The Week in VIX – 4/27 – 5/1

VIX was up slightly this past week as the S&P 500 dropped a little. VIX futures were down across the board as the lack of movement from VIX. This small disconnect can be attributed to the market getting past a couple of known unknowns (FOMC & GDP). We did have one day of excitement as the S&P 500 was down significantly on Thursday which pushed VIX into the 15’s and kept the May VIX future trading with a 16 handle the whole day. That excitement was short lived as the S&P 500 rebounded (because that is what it does) on Friday.

VIX Curve

We do have one more of those big economic numbers left before May expiration. Non-farm Payrolls and other employment oriented numbers will be released before the market opens on Friday. Do remember that VIX options and futures will both be available for trading at 7:30 Chicago time. Since the last employment number came out on a market holiday this will be the first chance to see how VIX option prices react to extra volatility that usually occurs in the pre-market hours in reaction to the employment number.

Finally, something new in the VIX world was announced yesterday by CBOE. Pending regulatory approval the CFE will begin listing VIX futures with weekly expirations in July and shortly thereafter CBOE will begin listing VIX options with weekly expirations. To find out more visit www.cboe.com/vixweeklys

 

The Weekly Options News Roundup – 5/1/2015

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

Weeklys – The Short-Term Play
Weeklys options, which allow investors to fine-tune the timing of their hedging and trading activities, continue to grow in popularity.  Earlier today, CBOE Holdings announced it will launch VIX Weeklys futures and options in the coming months, pending regulatory review and approval.

“Big Traders Love Short-Term Options” – Steven Sears, Barron’s
http://on.barrons.com/1zuI0mF

VIX Weeklys Microsite:
http://www.cboe.com/micro/vix-weeklys/default.aspx

Your VIX “FIX”
The VIX Index is currently at its lowest point in months hovering around the 13 level.  VIX products are not only hedging tools for volatile markets, but can be used to capitalize on low volatility as well.

“VIX-Giving In April” – Adam Warner, Schaeffer’s Investment Research
http://bit.ly/1HVaM0A

“What the VIX is Really Saying About the Stock Market” – Ron Insana, CNBC
http://cnb.cx/1FAFpZ1

“Retail VIX Positioning Opens Risk Premia Strategies” – EQ Derivatives
http://bit.ly/1DZsQkv

CBOE RMC Roundup
EQ Derivatives recaps the recently concluded 31st annual CBOE Risk Management Conference in Carlsbad, California with an RMC Roundup in their Spring Edition Magazine.

http://bit.ly/1OMjcwY — EQ Derivatives Magazine

VIDEO
To watch CBOE TV interviews with presenters from RMC, go to http://www.cboermc.com/

BigTrends.com 2015 Kentucky Derby Handicapping & Analysis

(Editors Note For the last few years, Price Headley, a Louisville native and CEO of Bigtrends.com, has been kind enough to share his thoughts on the running of the annual Kentucky Derby from Churchill Downs.  Saturday’s Derby will be the 141st .  He takes a theoretical $100 and tells how he would invest it (bet might be a better word).  His very able cohort, Moby Waller, gives his outlook for the race as well, and Moby uses a few different factors in his analysis.  Click on “read more” to see Moby’s selections.  We will print these out and have them on our fingertips late Saturday afternoon during “the greatest two minutes in sports”.)

It’s time for our annual Kentucky Derby selections and commentary. First, we’ll start off with an updated table of past Derby winners, their speed ratings and final tune-up race. Our analysis of past data indicates that horses with strong 100+ speed ratings in preparatory races have a better probability of winning the big race:

