Monthly Archives: February 2014

Daily Market Update – February 26, 2014 (Close)

I recently had a comment on Seeking Alpha by someone who is absolutely convinced that Deckers, which reports earnings this week will be another Michael Kors in that regard. Specifically, he was as sure and as emotional as you could likely be that Deckers will blow out their numbers and equally certain that they’ll put forward great guidance. He then equated those two with shares going to $95, which would represent about a 12% gain.

He may very well be right. In fact, the option market almost agreed with that opinion, believing that shares could go to $93.

However, another part of the equation is a little less objective than the numbers. which arguably can themselves have some of their objectivity stripped away and modified as they’re being processed prior to reporting.

That part of the equation is the reaction of the market place.

No one ever has any clue how the market will react. Ever.

Just look at Monday’s nearly 200 point gain.

In fact, the market itself may not be monolithic. Now just look at Macys yesterday. It was down about 2% in the pre-open and then immediately turned around once the bell rang and was one of the strongest stocks for the day, up about 6%.

How could that be?

Doug Kass, a fairly well know investor who is often short the market, just bemoaned the fact that no one ever says “I don’t know.” It’s s if there’s some shame in admitting that there’s sometimes neither rhyme nor reason for that which we observe.

When it comes to retail, which has been an abysmal place to be as that part of the economy isn’t readily demonstrating much in the way of vitality, suddenly the message is that disappointing performance may be good. That’s essentially an aexample of “if you can’t beat them, join them,” at work.

That’s not too unusual, as we’ve certainly seen days when good news isn’t good enough or good news is met by choruses of “what have you done for me lately?”

I don’t mind a more accepting attitude, as I’d be happy to see some of my retail stocks get assigned or at least make back some of what they’ve lost. Certainly if you suffered when the attitude was not as accepting you feel as if you’re owed something.

For those that don’t have the patience that comes with having pretty much seen it all, you may never get the opportunity to see both sides of that sine curve that takes you through ups and downs, not only in price but in attitude and outlook.

I’m also reminded a little of some emotional reactions to some opinions regarding Facebook and Apple back in mid-2012. If you can recall where those two stocks were at that point, you can probably guess what the prevailing emotional opinions were at that time.

While you can always select out examples to prove or disprove a point, one thing that is certain is that certainty and the emotion that supports that certainty aren’t in your best interests when it comes to investing.

I can’t remember the  last time I was excited by a stock or the market. It undoubtedly goes back to the last time my broker tried to sell me on something, but that was a really long time ago.

I always said “yes” and almost always felt some remorse when we sold something at a loss, since I had the bad habit of continuing to follow the stock and watch that sine curve.

With the market still within easy striking reach of another new high it’s easy to get excited but I still can’t get excited about individual stocks. I still see them as utilitarian and helping to contribute to a larger mosaic rather than any one specific stock standing out as a superstar.

I really don’t know how analysts can do what they do. There was a recent story this week that spoke of how burned out they get and how quickly most leave the industry as they are constantly measured by their ability to hit the long ball, which most people are aware is well correlated with strike outs.

But everyone loves making the headlines.

I like staying below the radar and plugging away. Mid-week on the day before more Congressional testimony from Janet Yellen, I don’t know how much plugging away there will be today, probably not too much, but if the market wants to continue on a little ride higher today and maybe for the rest of the week, I still don’t mind being an observer and occasional participant in something new.

For the moment, this week is looking as quiet as last week was busy as far as trading is concerned. For now, my focus is on seeing a reasonable portion of this weeks’s expirations either being assigned or rolled over, although I’d like to add to the paltry three new positions for the week, if only something would excite me.

I was a little surprised by having made a few trades as the day unfolded, both adding new positions and finding some new cover in a day that really had no strong tone or conviction one way or another, but did demonstrate some continues resistance at the 1850 level on the S&P 500.

While previous attempts at a correction had no problems blasting through their respective highs and while I’ve been expecting the same to happen this time around, so far it’s proving to be a little different.

Tomorrow we get Janet Yellen, so we’ll see whether she can once again give the market a goose, as she did a couple of weeks ago in her second, albeit interrupted,  day of testimony. In the past, with both Greenspan and Bernanke, but especially Greenspan, when testimony was given over two consecutive days, we rarely saw the same market performance on both days. In fact, so often the net result was no impact, despite the frequent strong moves that ended up cancelling one another out.

