Source: OptionVue8

The coming week brings the first Fed meeting of 2017, along with the CoreLogic Case-Shiller Home Price Index and the U.S. Employment Situation report for January. Little is expected from the FOMC’s Wednesday afternoon announcement. The week ends with the January employment situation on Friday, followed by factory orders and the ISM non-manufacturing report follow on Friday. If the data come in as expected, the week will point to a solid opening for the first quarter. The Friday reports are expected to be positive. The focus in Europe will be on the United Kingdom and Brexit.

The earnings season continues full force 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. The earnings highlights this week, for widely held and actively traded stocks, are Eli Lilly, Exxon-Mobil, Harley Davidson, AMD, Apple. US Steel, Cirrus Logic, Facebook, Amgen, and Amazon.

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. I have increase the level of the average daily option volume to 800 from 400. 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:

“A fool and his money are soon elected.” – Will Rogers

“Any fool can know. The point is to understand.” – Albert Einstein “Any fool can criticize, condemn and complain – and most fools do.” -Benjamin Franklin

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:

Symbol Company Name Jan 27 Close IV30 B/A AVGOPTVOL
BOFI BofI Holding, Inc. $28.09 52.94 DMT 1877
IDTI Integrated Device Technology $25.96 50.86 AMC 867
OLN Olin Corporation $26.64 35.51 AMC 1134
PKG Packaging Corp Of America $94.02 28.99 AMC 1178

 

Tuesday January 31:

Economic: Employment Cost Index – 8:30, Redbook – 8:55, S&P Corelogic Case-Shiller HPI – 8:00, Chicago PMI – 9;45, Consumer Confidence – 10:00, Sate Street Investor Confidence Index – 10:00, Farm Prices – 3:00PM.

International Economic: Germany Retail Sales – 2:00AM, France CPI and PPI – 2:45Am, Germany Unemployment Rate – 3:55AM. Eurozone GDP Flash, Eurozone Unemployment Rate – 5:00AM, China CFLP Manufacturing PMI – 8:00PM.

Other: FOMC meeting begins.

Earnings:

Symbol Company Name Jan 27 Close IV30 B/A AVGOPTVOL
HCA HCA Holdings Inc $80.28 27.47 DMT 4270
ZBH Zimmer Biomet Holdings Inc $115.35 25.19 DMT 916
ABC AmerisourceBergen Corp. $83.39 30.88 BMO 1984
CIT CIT Group Inc. $42.78 27.03 BMO 2891
COH Coach Inc $35.90 32.50 BMO 4226
HOG Harley-Davidson Inc $60.18 35.04 BMO 3400
HP Helmerich & Payne, Inc. $75.11 29.83 BMO 1503
NUE Nucor Corporation $60.71 30.52 BMO 5855
PCAR PACCAR Inc $68.08 27.60 BMO 819
UAA Under Armour Inc $29.13 43.97 BMO 15077
APC Anadarko Petroleum $71.14 26.12 AMC 12197
EA Electronic Arts Inc. $81.70 30.97 AMC 10401
UA Under Armour, Inc. $25.50 43.66 1641
X United States Steel $33.54 66.33 60525
VLO Valero Energy Corporation $67.37 27.67 11777

 

Wednesday February 1:

Economic: Motor Vehicle Sales, MBA Mortgage Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30AM, Treasury Refunding Announcement, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction Spending – 10:00, EIA Petroleum Status Report – 10:30.

International Economic: Germany PMI Manufacturing Index – 3:55AM, Eurozone PMI Manufacturing Index – 4:00AM.

Other: FOMC Meeting Announcement – 2:00PM.

Earnings:

Symbol Company Name Jan 27 Close IV30 B/A AVGOPTVOL
CRUS Cirrus Logic, Inc. $60.34 55.28 BMO 2740
IAC IAC/InterActiveCorp $69.95 31.47 BMO 1026
RGLD Royal Gold, Inc (USA) $69.58 39.19 BMO 1890
USG USG Corporation $30.09 35.53 BMO 1087
EW Edwards Lifesciences Corp $95.13 36.61 AMC 2138
FB Facebook Inc $132.78 28.61 AMC 269855
LNC Lincoln National Corporation $69.65 30.19 AMC 1207
MET Metlife Inc $56.03 25.42 AMC 18579
QRVO Qorvo Inc $63.34 53.57 AMC 2447
SYMC Symantec Corporation $27.21 31.52 AMC 3394
TSCO Tractor Supply Company $74.99 29.27 AMC 898
TUP Tupperware Brands $57.65 37.60 AMC 1021
MPC Marathon Petroleum Corp $49.44 33.11 18003
MPLX MPLX LP $38.25 29.41 1800

 

Thursday February 2:

Economic: Chain Store Sales, Challenger Job-Cut Report – 7:30, Weekly Jobless Claims – 8:30, Productivity and Costs – 8:30, Gallup Good Jobs Rate – 8:30, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30, Money Supply – 4:30PM.

