"Chance favors the Prepared Mind." - Louis Pasteur
“Imagination decides everything.” - Blaise Pascal
“No man will ever carry out of the Presidency the reputation which carried him into it.” - Thomas Jefferson
“I have a right to be blind sometimes.” - Lord Nelson
Equity markets gave up ground for the second consecutive week. Losses for the week for the major equity indexes ranged from 0.5 percent to nearly 2 percent. A number of different factors pulled and pushed the market last week. The release of September’s FOMC minutes showed a higher likelihood of the Fed increasing interest rates before the end of the year. The CME Group FedWatch Tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html) “calculates unconditional probabilities of Federal Open Market Committee (FOMC) meeting outcomes to generate a binary probability tree.” According to the latest reading from FedWatch Tool, the probability of a rate hike at the December meeting has increased to 69.2% from 61.7% at the end of September.
An initial weakness in third-quarter earnings reports was cited by a number of analysts as being the primary reason for last week’s sell-off. In the near term, corporate earnings will trump all other factors effecting the market. According to FactSet, we should see the sixth consecutive quarter of lower year over year earnings. This would be the first time this has happened since the third-quarter of 2008. Other factors influencing the direction of the market are a toxic U.S. Presidential campaign, a rising dollar, and data showing weaker than expected Chinese exports and growth. Concerns about the impact of Brexit upon the financial stability of Europe were cited by some as analysts as an ongoing concern.
Here is an overview of the US market behavior last week:
Index
|
14-Oct
|
Weekly Change
|
% Weekly
|
2016 YTD
|
Volatility of Index
|
Dow Jones Industrials (DJIA)
|
18,138.38
|
(101.91)
|
-0.56%
|
4.09%
|
15.487% (VXD)
|
S&P 500 (SPX)
|
2,132.98
|
(20.76)
|
-0.96%
|
4.36%
|
16.12% (VIX)
|
NASDAQ 100 (NDX)
|
4,808.48
|
(56.04)
|
-1.15%
|
4.60%
|
17.40% (VXN)
|
Russell 2000 (RUT)
|
1,212.97
|
(21.43)
|
-1.74%
|
6.97%
|
20.87% (RVX)
|
S&P 100 (OEX)
|
946.89
|
(8.20)
|
-0.86%
|
3.89%
|
15.99% (VXO)
|
Crude Oil (CL X6)
|
50.32
|
0.77
|
1.55%
|
35.74%
|
35.55%(OVX)
|
CBOE Volatility Index (VIX)
|
16.12
|
2.64
|
19.58%
|
NA
|
Data Source: OptionVue8
Two weeks ago, the spot VIX rose last week while the VIX futures were down slightly. Both showed gains last week. Contango of the VIX futures curve barrowed last week. The narrowing of the curve structure often occurs in anticipation or fear of a volatility event. The ongoing US presidential race and election on Tuesday, November 8 is a source of some of this fear.
"Investors May Be Misjudging U.S. Election Volatility,” an article in Friday’s “Wall Street Journal, points out a concern of some industry derivatives gurus. Andy Frederick, director of trading and derivatives at Schwab Center for Financial Research, described the situation with election: “there’s a little too much complacency. As we approach election, volatility will probably creep up.” A tightening of election polls and forecasts would lead to higher VIX and implied volatility levels as November 8 approaches.
CBOE VIX guru, Russell Rhoads, reports on a late Friday afternoon trade on the “CBOE Options Hub.” The VIX was at 16.12 and the VIX October futures was at 16.60. The trade was the purchase of 1,000 VIX Oct 18 calls at .37 and the purchase of 1,000VIX Oct 16 puts for a net of 0,03. VIX October options stop trading at the close on Tuesday October 15. It is an AM settled option base on the open volatility of the VIX. If this is an opening purchase, the trader profits from VIX settlement below 15.97.