This time, thanks to the two week weather induced break the result may be different.

That would be nice as the week and its contracts come to an end.

Daily Market Update – February 26, 2014 (9:30 AM)

I recently had a comment on Seeking Alpha by someone who is absolutely convinced that Deckers, which reports earnings this week will be another Michael Kors in that regard. Specifically, he was as sure and as emotional as you could likely be that Deckers will blow out their numbers and equally certain that they’ll put forward great guidance. He then equated those two with shares going to $95, which would represent about a 12% gain.

He may very well be right. In fact, the option market almost agreed with that opinion, believing that shares could go to $93.

However, another part of the equation is a little less objective than the numbers. which arguably can themselves have some of their objectivity stripped away and modified as they’re being processed prior to reporting.

That part of the equation is the reaction of the market place.

No one ever has any clue how the market will react. Ever.

Just look at Monday’s nearly 200 point gain.

In fact, the market itself may not be monolithic. Now just look at Macys yesterday. It was down about 2% in the pre-open and then immediately turned around once the bell rang and was one of the strongest stocks for the day, up about 6%.

When it comes to retail, which has been an abysmal place to be as that part of the economy isn’t readily demonstrating much in the way of vitality, suddenly the message is that disappointing performance may be good.

That’s not too unusual, as we’ve certainly seen days when good news isn’t good enough or good news is met by choruses of “what have you done for me lately?”

I don’t mind a more accepting attitude, as I’d be happy to see some of my retail stocks get assigned or at least make back some of what they’ve lost. Certainly if you suffered when the attitude was not as accepting you feel as if you’re owed something.

For those that don’t have the patience that comes with having pretty much seen it all, you may never get the opportunity to see both sides of that sine curve that takes you through ups and downs, not only in price but in attitude and outlook.

I’m also reminded a little of some emotional reactions to some opinions regarding Facebook and Apple back in mid-2012. If you can recall where those two stocks were at that point, you can probably guess what the prevailing emotional opinions were at that time.

While you can always select out examples to prove or disprove a point, one thing that is certain is that certainty and the emotion that supports that certainty aren’t in your best interests when it comes to investing.

I can’t remember the  last time I was excited by a stock or the market. It undoubtedly goes back to the last time my broker tried to sell me on something, but that was a really long time ago.

I always said “yes” and almost always felt some remorse when we sold something at a loss, since I had the bad habit of continuing to follow the stock and watch that sine curve.

With the market still within easy striking reach of another new high it’s easy to get excited but I still can’t get excited about individual stocks. I still see them as utilitarian and helping to contribute to a larger mosaic rather than any one specific stock standing out as a superstar.

I really don’t know how analysts can do what they do. There was a recent story this week that spoke of how burned out they get and how quickly most leave the industry as they are constantly measured by their ability to hit the long ball, which most people are aware is well correlated with strike outs.

But everyone loves making the headlines.

I like staying below the radar and plugging away. Mid-week on the day before more Congressional testimony from Janet Yellen, I don’t know how much plugging away there will be today, probably not too much, but if the market wants to continue on a little ride higher today and maybe for the rest of the week, I still don’t mind being an observer and occasional participant in something new.

For the moment, this week is looking as quiet as last week was busy as far as trading is concerned. For now, my focus is on seeing a reasonable portion of this weeks’s expirations either being assigned or rolled over, although I’d like to add to the paltry three new positions for the week, if only something would excite me.

Daily Market Update – February 25, 2014 (Close)

This morning appears to be a repeat of the signs coming from yesterday’s pre-open, albeit in the opposite direction.

By the closing bell it distinguished itself from yesterday by actually following the early tone and never making any attempt to stray

This morning all signs pointed to a listless open with no catalyst in sight to propel the market convincingly in either direction, but we all know what happened yesterday. Same absence of catalyst, but very different outcome in magnitude and direction.

While yesterday’s market was nearly 200 points higher in the mid-afternoon, most people would have still been content with a market closing 103 points higher.

Except for the technicians.

They are the ones who believe that they have the answer for why the market went so much higher yesterday. It all had to do with the S&P 500 exceeding its previous intra-day high and setting off buy programs. Others speculated that a short squeeze was going on, as well.