International Economic: Eurozone PPI – 5:00AM. Bank of Japan Minutes – 6:50PM.

Other: Bank of England Announcement and Minutes – 7:00AM.

Earnings:

Symbol Company Name Jan 27 Close IV30 B/A AVGOPTVOL
AZN AstraZeneca plc (ADR) $26.72 32.25 BMO 7007
BLL Ball Corporation $76.36 25.41 BMO 1035
CI CIGNA Corporation $146.80 33.14 BMO 1430
COP ConocoPhillips $50.63 25.36 BMO 19210
EL Estee Lauder Companies Inc $81.96 28.00 BMO 1654
RL Ralph Lauren Corp $90.01 40.17 BMO 1591
SNE Sony Corp (ADR) $31.12 29.71 BMO 809
AMZN Amazon.com, Inc. $839.15 28.74 AMC 107702
AMGN Amgen, Inc. $152.98 25.84 AMC 15987
ATHN athenahealth, Inc $123.85 45.08 AMC 1449
CMG Chipotle Mexican Grill, Inc. $418.73 31.18 AMC 20140
DECK Deckers Outdoor Corp $60.59 48.11 AMC 1475
DLPH Delphi Automotive PLC $71.86 31.87 AMC 1417
FTNT Fortinet Inc $32.57 44.94 AMC 3384
GIMO Gigamon Inc $32.50 64.41 AMC 1172
POST Post Holdings Inc $82.64 36.44 AMC 2247
SCCO Southern Copper Corp $37.82 27.74 AMC 873
DATA Tableau Software Inc $48.21 62.41 AMC 1747

 

Friday February 3:

Economic: January Employment Situation – 8:30, PMI Services Index – 9:45, Factory orders – 10:00, ISM Non- Manufacturing Index – 10:00, Factory Orders – 10:00, Baker-Hughes Rig count – 1:00PM.

International Economic: Eurozone PMI Composite – 4:00AM, Eurozone Retail Sales – 5:00AM, Global Composite PMI – 11:00AM, Global Services PMI – 11:00AM.

Other: Chicago Federal Reserve Bank President Charles Evans speaks on current economic conditions at the Prairie State College Economic Breakfast in Olympia Fields, Ill., with audience and media Q&A – 9:15AM.

Earnings:

Symbol Company Name Jan 27 Close IV30 B/A AVGOPTVOL
LYB Lyondell Basell Industries NV $95.39 27.19 BMO 3368
BERY Berry Plastics Group Inc $51.56 28.63 AMC 848

 

Monday February 6:

Economic: Gallup US Consumer Spending Measure – 8:30, Labor Market Conditions Index – 10:00, TD Ameritrade IMX – 12:30.

International Economic: No major announcements.

Other: Philadelphia Federal Reserve Bank President Patrick T. Harker discusses Fintech opportunities at Kona Kai Resort in San Diego, Calif – 4:30PM.

Earnings:

Symbol Company Name Jan 27 Close IV30 B/A AVGOPTVOL
CTSH Cognizant Technology Solutions $56.27 31.56 BMO 6239
HAS Hasbro, Inc. $81.51 31.10 BMO 1136
NOV National-Oilwell Varco, Inc. $39.25 31.45 BMO 3200
NWL Newell Brands Inc $46.35 28.44 BMO 1969
GOLD Randgold Resources Ltd. (ADR) $81.30 38.15 BMO 1681
TSN Tyson Foods, Inc. $61.71 33.07 BMO 4372
HAIN Hain Celestial Group Inc $39.98 36.76 AMC 4252
TSO Tesoro Corporation $81.94 31.39 AMC 8132
FOXA Twenty-First Century Fox Inc $31.00 26.77 AMC 3247