Shayne Heffernan Week Ahead, BFR, FTE, PVR
BBVA Banco Frances S.A. (ADR) NYSE:BFR, France Telecom SA (ADR) NYSE:FTE, Penn Virginia Resource Partners L P NYSE:PVR
Very little in the way of economic data or corporate earnings next week could leave nervous investors on the edge of their seats. Buying the fall is the answer for traders this week the same model has worked since the Fed started round two of its quantitative easing in August 2010.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
As Warren Buffett has stated.
If you have not been greedy over the past week it is certainly time to start, and Friday’s VIX action supports that theory.
The Dow fell for a fifth-straight week last week, its longest week-over-week decline since July 2004. But despite the drop, the market still has some resiliency left, with the Dow up slightly less than 5% for the year and the S&P 500 up 3.4%.
But fund managers displayed caution, rather than distress. Most see the recent data confirming a soft patch, or slowdown, after the government said the economy created a meager 54,000 jobs in May. Others say the economy may be headed for a double-dip recession.
The sharp fall in bond yields also points to a similar concern, but a full-blown downturn in equities isn’t in the cards yet, investors say. For the year stocks still are positive, with the Dow up 5 percent, while the S&P 500 and the Nasdaq are each up about 3 percent.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 0.8 percent to 17.95 at 4:15 p.m. in New York. The index measures the cost of using options as protection against declines in the S&P 500, which fell 1 percent to 1,300.16.
The VIX has fallen 39 percent from this year’s peak of 29.40, which was reached after Japan’s record earthquake and tsunami in March, and is below the 20.35 average over its two- decade history. The VIX and the S&P 500 move in the opposite direction 81 percent of the time.
July VIX futures rose 0.3 percent to 19.40. August contracts climbed 0.3 percent to 20.36. The most-active VIX options were July 17 puts, which rose 2 cents to 85 cents. Almost 174,000 VIX puts changed hands, compared with 109,661 calls.
Equity funds tracked by EPFR Global saw inflows of $1.7 billion in the week ending last Wednesday, distributed evenly between developed and emerging markets. The data comes after three weeks of outflows totaling $18 billion. Bond funds took in some $3.5 billion in net inflows, a sixteenth straight week of inflows.
From a technical standpoint the U.S. stock market showed some resilience also, despite the dismal jobs data.
The S&P 500 on Friday managed to close just above 1,300, keeping the April low just under 1,295 as strong near-term support.
To be sure, not all investors see just a soft patch in the economic data. Friday’s payrolls report confirmed the loss of momentum in the economy, which was already flagged by other data from consumer spending to manufacturing.
And the end of the Fed’s QE2, which helped lift the S&P 500 30 percent in the eight months to the end of April, is robbing the market of a much-needed source of liquidity.
The Labor Department will release its weekly initial jobless claims report at 8:30 a.m. ET Thursday, which investors said will likely be the closest-watched piece of economic data this week. Economists are looking for jobless claims to rise slightly to 423,000.