Since the algorithms that start these buying programs are written by mere mortals someone, at every firm that utilizes such algorithms, knows whether that S&P 500 level was, in fact, the tripping point to begin systemic buying, while we’re left to speculate, because it’s a crime to suggest that you just don’t know what caused a significant move.

However, there was never any kind of frenzy or “Fear of Missing Out” (FOMO) that characterizes real short squeezes. Also, short squeezes usually don’t just wither away in the trading session, as did half of yesterday’s gain. Short squeezes tend to pick up steam going into the close because no one wants to be left short going into a relative vacuum.

A quick look at the previous recoveries after attempted corrections does show that there was typically a strong push forward as  the market climbed back to the previous high point from which the correction attempt began. So on this one the technicians may have the real answer to yesterday’s market.

That’s the good news. At least if we have another correction attempt that shows signs of a quick recovery, there’s reason to aggressively participate in anticipation of that move beyond the highs.

The bad thing is that those same technicians express concern about the market being unable to hold those highs going into yesterday’s close, which saw the market drop nearly 100 points and in an accelerating manner in the final 20 minutes of trading.

Like most strategies or approaches to investing, it’s usually a bad idea to pick and choose what aspects of the strategy to use and which signals to ignore. That’s no discipline at all.

Since I’m not a big advocate of technical analysis, as the successes are widely publicized, but the false positives and false negatives are forever buried and lost, yesterday’s late session turnaround is just something that gets filed away, it’s meaning, if any to be determined later.

Yesterday didn’t offer too many opportunities to spend money unless you were interested in chasing stocks. There was some limited chance to establish cover, but by and l
arge it was another day that I enjoyed being an observer, as it is nice seeing your holdings move higher, especially when there’s no real reason that anyone can identify.

Today, the money was still there to be spent, although there was a little bit of a pessimistic overhang from the technical perspective and the pre-open mildly reflected that pessimism. Unfortunately, as the day went on there really weren’t any new opportunities to be found.

Anyway, while the market did give back much of the gain yesterday, what we have not seen in the past 20 months or so is a market that quickly gives back the ground that it had regained following a correction attempt. Instead, it has, for the most part been a march forward, punctuated by some correction attempts along the way. If you look at the chart for the past year, it has almost been like clockwork. Every two months a relative low and then a rebound and back to a relative low. If that pattern continues, our next relative low should be sometime in late March 2014 or early April.

Do I wholeheartedly believe that?

No, but it does serve as some guidance and comfort.

Daily Market Update – February 25, 2014 (9:30 AM)

This morning appears to be a repeat of the signs coming from yesterday’s pre-open, albeit in the opposite direction.

That is a listless open with no catalyst in sight to propel the market convincingly in either direction, but we all know what happened yesterday.

While the market was nearly 200 points higher in the mid-afternoon, most people would still be content with a market closing 103 points higher.

Except for the technicians.

They are the ones who believe that they have the answer for why the market went so much higher yesterday. It all had to do with the S&P 500 exceeding its previous intra-day high and setting off buy programs. Others speculated that a short squeeze was going on, as well.

Since the algorithms that start these buying programs are written by mere mortals someone, at every firm that utilizes such algorithms, knows whether that S&P 500 level was, in fact, the tripping point to begin systemic buying.

However, there was never any kind of frenzy or “Fear of Missing Out” (FOMO) that characterizes real short squeezes. Also, short squeezes usually don’t just wither away in the trading session, as did half of yesterday’s gain.

A quick look at the previous recoveries after attempted corrections does show that there was typically a strong push forward as  the market climbed back to the previous high point from which the correction attempt began. So on this one the technicians may have the real answer to yesterday’s market.

That’s the good news. At least if we have another correction attempt that shows signs of a quick recovery, there’s reason to aggressively participate in anticipation of that move beyond the highs.

The bad thing is that those same technicians express concern about the market being unable to hold those highs going into yesterday’s close, which saw the market drop nearly 100 points and in an accelerating manner in the final 20 minutes of trading.

Like most strategies or approaches to investing, it’s usually a bad idea to pick and choose what aspects of the strategy to use and which signals to ignore. That’s no discipline at all.

Since I’m not a big advocate of technical analysis, as the successes are widely publicized, but the false positives and false negatives are forever buried and lost, yesterday’s late session turnaround is just something that gets filed away, it’s meaning, if any to be determined later.

