Blog
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 |