Here is an overview of last week for the VIX and related products:
Indexes
|
Ticker
|
14-Oct
|
7-Oct
|
Change
|
% Change
|
CBOE Volatility Index
|
VIX
|
16.12
|
13.48
|
2.64
|
19.58%
|
VIX October Future (10/16/2016)
|
VXV6
|
16.625
|
15.325
|
1.30
|
8.48%
|
VIX November Future (11/16/2016)
|
VXX6
|
17.325
|
16.725
|
0.60
|
3.59%
|
VIX December Future (12/21/2016)
|
VXZ6
|
17.625
|
17.265
|
0.36
|
2.09%
|
CBOE Short-term Volatility Index
|
VXST
|
12.94
|
11.47
|
1.47
|
12.82%
|
CBOE 3 Month Volatility Index
|
VXV
|
17.42
|
16.44
|
0.98
|
5.96%
|
CBOE Mid-term Volatility Index (6 month)
|
VXMT
|
19.14
|
18.37
|
0.77
|
4.19%
|
VIX of VIX
|
VVIX
|
101.01
|
90.86
|
10.15
|
11.17%
|
CBOE SKEW Index
|
SKEW
|
121.86
|
119.95
|
1.91
|
1.59%
|
Long VIX ETP's
|
|||||
ProShares Ultra VIX Short Term Futures ETF
|
UVXY
|
17.58
|
15.89
|
1.69
|
10.64%
|
iPath S&P 500 VIX Short Term Futures ETN
|
VXX
|
35.06
|
33.28
|
1.78
|
5.35%
|
ProShares VIX Short Term Futures ETF
|
VIXY
|
29.15
|
27.67
|
1.48
|
5.35%
|
iPath S&P 500 VIX Mid-Term Futures ETN
|
VXZ
|
37.88
|
37.19
|
0.69
|
1.86%
|
Inverse VIX ETP's
|
|||||
ProShares Short VIX Short Term Future ETF
|
SVXY
|
70.71
|
74.86
|
(4.15)
|
-5.54%
|
Daily Inverse VIX Short Term ETN
|
XIV
|
36.24
|
38.39
|
(2.15)
|
-5.60%
|
Data Source: OptionVue8
Earnings announcements and the accompanying forward guidance will be market movers this week. The week includes reports on industrial production, consumer prices, housing starts, and existing home sales. The week opens with a snapshot of the manufacturing sector. The Monday release of the Empire State Manufacturing and U.S. Industrial reports have the ability to move the market. The CPI will be released on Tuesday. The CPI is an indicator cited by the Fed when discussing inflation and interest rate targets. Economic reports for the rest of the week will focus on the housing sector.
The earnings season starts in full force this week. It is time to start preparing target equities and strategies for the next earning cycle. Confirm the date and time of a company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website. I will start trading announcements this week. The earnings season will be in full bloom the week after next. The earnings highlights this week for widely held and actively traded stocks are IBM, Bank of America, Intuitive Surgical, Charles Schwab, Intel, Phillip Morris, Yahoo, Goldman Sachs, Johnson&Johnson, BlackRock, Abbot Labs, eBay, Halliburton, Reynolds American, American Express, Morgan Stanley, Verizon, Illinois Tool Works, Union Pacific, Travelers, Microsoft, Walgreen, PPG, Bank of NY Mellon, Stumberger, McDonalds, General Electric and Honeywell.
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 > 22, Average daily option volume > 1,000 contracts. 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.
Advice to stimulate your imagination:
“The fact that people are full of greed, fear, or folly is predictable. The sequence is not predictable.” - Warren Buffett
"By definition, risk-takers often fail. So do morons.
In practice it's difficult to sort them out." - Scott Adams
“To achieve anything in this game, you must be prepared to dabble on the boundary of disaster.” - Stirling Moss
“Any jerk can have short-term earnings. You squeeze, squeeze, squeeze,
and the company sinks five years later.” - Jack Welch
“If something cannot go on forever, it will stop.” - Herbert Stein
|
Monday October 17:
Economic: Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15.
International Economic: Eurozone HICP – 5:00AM.
Other: Fed Vice Chair Stanley Fischer will speak to the Economic Club of New York – 12:00PM.
Earnings:
Symbol
|
Company Name
|
Oct 14 Close
|
IV30
|
B/A
|
AVGOPTVOL
|
SCHW
|
Charles Schwab Corp
|
$31.43
|
29.47
|
BMO
|
5849
|
UAL
|
United Continental Holdings Inc
|
$53.69
|
40.02
|
BMO
|
13176
|
IBM
|
International Business Machines
|
$153.72
|
26.32
|
AMC
|
25295
|
NFLX
|
Netflix, Inc.
|
$100.23
|
55.04
|
AMC
|
117887
|
Tuesday October 18:
Last day of trading for VIX October options and future.
