"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
“It seems that elections today are more popularity than they are substantial issues.” - Jesse Ventura
"We are pioneers and the history of pioneers is not that good." - Jeff Bezos
"I offer my opponents a bargain: if they will stop telling lies about us,I will stop telling the truth about them.” - Adlai Stevenson
"If voting made any difference they wouldn’t let us do it." - Mark Twain
Nine days ago, on October 29, FBI Director James Comey announced the reopening of the Clinton email investigation. The S&P 500 index extended its losing streak to nine days on Friday. The fears created by Comey’s announcement has led to a narrowing of the gap between Donald Trump and Hillary Clinton. These fears and the associated market sell-off have masked the impact of better than expected third quarter earnings. As of today, 71% of earnings announcements by S&P 500 companies have exceeded analyst expectations. Current third quarter aggregate growth in per-share earnings is 2.7%. This is the first earnings growth per share since the first quarter of 2016.
Election news continues to move the equity markets and associated volatility markets. I am writing this blog on the night of Sunday November 6. 2016. This afternoon, Comey wrote in a letter to congressional committee chairmen, "Based on our review, we have not changed our conclusions that we expressed in July." Futures reacted immediately when extended trading hours opened. December E-mini futures are up over 1% with the November VIX future down over 13%. Once again, news which is good for Clinton is good for the market.
Monday is the last day for the release of news surprises which may impact the presidential election. I do not want to imagine what sort of stomach churning press release may appear. Do not assume that such a release cannot or will not occur. Know in advance what your trading response will be to different news scenarios.
So much for OPEC’s ability to control the price of oil. The oil ministers had agreed in principle to production cuts, but they failed to reach an agreement on specifics. This inability to reach a consensus with Venezuela, Iraq and Iran led to an increase in US oil inventories and a 10% retreat in the price of oil.
Index | 4-Nov | Weekly Change | % Weekly | 2016 YTD | Volatility of Index |
Dow Jones Industrials (DJIA) | 17,888.25 | (272.94) | -1.50% | 2.66% | 21.46% (VXD) |
S&P 500 (SPX) | 2,085.18 | (41.23) | -1.94% | 2.02% | 22.51% (VIX) |
NASDAQ 100 (NDX) | 4,660.46 | (145.13) | -3.02% | 1.38% | 23.03% (VXN) |
Russell 2000 (RUT) | 1,162.87 | (24.43) | -2.06% | 2.55% | 25.38% (RVX) |
S&P 100 (OEX) | 923.84 | (21.48) | -2.27% | 1.36% | 24.19% (VXO) |
Crude Oil (CL Z6) | 44.13 | (4.53) | -9.31% | 19.05% | 43.69%(OVX) |
CBOE Volatility Index (VIX) | 22.51 | 6.32 | 39.04% | NA |
James Comey’s Sunday surprise has led to a sell-off om the VIX futures. Russell Rhoads’ trade of the week involves a trader who expected a return to the mean of VIX levels. This trader bought the VIX November 16/15 put vertical for $0.37. Settlement of the November VIX future at 15 or lower will result in a profit of $0.63 per spread.
Here is an overview of last week for the VIX and related products:
Indexes | Ticker | 4-Nov | 28-Oct | Change | % Change |
CBOE Volatility Index | VIX | 22.51 | 16.19 | 6.32 | 39.04% |
VIX November Future (11/16/2016) | VXX6 | 19.325 | 16.625 | 2.70 | 16.24% |
VIX December Future (12/21/2016) | VXZ6 | 18.975 | 17.100 | 1.88 | 10.96% |
VIX January Future (1/18/2017) | VXF7 | 19.725 | 18.325 | 1.40 | 7.64% |
CBOE Short-term Volatility Index | VXST | 28.82 | 16.69 | 12.13 | 72.68% |
CBOE 3 Month Volatility Index | VXV | 21.13 | 17.37 | 3.76 | 21.65% |
CBOE Mid-term Volatility Index (6 month) | VXMT | 21.44 | 19.03 | 2.41 | 12.66% |
VIX of VIX | VVIX | 120.23 | 99.44 | 20.79 | 20.91% |
CBOE SKEW Index | SKEW | 133.03 | 126.35 | 6.68 | 5.29% |
Long VIX ETP's | |||||
ProShares Ultra VIX Short Term Futures ETF | UVXY | 20.39 | 15.88 | 4.51 | 28.40% |
iPath S&P 500 VIX Short Term Futures ETN | VXX | 37.94 | 33.43 | 4.51 | 13.49% |
ProShares VIX Short Term Futures ETF | VIXY | 31.59 | 27.84 | 3.75 | 13.47% |
iPath S&P 500 VIX Mid-Tem Futures ETN | VXZ | 38.49 | 36.93 | 1.56 | 4.22% |
Inverse VIX ETP's | |||||
ProShares Short VIX Short Term Future ETF | SVXY | 34.32 | 73.46 | (39.14) | -53.28% |
Daily Inverse VIX Short Term ETN | XIV | 33.00 | 37.65 | (4.65) | -12.35% |
The second week in November includes the second Tuesday of the month, which thankfully means the circus of the presidential election will come to an end. There are few economic reports slated for next week. The major variables have the market in a state of flux - the presidential election, third-quarter earnings, crude oil. Earnings announcements and the accompanying forward guidance have little potential to move the market this week.