Derby Winner BRIS Speed Rating Last race (# weeks before Derby)
CALIFORNIA CHROME 106,102 Santa Anita Derby (5 weeks)
ORB 97, 102 Florida Derby (5 weeks)
I’LL HAVE ANOTHER 95, 102 Santa Anita Derby (4 weeks)
ANIMAL KINGDOM 100, 89 Turfway Spiral (5 weeks, poly)
SUPER SAVER 92, 94 Arkansas Derby (3 weeks)
MINE THAT BIRD 96, 98 Sunland Derby (5 weeks)
BIG BROWN 106, 104 Florida Derby (5 weeks)
STREET SENSE 98, 101 Bluegrass Stakes (3 weeks, poly)
BARBARO 104, 104, 97, 97 Florida Derby (5 weeks)
GIACOMO 100, 96, 98, 96 Santa Anita Derby (4 weeks)
SMARTY JONES 105, 109, 101, 103 Arkansas Derby (3 weeks)
FUNNY CIDE 111, 103, 97 Wood Memorial (3 weeks)
WAR EMBLEM 109, 105, 88, 94 Illinois Derby (4 weeks)
MONARCHOS 108, 108, 106, 98 Wood Memorial (3 weeks)
FUSAICHI PEGASUS 110, 103, 100, 98 Wood Memorial (3 weeks)
CHARISMATIC 104, 94, 94, 94 Lexington (2 weeks)
REAL QUIET 107, 103, 73 Santa Anita Derby (4 weeks)
SILVER CHARM 102, 98, 105 Santa Anita Derby (4 weeks)
GRINDSTONE 101, 102, 93 Arkansas Derby (3 weeks)
THUNDER GULCH 98, 103, 106 Blue Grass (3 weeks)
GO FOR GIN 104, 105, 99, 100 Wood Memorial (3 weeks)
SEA HERO 96, 85, 77 Blue Grass (3 weeks)
LIL E. TEE 102, 96, 107, 100 Arkansas Derby (2 weeks)
STRIKE THE GOLD 109, 100, 99, 87 Blue Grass (3 weeks)
UNBRIDLED 108, 101, 104, 98 Blue Grass (3 weeks)

Last year I was high on California Chrome who won the Derby easily. He was the favorite but still paid a healthy 5-2 ($7 for every $2 bet to win) as the clear best in the field. This year’s race is not as clear. There are two co-favorites, American Pharaoh (5-2) and Dortmund (3-1)Of these two, I believe Dortmund is clearly preferred. His speed ratings of 105,102,101 eclipse Pharoah’s 102,99,99. But more interesting are a couple of sleepers that shows similar numbers with much more attractive odds. Remember the Derby is the biggest field of any race in the States all year, so in addition to talent, racing luck is needed. That’s why I like to find value in the 10-1 to 20-1 range typically for the greatest 2 minutes in sports.

My favorite in this year’s race is Dortmund (Post Position 8, 3-1 odds). Fresh off winning the Santa Anita Derby which California Chrome won last year on his way to the Derby & Preakness winner’s circle, Dortmund is a perfect 6-for-6 and shows the consistency I look for to “key” a horse not only as a win bet but also in my exotic bets. His daddy Big Briwn won the Derby with similar prep race form. The only thing puzzling to me is why trainer Bob Baffert had the horse’s final workout at a slowish 6 furlong jog rather than the shorter 5 furlong “blowout” like fellow trainee American Pharaoh had. But Baffert is at the top of the training game, though he has not won the Derby with a favorite before.

I would not be surprised to see Dortmund go off as the co-favorite with Pharoah, which means very short odds in a 20-horse field. The Derby usually favors closers and horses that want the extra ground. Typically, this doesn’t show up on paper yet for these colts, as they’ve only gone 1-1/8 miles or less, and the Derby is 1-1/4 miles. That last 1/8 of a mile (also known as a “furlong” in the racing business) is what separates the champions from the also-rans. We should have a beautiful sunny day with no rain at Churchill Downs for this year’s Derby as well.

With those thoughts in mind, here are my top challengers to Dortmund:

Materiality (PP 3, 12-1): Speed ratings of 105,100 in his last two races look strong, and the win in the Florida Derby has been a good prep for Derby winners in recent years. Given that it’s an extra week of rest since that race March 28, I like this horse’s chances to save ground from the inside. The prior 3 races show he likes to be near the front, which is a concern in this 1-1/4 mile endurance test, so we’ll also look for closers to back us up here if he fades late.

