Daily Market Update – April 10, 2014 (8:30 AM)
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 looks 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.
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.
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.
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.
With more new purchases this week in quite a while I would like to see the week come to an end with either a lot of assignments or at least rollovers, but that’s not much different from any other week.
What is different is that I’m anxious to see the same thing happen again next week although I’d still prefer to see myself better diversified in terms of contract expiration dates.
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 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.