Economic: CPI – 8:30, Redbook – 8:55, Housing Market Index – 10:00, Treasury International Capital – 4:00PM.
International Economic: Great Britain CPI & PPI – 4:30AM, China GDP, Industrial Production and Retail Sales – 10:00PM.
Earnings:
Symbol
|
Company Name
|
Oct 14 Close
|
IV30
|
B/A
|
AVGOPTVOL
|
CMA
|
Comerica Incorporated
|
$47.91
|
30.66
|
BMO
|
1875
|
DPZ
|
Domino's Pizza, Inc.
|
$150.31
|
32.45
|
BMO
|
1067
|
GS
|
Goldman Sachs Group Inc
|
$167.42
|
23.96
|
BMO
|
21088
|
HOG
|
Harley-Davidson Inc
|
$50.42
|
47.71
|
BMO
|
6845
|
UNH
|
UnitedHealth Group Inc
|
$134.19
|
23
|
BMO
|
6522
|
CREE
|
Cree, Inc.
|
$24.64
|
45.44
|
AMC
|
3136
|
INTC
|
Intel Corporation
|
$36.97
|
25.47
|
AMC
|
67230
|
ISRG
|
Intuitive Surgical, Inc.
|
$713.44
|
27.29
|
AMC
|
2048
|
VRX
|
Valeant Pharmaceuticals Intl Inc
|
$22.77
|
89.64
|
101882
|
Wednesday October 19:
AM settlement for VIX October options and future.
Economic: MBA Mortgage Applications – 7:00, Housing Starts – 8:30AM, Atlanta Fed Business Expectations – 10:00, EIA Petroleum Status Report, Beige Book – 2:00.
International Economic: Germany PPI – 2:00AM.
Other: San Francisco Federal Reserve Bank President John Williams will speak about diversity in the financial system in Newark, NJ followed by audience Q&A – 8:45AM, Dallas Federal Reserve Bank President Rob Kaplan speaks at luncheon sponsored by Fort Worth Chamber of Commerce in Fort Worth, with Q&A – 1:30PM.
Earnings:
Symbol
|
Company Name
|
Oct 14 Close
|
IV30
|
B/A
|
AVGOPTVOL
|
ABT
|
Abbott Laboratories
|
$40.98
|
26.65
|
BMO
|
9852
|
BBT
|
BB&T Corporation
|
$37.87
|
23.06
|
BMO
|
2512
|
HAL
|
Halliburton Company
|
$47.02
|
32.09
|
BMO
|
16345
|
MAT
|
Mattel, Inc.
|
$29.98
|
33.7
|
BMO
|
2095
|
MS
|
Morgan Stanley
|
$31.73
|
29.86
|
BMO
|
25117
|
RAI
|
Reynolds American, Inc.
|
$47.44
|
22.23
|
BMO
|
2478
|
STJ
|
St. Jude Medical, Inc.
|
$78.16
|
38.83
|
BMO
|
2607
|
AXP
|
American Express Company
|
$60.41
|
27.2
|
AMC
|
12657
|
CTXS
|
Citrix Systems, Inc.
|
$83.39
|
33.64
|
AMC
|
1406
|
EBAY
|
eBay Inc
|
$31.51
|
39.79
|
AMC
|
15233
|
KMI
|
Kinder Morgan Inc
|
$20.55
|
39.38
|
AMC
|
34749
|
LRCX
|
Lam Research Corporation
|
$97.73
|
29.95
|
AMC
|
2326
|
LVS
|
Las Vegas Sands Corp.
|
$58.09
|
36.59
|
AMC
|
22251
|
STLD
|
Steel Dynamics, Inc.
|
$23.72
|
33.93
|
AMC
|
2078
|
STX
|
Seagate Technology PLC
|
$35.18
|
45.59
|
AMC
|
13173
|
TSCO
|
Tractor Supply Company
|
$67.38
|
30.63
|
AMC
|
1673
|
URI
|
United Rentals, Inc.
|
$78.21
|
50.48
|
AMC
|
3783
|
XLNX
|
Xilinx, Inc.
|
$49.90
|
31.76
|
AMC
|
5180
|
Thursday October 20:
Economic: Weekly Jobless Claims – 8:30, Philadelphia Fed Business Outlook Survey – 8:30, Bloomberg Consumer Comfort Index – 9:45, Existing Home Sales – 10:00, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30.