The earnings season is in winding down this week. 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 highlights this week for widely held and actively traded stocks are Priceline.com, AMC Entertainment, Chemours, Dean Foods. LendingClub, Sysco, CVS, DR Horton, Johnson Controls, Rackspace, Rockwell Automation, Marriott, Trip Advisor, Mylan, Viacom, Disney, Ralph Lauren, Michael Kors, NVIDIA, Nordstrom, Kohl’s, Macy’s. and JC Penney.
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. The market uncertainty associated with the election has impacted liquidity. I found it difficult to enter trades last week. The bid/ask spreads seemed much larger than usual. Do not force trades in illiquid markets.
“The fact that people are full of greed, fear, or folly is predictable. The sequence is not predictable.” - Warren Buffett
“Half of the American people have never read a newspaper. Half never voted for President. One hopes it is the same half.” - Gore Vidal
“To achieve anything in this game, you must be prepared to dabble on the boundary of disaster.” - Stirling Moss
“Ephemeral" It means 'which is in danger of speedy disappearance.” - Antoine de Saint-Exupéry
“The month of November makes me feel that life is passing more quickly. In an effort to slow it down, I try to fill the hours more meaningfully.” - Henry Rollins
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Monday November 7:
Economic: Gallup US Consumer Spending Measure – 8:30, Labor Market Conditions Index – 10:00, TD Ameritrade IMX – 12:30.
International Economic: Chinese Merchandise Trade Balance, Germany Manufacturer’s Orders – 2:00AM, Eurozone Retail Sales – 5.00AM.
Other: Chicago Federal Reserve Bank President Charles Evans gives opening remarks at a conference in Chicago – 2:45PM.
Earnings:
Symbol | Company Name | Nov 4 Close | IV30 | B/A | AVGOPTVOL |
CTSH | Cognizant Technology Solutions | $51.65 | 35.42 | BMO | 4136 |
HSBC | HSBC Holdings plc (ADR) | $37.09 | 26.06 | BMO | 4393 |
MAR | Marriott International Inc | $69.24 | 27.17 | BMO | 2530 |
MGM | MGM Resorts International | $25.77 | 34.45 | BMO | 11623 |
SYY | SYSCO Corporation | $47.85 | 27.94 | BMO | 1008 |
ACAD | ACADIA Pharmaceuticals Inc. | $20.87 | 108.67 | AMC | 3136 |
ALB | Albemarle Corporation | $83.80 | 38.66 | AMC | 1445 |
DEPO | Depomed Inc | $21.82 | 83.36 | AMC | 1450 |
HTZ | Hertz Global Holdings Inc | $33.44 | 59.63 | AMC | 1967 |
PCLN | Priceline Group Inc | $1,438.10 | 34.81 | AMC | 15626 |
REN | Resolute Energy Corp | $23.74 | 102.84 | AMC | 1220 |
FNV | Franco-Nevada Corporation | $68.21 | 42.44 | 1173 |
Tuesday November 8:
U.S. Presidential Election
Economic: NFIB Small Business Optimism Index – 6:00AM, Redbook – 8:55, JOLTS – 10:00.
International Economic: Germany Industrial Production – 2:00AM, Germany Merchandise Trade – 2:00AM. Great Britain Industrial Production – 4:30AM, China PPI and CPI – 8:30PM.
Other: Chicago Fed President Charles Evans will speak at a moderated discussion entitled "A Conversation with Charles Evans" followed by Q&A, at the Council of Foreign Relations, in New York -7:45AM, Chicago Fed President Charles Evans will speak at the UBS Knowledge Network event "Luncheon Discussion with Charles Evans" followed by Q&A, in New York – 12:20PM.