Upstart (PP 19, 15-1): This horse is right up there in class with the co-favorites, and I expect him to be charging late. My only concern is the outside post position, which will cost some lost ground early. I expect him to be dodging horses and making a run but likely come up just a length or so short at the end.

Firing Line (PP 10, 12-1): With Hall of Fame jockey Gary Stevens in the irons, and an ideal post position from the middle, this one is solid if not spectacular. Worth some action in exotics.

American Pharoah (PP 18, 5-2): I could be wrong on this one, as he did have a super strong workout which is usually a good sign. But my only play with him in as the outright winner on top of all horses, and hoping a longshot gets second place for the exacta. I think he’s either a winner or out of the money so place a saver bet accordingly.

So my theoretical bets on a sample $100 model portfolio look like this:

$10 Win on 3
$5 Exacta box 3, 8
$5 Exacta box 8, 19
$5 Exacta 8, 10
$1 Exacta 18 with ALL
$1 Trifecta box 3, 8, 10, 19
$1 Trifecta 8 with 3 with ALL

Price Headley, CEO of BigTrends.com: 

More

CBOE Mid-Day Update 5.1.15

Volatility as an asset class

FireEye (FEYE) is recently up $3.03 to $44.34 after the information security firm reported a lower than expected Q1 operating loss and provided better than expected guidance. May call option implied volatility is at 41, June is at 40; compared to its 26-week average of 59.

First Solar (FSLR) is recently down $2.59 to $57.12 after reporting weaker than expected Q1 results but provided higher than expected Q2 EPS guidance. May call option implied volatility is at 34, June is at 36, September is at 40; compared to its 26-week average of 47.

Expedia (EXPD) is recently up $7.80 to $102.39 after the online travel company reported stronger than expected Q1 results. The firm says the company’s bookings, revenue and EBITDA growth were healthy. May call option implied volatility is at 29, June and October is at 28; compared to its 26-week average of 31.

CBOE Russell 2000 Volatility Index (RVX) down 3.7% to 18.67, compared to its 50-day moving average of 16.99. www.cboe.com/RVX

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) up 6.61% to 5.81 cboe.com/VXTYN

CBOE Crude Oil Volatility Index (OVX) down 0.5% to 36.07 compared to its 50-day moving average of 48.40 as WTI oil trades near $59.  cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 1% to 20.41 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR FB GILD LNKD BAC TSLA BABA T AMZN

Options with increasing volume @ CBOE: GEL PWR MLM CMLS CALM MEMP TSRO ENOC KCG PPG

CBOE Volatility Index (VIX) down 7% to 13.41, day range 13.11 – 13.98 cboe.com/VIX

IPath S&P 500 VIX Short-Term Futures (VXX) is recently down 80c to 21.04.
More

Weekly Market Commentary 5.1.15

Stocks dawdled at or just above the previous all-time highs, but couldn’t convincingly
push through with a strong move.  As a result, things began to deteriorate. Now, 2070 has some significance. If $SPX breaks down below 2070, a more bearish scenario should unfold.

LM 5 1 15 spx

Equity-only put-call ratios are still on buy signals.  Both have “wiggles” curling
upwards after Thursday’s big down day, but they remain on buy signals.

Market breadth has been somewhat weak of late, and that has been a recurring
problem of sorts since last summer.  Both breadth oscillators rolled over to sell
signals this week.

Volatility derivatives and indices have been the most bullish indicators for
some time now.  As long as $VIX flounders around at low levels, the stock market
can advance without much problem.

LM 5 1 15 vix

In summary, the bulls have failed once again to move the market convincingly to
new all-time highs.  But can the bears do any better? While we have one sell signal (breadth), we are looking for an accompanying sell signal before turning bearish.