International Economic: European Central Bank Announcement - 7:45AM.
Other: New York Federal Reserve Bank President William Dudley will give welcoming remarks at a workshop examining culture and behavior in the financial services industry in New York – 8:30AM, New York Federal Reserve Bank President William Dudley will moderate a panel discussion with Hong Kong Monetary Authority's Norman Chan and Bank of England's Nemat Shafik, at a workshop examining culture and behavior in the financial services industry in New York – 8:30.
Earnings:
Symbol
|
Company Name
|
Oct 14 Close
|
IV30
|
B/A
|
AVGOPTVOL
|
AAL
|
American Airlines Group Inc
|
$39.24
|
38.61
|
BMO
|
31840
|
BK
|
Bank of New York Mellon Corp
|
$39.09
|
25.83
|
BMO
|
3311
|
DNKN
|
Dunkin Brands Group Inc
|
$50.85
|
28.53
|
BMO
|
1251
|
NUE
|
Nucor Corporation
|
$46.54
|
29.77
|
BMO
|
3946
|
SLB
|
Schlumberger Limited.
|
$81.53
|
23.62
|
BMO
|
19819
|
TXT
|
Textron Inc.
|
$37.95
|
31.46
|
BMO
|
1223
|
UNP
|
Union Pacific Corporation
|
$96.74
|
24.50
|
BMO
|
8620
|
WBA
|
Walgreens Boots Alliance Inc
|
$78.20
|
27.23
|
BMO
|
7777
|
ADS
|
Alliance Data Systems Corporation
|
$206.84
|
38.79
|
AMC
|
1124
|
ETFC
|
E*TRADE Financial Corp
|
$28.12
|
33.37
|
AMC
|
1885
|
HAIN
|
Hain Celestial Group Inc
|
$35.32
|
49.33
|
AMC
|
7129
|
MSFT
|
Microsoft Corporation
|
$56.92
|
25.16
|
AMC
|
83297
|
MXIM
|
Maxim Integrated Products Inc.
|
$37.58
|
32.86
|
AMC
|
2182
|
SKX
|
Skechers USA Inc
|
$22.75
|
56.91
|
AMC
|
6290
|
PYPL
|
Paypal Holdings Inc
|
$39.20
|
30.53
|
16830
| |
TV
|
Grupo Televisa SAB (ADR)
|
$25.32
|
37.99
|
1269
|
Friday October 21:
Economic: Baker Hughes Rig Count – 1:00.
International Economic: No major announcements.
Other: Federal Reserve Governor Daniel Tarullo will give a speech entitled "Pedagogy and Scholarship in a Post-Crisis World" at the Columbia Law School Conference on the New Pedagogy of Financial Regulation, in New York – 10:15.
Earnings:
Symbol
|
Company Name
|
Oct 14 Close
|
IV30
|
B/A
|
AVGOPTVOL
|
STI
|
SunTrust Banks, Inc.
|
$44.76
|
24.71
|
BMO
|
1636
|
SYF
|
Synchrony Financial
|
$26.37
|
28.91
|
BMO
|
6357
|
Monday October 24:
Economic: Chicago Fed National Activity Index – 8:30AM, PMI Manufacturing Index Flash – 9:45AM.
International Economic: Germany PMI Composite Flash – 3:30AM, Eurozone PMI Composite Flash – 4:00AM, Great Britain Industrial Trends Survey – 8:00AM.
Other: St. Louis Federal Reserve President James Bullard gives presentation to Association for University Business and Economic Research in Fayetteville, Ark., with Q&A – 9:05AM, Chicago Federal Reserve President Charles Evans gives speech at the Civic Affairs Society of the University Club of Chicago Luncheon, followed by audience and media Q&A, in Chicago – 1:30PM.
Earnings:
Symbol
|
Company Name
|
Oct 14 Close
|
IV30
|
B/A
|
AVGOPTVOL
|
SWFT
|
Swift Transportation Co
|
$20.11
|
54.52
|
BMO
|
2828
|
TMUS
|
T-Mobile Us Inc
|
$46.01
|
30.91
|
BMO
|
2631
|
No comments:
Post a Comment