Earnings:
Symbol | Company Name | Nov 4 Close | IV30 | B/A | AVGOPTVOL |
AER | AerCap Holdings N.V. | $40.77 | 40.12 | BMO | 1321 |
CVS | CVS Health Corp | $81.57 | 29.51 | BMO | 8025 |
DHI | D.R. Horton, Inc. | $28.29 | 34.45 | BMO | 1756 |
JCI | Johnson Controls International | $40.81 | 28.69 | BMO | 2410 |
OPHT | Ophthotech Corp | $30.85 | 220.11 | BMO | 1270 |
ZAYO | Zayo Group Holdings Inc | $31.77 | 32.90 | BMO | 1084 |
TRIP | Tripadvisor Inc | $62.74 | 54.87 | AMC | 3008 |
W | Wayfair Inc | $32.28 | 79.88 | AMC | 2385 |
MOMO | Momo Inc (ADR) | $23.70 | 76.71 | 4647 | |
PBYI | Puma Biotechnology Inc | $34.60 | 98.22 | 1246 |
Wednesday November 9:
Economic: MBA Mortgage Applications – 7:00, US Wholesale Trade - 10:00, EIA Petroleum Status Report – 10:30.
International Economic: Great Britain Merchandise Trade – 4:30QM, Japan Machine Orders – 6:50PM.
Other: Minneapolis Federal Reserve Bank President Neel Kashkari participates in a fireside chat in Eau Claire, Wi., with audience Q&A – 1:30PM, San Francisco Federal Reserve Bank President John Williams participates in fireside chat on Outlook on the Economy at the University of San Francisco, with audience and media Q&A – 9:00PM.
Earnings:
Symbol | Company Name | Nov 4 Close | IV30 | B/A | AVGOPTVOL |
COTY | Coty Inc | $22.35 | 40.46 | BMO | 34891 |
DISH | DISH Network Corp | $54.92 | 43.84 | BMO | 2143 |
ETP | Energy Transfer Partners LP | $33.20 | 42.21 | BMO | 5764 |
IONS | Ionis Pharmaceuticals Inc | $27.00 | 79.41 | BMO | 1955 |
MYL | Mylan NV | $34.14 | 51.47 | BMO | 15216 |
SLW | Silver Wheaton Corp. (USA) | $24.42 | 50.38 | BMO | 19872 |
TASR | TASER International, Inc. | $21.98 | 52.91 | BMO | 1919 |
HAIN | Hain Celestial Group Inc | $35.58 | 58.51 | AMC | 8183 |
XON | Intrexon Corp | $24.51 | 62.58 | AMC | 2642 |
JUNO | Juno Therapeutics Inc | $22.72 | 73.46 | AMC | 1665 |
NTES | NetEase Inc (ADR) | $243.42 | 43.70 | AMC | 4420 |
NCLH | Norwegian Cruise Line Holdings | $37.21 | 45.46 | AMC | 2014 |
SHAK | Shake Shack Inc | $31.93 | 51.53 | AMC | 2563 |
VIAB | Viacom, Inc. | $36.68 | 39.88 | AMC | 6299 |
KITE | Kite Pharma Inc | $40.01 | 67.89 | 1867 |
Thursday November 10:
Economic: Weekly Jobless Claims – 8:30, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30.
International Economic: France Industrial Production – 2:45AM.
Other: St. Louis Federal Reserve Bank President James Bullard gives a talk at Commerce Bank in St. Louis, Mo., with audience and media Q&A – 9:15AM.
Earnings:
Symbol | Company Name | Nov 4 Close | IV30 | B/A | AVGOPTVOL |
AZN | AstraZeneca plc (ADR) | $27.74 | 36.02 | BMO | 3684 |
KSS | Kohl's Corporation | $42.69 | 51.72 | BMO | 5709 |
M | Macy's Inc | $36.89 | 44.89 | BMO | 16981 |
KORS | Michael Kors Holdings Ltd | $48.24 | 53.60 | BMO | 6985 |
PRGO | Perrigo Company PLC | $79.95 | 50.44 | BMO | 2734 |
RL | Ralph Lauren Corp | $97.64 | 44.93 | BMO | 1240 |
JWN | Nordstrom, Inc. | $50.21 | 54.59 | AMC | 8427 |
NVDA | NVIDIA Corporation | $67.96 | 52.56 | AMC | 33142 |
DIS | Walt Disney Co | $93.37 | 23.80 | AMC | 45745 |
Friday November 11:
US Banks Closed, Markets Open
Economic: University of Michigan Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.
International Economic: Germany CPI – 2:00AM
Other: Atlanta Federal Reserve President Dennis Lockhart gives speech at the National Association of Realtors conference in Orlando, Fla., with audience Q&A – 8:30AM, Dallas Federal Reserve Bank President Rob Kaplan to speak at Association of Banks of Mexico forum in Mexico City, with audience and media Q&A – 12:00PM.
Earnings: None meeting criteria
Monday November 14:
Economic: No major announcements.
International Economic: Released on Saturday November 12: China Industrial Production and Retail Sales – 12:30AM.
Other: San Francisco Federal Reserve Bank President John Williams participates in a panel discussion at the Bay Area Council in San Francisco, with audience Q&A – 6:30PM,
Earnings: None meeting Criteria
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