Blogging Options: CBOE Morning Update 5.1.15

US Futures higher before the opening, gaining back some of yesterday’s GDP inspired profit-taking.  May Day in most of Europe and parts of the rest of the world should slow volume today.  ISM & U of Michigan are the reports to watch this morning, with March Construction Spending with an AM release as well. S aturday a sports-lovers dream day, with soccer, NFL Draft, Kentucky Derby and Pacquiao fight, as well as some baseball, NBA & NHL playoffs.  Thousands of football fans at NFL Draft Town in downtown Chicago yesterday, very impressive.  Volatility as an asset class

Visa (V) is down $1.10 to $64.95 in the preopen after reporting Q2 EPS $0.63, compared to consensus $0.62. May weekly call option implied volatility is at 66, May is at 30, June is at 22; compared to its 26-week average of 23.

Linkedin (LNKD) is off $49.14 to $202.98 after on less than expected guidance. May weekly call option implied volatility is at 198, May is at 52, June is at 39, August is at 37; compared to its 26-week average of 34.

AIG (AIG) is up $0.31 to $56.60 in the preopen after reporting inline Q1 results and a $3.5B share repurchase program.  May weekly call option implied volatility is at 50, May is at 24, June is at 19; compared to its 26-week average of 21.

CBOE Crude Oil Volatility Index (OVX) at 36.68; compared to its 50-day moving average of 48.47, WTI Crude oil near $59. CBOE.com/OVX

Equities options volume @ CBOE 1,037,691 calls, 751,906 puts, 1,789,597 total cboe.com

Options expected to be active @ CBOE: LNKD AIG FSLR GILD V CVX CVS

CBOE S&P 500 Skew Index (SKEW) at 115.96. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

More

CBOE Mid-Day Update 4.30.15

Volatility as an asset class

TASER (TASR) is recently up $2.60 to $30.71 on better than expected Q1 results, primarily driven by increased TASER X26P and TASER X2 Smart Weapon sales. May call option implied volatility is at 45, June is at 41, September is at 43; compared to its 26-week average of 53.

WWE (WWE) is recently down 55c to $13.81 after the entertainment company reported Q1 EPS 13c, compared to consensus 2c.  May call option implied volatility is at 41, June is at 40, July is at 37; compared to its 26-week average of 43.

Baidu (BIDU) is recently down $14.23 to $204.77 as profit fell on flat online marketing customer growth. May call option implied volatility is at 28, June is at 26, September is at 27; compared to its 26-week average of 32.

CBOE Russell 2000 Volatility Index (RVX) up 5.3% to 19.29, compared to its 50-day moving average of 16.94. www.cboe.com/RVX

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) up 4.7% to 5.57 cboe.com/VXTYN

CBOE Crude Oil Volatility Index (OVX) up 0.3% to 36.79 compared to its 50-day moving average of 48.48 as WTI oil trades near $58.  cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 0.7% to 19.81 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR CY MBI VZ TSLA LVS AMZN BIDU

Options with increasing volume @ CBOE: KMI HERO SJNK ALB MBI EW HAR MCK BCS GLUU OC

CBOE Volatility Index (VIX) up 6.8% to 14.30, high 14.53, low 12.49 on total volume of 205K cboe.com/VIX

IPath S&P 500 VIX Short-Term Futures (VXX) is recently up 50c to 21.73.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 9.7% to 14.54; compared to its 50-day moving average of 13.02 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 0.2% to 272.26 compared to its 50-day moving average of 269.95 cboe.com/micro/bxd/

CBOE Mini-SPX options (XSP) down 0.5% to 209.45 http://www.cboe.com/micro/xsp/

S&P 100 Options (OEX) recently down 5.76 to 920.44 on mixed economic data.

Earnings Next Week (Part 1) – 5/4 – 5/5

Time caught up with me and I was only able to knock out Monday and Tuesday earnings numbers for the week of May 4th to May 8th.  I’ll get the balance of the week done when I return from finals week in my PhD program.