Yesterday didn’t offer too many opportunities to spend money unless you were interested in chasing stocks. There was some limited chance to establish cover, but by and large it was another day that I enjoyed being an observer, as it is nice seeing your holdings move higher, especially when there’s no real reason that anyone can identify.

Today, the money is still there to be spent, although there is a little bit of a pessimistic overhang from the technical perspective and the pre-open may be mildly reflecting that pessimism.

While the market did give back much of the gain yesterday, what we have not seen in the past 20 months or so is a market that quickly gives back the ground that it had regained following a correction attempt. Instead, it has, for the most part been a march forward, punctuated by some correction attempts along the way. If you look at the chart for the past year, it has almost been like clockwork. Every two months a relative low and then a rebound and back to a relative low. If that pattern continues, our next relative low should be sometime in late March 2014 or early April.

Do I wholeheartedly believe that?

No, but it does serve as some guidance.

Daily Market Update – February 24, 2014 (Close)

There didn’t seem to be much lurking around the corner that might either serve to spook or excite the markets this week and maybe even less so today.

Yet, for no reason that anyone could really identify, other than perhaps the S&P 500 crossing its all time intra-day high and setting off buy programs, the market just went straight higher once trading started for keeps.

While I prefer a market that has little net movement, I like the kind of market that has lots of intermediate swings in both directions that help to create a large trading range. If I can’t have both, then I’d go for the former, because even with lower premiums the opportunity to repeatedly sell calls on the same positions that are essentially moving nowhere is a pretty stress free way to go about a profitable existence.

The sources of excitement this week appear to be limited. While there are still some earnings reports to come and some merger stories are heating up, it looks to be a quiet week unless something is injected into the system to shake things up.

I continue to have a short term optimistic view, solely related to past history when coming back from attempts at a correction. Given that each of those have seen an overshooting of the previous high there’s not too much reason to suspect that this will be otherwise.

Although maybe the fact that there’s not too much reason to suspect otherwise is, itself, reason enough to suspect otherwise.

This contrarian thing can get carried away.

Given the way today ended up working out it continues to keep that pattern established in 2012 alive and well.

At the very least, even a flat market, comprised of lots of flat stocks, can be a great victory.

The market appeared to be ready to open the week mildly on the upside, but for the past month or so the first hour hasn’t been very reliable in setting overall tone. While the first hour is often called “amateur hour,” I don’t think that’s really consistently the case, although lately it hasn’t been the most opportune time to open new positions.

Today, however, it would have been the best time to get stocks at their lowest price.

Once again, this week, I’d like to see some additional positions picking up their own cover and contributing to the income streams that most of us want to see and seeing either rollovers or assignments of the 10 positions set to expire this week.

For the first time in a few months I don’t have a distribution of expirations over the weeks intermediate between the current week and the end of the monthly cycle, as the lowered volatility has made that a less desirable strategy. As long as the market continues either treading water or going higher there’s no particular advantage, perhaps even a detriment to that kind of  staggering, but I still may be looking for some opportunities to populate some intermediate weeks.

With cash back up to levels that I’m comfortable pursuing a buying spree and still having enough left over for a rainy day, I don’t mind spending the money this week and have a little less hesitancy than just a few weeks ago.

With cash at about 42% I’m not resistant to getting down to the 25% range, which would equate to about 7 new positions, if they are there to be had. While today saw some relative bargain like appearances in Verizon and Starbucks there were few and far between as the day went on and on.

Still, as the market has again moved higher comes that challenge of locating what may be relative bargains and looking for downside protection at the same time. As with so many opportunities in the past that may simply mean looking to familiar names, either down on their luck or not having shared as much in the recent good fortune the market has exhibited.

With the consideration of more familiar names also comes the consideration of once again looking to rollover in the money positions, as opposed to allowing assignment. That was a strategy opportune during the latter part of 2012 and early 2013. In a rising market it continues to capitalize on strength and minimizes the need to discover an increasing number of new opportunities for the coming week. Additionally, as volatility is low, the cost to repurchase those in the money contracts is relatively lower than when volatility is high, as the added “premium” of being in the money quickly erodes when the clock is ticking away and expiration rapidly approaching.