Daily Market Update – April 10, 2014 (Close)

What a day today turned out to be.

After yesterday’s really unexpected gain, that was simply a re-affirmation of what everyone should have already known, that Janet Yellen was more dove than hawk, it looked like today may be a day of rest.

Worries about low inflation seemed to be just the thing that the market wanted to hear and confirmed that the Federal Reserve would continue to be a friend. Of course, when you come to rely on someone or something so much you also set yourself up for disappointment. It’s sort of like the crash after a sugar high.

That’s what today was , as suddenly there were fears of higher interest rates.

Where is the logic or reasoning behind that? What could have possibly changed to drive the markets to wipe out a nerly 200 point gain the day before? Granted that gain may not have been warranted, but as most everyone’s mother used to say “two wrongs don’t make a right.”

But as with most days whatever signals may be sent early in the morning before the official bell rings may not have much bearing on what’s to come. Lately there has really been a dearth of substantive news and the markets have been reacting in fairly random ways, certainly not following any patterns or themes.

Add today to that list of days.

If you listen to the talking heads you can distinguish this recent period from others in the split between those thinking we’re going higher versus those believing that we’re bound to go in the opposite direction. Contrast that to times when there is a preponderance of opinion in one direction or another.

In the latter cases it often pays to be a contrarian, but when everyone seems to disagree about what happens next the market seems to make  geniuses out of everybody, depending on what day it is. Alternating ups and downs with much fury signifying nothing.

Following today’s sell off the preponderance of thoughts was that we are now heading for a long overdue correction.

Ultimately, if I could choose what kind of a market I would like to be trading in, this is the one. Markets that go up and down, just as individual stocks that go up and down, yet don’t advance or decline very much on a net basis are absolutely the best to be owning stocks if you actively manage them and capitalize on their  perceived value to others.

Hopefully you didn’t go down as much as the market did today and hopefully you are ahead for the year. This is the kind of market where that should be an achievable goal.

With more new purchases this week in quite a while I would like to see the week c
ome to an end with either a lot of assignments or at least rollovers, but that’s not much different from any other week. After today’s session I’d be more than happy to just get rollovers, remembering that last week ended with a sell-off, as well, and I felt relieved to have gotten out of it with a nice combination of assignments and rollovers.

What was different about today as it began was that I was anxious to see the same thing happen again next week although I had still preferred to see myself better diversified in terms of contract expiration dates.

When the day settled out I find myself still anxious to do the same next week but uncertain just how much I’m willing to commit to new positions if there aren’t sufficient assignments tomorrow. It’s again a question of are these prices now opportunities or traps, but I sure would like to have some excess capital in hand to be in a position to find out for myself.

But that too will happen again as it seems that volatility has been experiencing some kind of cyclic pattern in the past couple of years having spikes, valleys, mini-spikes, valleys and spikes again over a 4 to 6 month span.

Just about a month ago we had one of those mini-spikes and have since descended into the valley.

If the spike begins to return, as it now appears to be in the process of doing so,  there will be better opportunity to find forward week options more easily and also more opportunity to make DOH trades, which also are keyed to volatility. If that is to be the case that would also mean some market decline is ahead, as increased volatility is usually accompanied by a declining market.

It’s just an example of how you have to take the good and take the bad, as long as the net outcome is good.

On the flip side, if volatility has to be low, as long as the higher market moves aren’t happening without your participation it can just be nice going along for that ride.

But what fun is a ride without some volatility? Those roller coaster photos would never be very exciting if there was no plunge in the making.

I hope you’re having fun.