As always Max is the biggest gain in response to earnings, Min is the biggest drop, Abs Average is the average magnitude of the moves, and Last Q is what the stock did last quarter in response to earnings.  Finally, all numbers represent three years unless italicized.

 

Earnings

Blogging Options: CBOE Morning Update 4.30.15

Futures soft.  XOM beats on top & bottom line.  Bidu misses.  Some European traders edgy with Russia dropping rates 1.5%, German bonds falling and Greece needing to find pension money in next 36 hours.  March Personal Income flat (+ 0.2% Feb), Spending up 0.4%.  AAPL watch with possible problems trading lower by $0.50.  Volatility as an asset class:

Salesforce.com (CRM) is active but off fractionally near $74.45 in the preopen on reports of a possible takeover. May call option implied volatility is at 66, June is at 50; compared to its 26-week average of 33.

Yelp (YELP) is down $9.12 to $42.16 in the preopen on weaker than expected Q1 results. May weekly call option implied volatility is at 143, May is at 71, June is at 55, August is at 48; compared to its 26-week average of 49.

Glu Mobile (GLUU) is up $1.24 to $6.64 in the preopen after the maker of free-to-play games reported Q1 results and deals with Tencent and Britney Spears. Overall option implied volatility of 67 compares to its 26-week average of 68.

CBOE Crude Oil Volatility Index (OVX) at 36.68; compared to its 50-day moving average of 48.86, WTI Crude oil near $59. CBOE.com/OVX

Equities options volume @ CBOE 1,067,503 calls, 733,279 puts, 1,800,782 total cboe.com

Options expected to be active @ CBOE: CRM ORCL YELP TWC MAR XOM TEVA XOM VIX

CBOE S&P 500 Skew Index (SKEW) at 125.36. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

More

CBOE Mid-Day Update 4.29.15

Volatility as an asset class

MasterCard (MA) is recently up 62c to $90.86 on better than expected Q2 profit but warns of currency headwinds.  May weekly call option implied volatility is at 29, May is at 22, June is at 19, October is at 20; compared to its 26-week average of 23.

Starwood (HOT) is recently up $6.15 to $86.99 after announcing its exploring strategic and financial alternatives. May call option implied volatility is at 27, June is at 24, August is at 25; compared to its 26-week average of 27.

Lumber Liquidators (LL) is recently down $6.32 to $27.07 after reporting quarterly results, departure of CFO, and that the Department of Justice is seeking criminal charges under Lacey Act.com.  May weekly option implied volatility is at 91, May is at 63, June is at 68; compared to its 26-week average of 64.

CBOE Russell 2000 Volatility Index (RVX) up 5.2% to 17.93, compared to its 50-day moving average of 16.92. www.cboe.com/RVX

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) up 7.2% to 5.52 cboe.com/VXTYN

CBOE Crude Oil Volatility Index (OVX) up 1.3% to 37.78 compared to its 50-day moving average of 48.88 as WTI oil trades near $58.  cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 0.7% to 19.67 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR C KMI BAC X WYNN TSLA LVS AMZN

Options with increasing volume @ CBOE: IG R CLNE BWLD XPO RCII MDRX EXP OTEX BRFS

CBOE Volatility Index (VIX) up 9.7% to 13.61, high 13.80, low 12.88 on total volume of 173K cboe.com/VIX

IPath S&P 500 VIX Short-Term Futures (VXX) is recently up 54c to 21.30.
More

Options Trading Resources: Understanding Option Order Flow

In technical analysis there are only two primary things to watch, and that is price and volume.  Price is king and must always be respected, but money flow can give us clues to future price direction.  I look for where the big money is flowing, but unfortunately the information in stock volume can be a big noisy, deceptive. late or even absent.  We have all heard of the ‘dark pools’, where stock is traded in big size and secrecy (well, sorta secret) by institutions.  The public may not know about these moves for days or weeks, and that time lag could be the difference of winning/losing in a trade.

Options are different, there are not ‘secret’ trading rooms.  One of the best options trading resources I have found is the option order flow, or simply ‘the flow’.  These are not ‘backdoor’ trades and are seen off many different platforms, my preferred being the trade alert system/scanner championed by my good friend Henry Schwartz (see image.  Editors Note: Henry is a contributor to the CBOE OptionHub blog).  Henry’s scanner tells us where big option trades are being made, the size, type (buy/sell) and name.  It is the same information distributed by other services, but it’s about interpretation of the data and quickness for jumping on a trade that is most valuable.  You see, this puts me at the starting line with the ‘big money’ players, and if we can determine if the flow is good or not and capitalize on it, then we have an edge.

The flow is simple and basic but requires a belief that high volume leads to higher prices.  Without this notion in mind you will never be able to put it together with a trade setup.  While the chart / technical’s are also crucial we sometimes find the flow trumps the chart.  In other words, the big money flowing understands something big is coming down the pipe and does not want to be seen – well, at least not right away.  But we have to interpret the flow CAREFULLY, making sure we’re not chasing something that is not there.

Let’s take a look at just one perfect example.  In February and March there was some major flow in Kraft (KRFT), a stodgy old company with slow growth.  The chart was not giving any buy or sell signals, it simply was an avoid.  The flow we saw was focused on the June 67.5 call contract, 20K of these were purchased for about 70 cents in one day, and other days saw some good flow as well (but not as much).  Premium paid here was $1.4 million (20K x 100 x $0.70).  At the time the stock was in the low 60’s, so why would someone be inclined to buy this many calls at a strike far out of the money (more than 10% away from breakeven on these calls).

Well, if you followed this flow and rode along with this big elephant it paid bigtime – the deal announced with Warren Buffet, combining with Heinz had the stock soaring past 86 on that day.  Those 67.5 calls?  Yep, from a close they day prior at 40 cent to nearly 20 bucks.  The 20K buyer roughly scored a cool 37 million profit, and the options are still for another couple of months.

Now, this may seem the outlier, it’s just one example.  You wouldn’t be convinced unless you saw this happen over and over again, I get that.  So, you have a chance to learn more about it this week in my April 30 webinarhttp://tinyurl.com/lytw2vq I’ll be talking more about the flow and showing more examples, and some real time ideas that may work down the road!  Sign up for it with the above link, this will probably be full by midweek.

Bob Lang, Senior Market Strategist and trades various option trading newsletter “Explosive Options”.    Check out the updated site.

Blogging Options: CBOE Morning Update 4.29.15

Q1 GDP showed a fractional gain of 0.2%, off from Q4 2014 2.2% gain and consensus estimate of 1.1% growth.  Weather, Dollar, dock strike – bulls coming forward with multiple excuses.  This on day FED will speak after noon.  Asian shares lower, Europe off as well (DAX down 1.3%). Oil off, Gold higher.  TWTR  with premature release of earnings off 2%.  LL says Justice Dept looking into its wood products, lower by 16%,  Sloppy opening. Volatility as an asset class:

GoPro (GPRO) is up $5.74 to $52.82 in the preopen on better than expected Q1 results and revenue outlook. May weekly call option implied volatility is at 118, May is at 69, June is at 62, July is at 49; compared to its 26-week average of 56.

Buffalo Wild Wings (BWLD) is down $18.70 to $165 on less than expected Q1 earnings hurt by higher wing costs. BWLD is keeping 2015 net earnings growth target at 18%. May call option implied volatility is at 49, June is at 31, September is at 29; compared to its 26-week average of 33.

Wynn Resorts (WYNN) is recently down $14.47 to $116 in the preopen on disappointing Q1 results and lowering its dividend. May weekly call option implied volatility is at 55, May is at 38, June is at 36, September is at 32; compared to its 26-week average of 32.

CBOE Interest Rate 5 Year Note (FVX) at 13.80 into Wednesday’s FOMC policy meeting decision

CBOE Crude Oil Volatility Index (OVX) at 37.31; compared to its 50-day moving average of 49.25, WTI Crude oil near $56. CBOE.com/OVX

Equities options volume @ CBOE 1,121,640 714,654 1,836,294 total cboe.com

Options expected to be active @ CBOE: TWTR WYNN GPRO BWLD AKAM WDC PNRA CRUS

CBOE S&P 500 Skew Index (SKEW) at 124.02. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

More

Not The Perfect Bullish Breakout, But – Weekly Market Outlook

The S&P 500 Index (SPX) (SPY) hit a new record high last week and the close of 2117.69 was the highest close we’ve ever seen from the index — and the NASDAQ Composite’s (COMP) (QQQ) close of 5092.08 was above the recent ceiling around 5044.  The overall technical analysis picture is bullish for stocks.   But, we can’t ignore the fact that there have been multiple bullish runs over the past 6 months that looked on the verge of a clear upside breakout only to reverse lower — and can’t dismiss the possibility that the market is again aiming to lure a bunch of investors in, only to lower the boom when it’s least expected.

We’ll weigh the odds below, after taking a quick look at last week’s and this week’s major economic news.

Economic Data

It was actually a rather light week last week in terms of economic data, but we did get two biggies…. home sales, and durable orders, both for March.

On the home sales front, though new homes sales fell from a pace of 543,000 to only 481,000, existing home sales edged higher from a pace of 4.89 million to 5.19 million. That 300,000 upswing in existing home sales more than offsets the lull in new home sales. Though last month’s data wasn’t encouraging, the overall trend still bodes well for homebuilders.

New and Existing Home Sales, Annualized Chart
42615-home-sales
Source: Thomson Reuters Eikon

As for durable orders, the overall increase of 4.0% last month was entirely the result of always-volatile transportation orders (planes, trains, and automobiles). Excluding transportation orders, durable orders actually fell 0.2% in March. That’s the sixth straight month of period-over-period declines in ex-transportation orders, which also happens to be the longest streak of period-over-period declines since 2008.

Durable Orders Growth Chart
42615-durable-orders
Source: Thomson Reuters Eikon

Everything else is on the following grid:

Economic Calendar
42615-econ-data
Source:  Briefing.com

The coming week is going to be considerably busier, though there’s not a lot of truly hard-hitting news in the lineup.

The biggest of these items is Wednesday’s interest rate decision from the Federal Reserve. It’s unlikely any changes will be made to the Fed Funds Rate, though the language used to tell investors that will once again be very telling in itself. More

A Brief History of SPX and VIX Reactions to Advanced GDP

This morning while conducting a webcast about VIX and extended hours trading I was asked a good question.  This means I didn’t know the answer.

Tomorrow at 7:30 Chicago time the first iteration of the 2015 First Quarter GDP number will be reported. This will be the first time this number has been released since CBOE began offering extended hours trading for VIX and SPX index options. While talking about this I was asked, “What does VIX usually do in reaction to the Advanced GDP release?” My answer, “I don’t know, but I’ll find out”. The table below is me finding out.

I took a look at the directional price change for VIX and SPX, along with the magnitude of price changes for those two indexes on the day that GDP is released. I looked back to the first quarter 2008 number through the fourth quarter of 2014 which comes to reports. It turns out the S&P 500 has moved up 13 times and moved lower 15 times in reaction to that numbers. Not surprisingly, VIX has moved up 15 times and lower 13 times or opposite of the S&P 500 move. Basically the reaction to the number has been about 50/50 higher or lower.

GDP Reactions Fixed

 

The Abs Avg column is the average move (higher or lower) in reaction to GDP. On average the S&P 500 moves 0.98% which is just a little bit higher than the average every day price move of 0.91%. VIX actually has a little more relative action having moved on average 5.79% compared to 5.11% on average for all trading days over the same period.

Tomorrow morning I’ll be keeping an eye on VIX option and SPX option markets for interesting trades in front of or in reaction to the GDP report. I plan on reporting back in this space if anything interesting catches my eye.