Daily Market Update – July 31, 2014 (Close)

 

 

 

 

Daily Market Update – July 31, 2014 (Close)

Had I known yesterday that today would have had no redeeming qualities, I would have stayed in bed.

Any day that comes at the very end of the month and simply wipes out the entire gains for that month is a day best left unfaced.

Whenever I wake up to visions of red on the screen as this morning the first thought that comes to my mind is “what day is it?”

Looking at the prospects of a DJIA opening approximately 100 points lower based on the futures trading the thought occurs that such an open would be far more welcome on a Monday than on a Thursday.

Now that the day’s trading has come to its close, that simple 100 point drop would have been much appreciated, as opposed to how the day came to its end, as we had one of the worst trading days in about 4 months and which left no sector unscathed.

Being a Thursday and nearly the end of the trading week you can understand the simple thought process of wondering what day it is when things are looking bad. How much better is it to wake up on a Monday morning with freshly freed up cash from assignments and to be greeted by falling prices?

Contrast that with wanting to get rid of positions or roll them over and to be greeted by declining prices on a Thursday, or even worse, on a Friday, when there’s no chance of getting a bounce back later in the week..

I know which order I prefer and it’s strongly associated with the concept of “buy low, sell high” or in my case, “buy low, sell somewhere near low, but preferably a little higher and with a dividend, too, if that’s not asking too much.”

When they say “what a difference a day makes,” I doubt that they had stock markets on the mind, but the relative order of daily results can have such a significant impact on outcomes, sometimes for good and sometimes less so.

This morning’s poorly timed news event on everyone’s mind is primarily related to Argentina and how it has perceived its debt obligations and its various class of debt holders.. It’s one thing to be unable to pay back a nation’s debt, but it may be another thing when it’s the eighth time.

With Argentina in technical default of loans after a very protracted legal battle you can understand how the market may take that as a negative signal, although  there’s really no reason to believe that problem goes any further or deeper. The expectation shouldn’t be that it becomes the nidus for a larger and systemic market decline.

Beyond Argentina there are increasing concerns that growing sanctions against Russia will also have adverse impact on a number of corporations, particularly in the energy sector, but there is always the threat of trickle down and growing economic “tit for tat” that take out the innocent, as well. It might come as no surprise if suddenly McDonalds or Coca Cola were to find themselves in the cross hairs of some previously inert regulatory mechanism.

Adding to those bits of international news was some further futures weakening as jobless claims rose in the most recent period.

That’s consistent with the less than expected numbers seen in yesterday’s ADP report and may hold some clue as to what we might expect with tomorrow’s Employment Situation Report.

No one, other than a Republican in a congressional race, really wants to see anything that can be construed as a slowing down of the growth of employment. Most of us would prefer to see growth, especially to confirm the good GDP numbers that were released yesterday, to only transient applause.

So today held some challenges and tomorrow will be a wild card as the non-farm payroll numbers will have their influence one way or another.

That likely means that today, which turned out not to have very many rollover opportunities, will just have to become a distant memory in the hope that tomorrow brings the opportunities that would have been welcome today.

Today would have been an idea day to get those trades done, especially since you never know what tomorrow will bring..

I only wish I would have realized that expression had so much meaning yesterday.

 

 

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Daily Market Update – July 31, 2014

 

 

 

 

Daily Market Update – July 31, 2014 (9:00 AM)

Whenever I wake up to visions of red on the screen as this morning the first thought that comes to my mind is “what day is it?”

Looking at the prospects of a DJIA opening approximately 100 points lower based on the futures trading the thought occurs that such an open would be far more welcome on a Monday than on a Thursday.

How much better is it to wake up on a Monday morning with freshly freed up cash from assignments and to be greeted by falling prices?

Contrast that with wanting to get rid of positions or roll them over and to be greeted by declining prices.

I know which order I prefer and it’s strongly associated with the concept of “buy low, sell high” or in my case, “buy low, sell somewhere near low, but preferably a little higher and with a dividend, too, if that’s not asking too much.”

When they say “what a difference a day makes,” I doubt that they had stock markets on the mind, but the relative order of daily results can have such a significant impact on outcomes, sometimes for good and sometimes less so.

This morning’s poorly timed news event on everyone’s mind is primarily related to Argentina and how it has perceived its debt obligations and its various class of debt holders.. It’s one thing to be unable to pay back a nation’s debt, but it may be another thing when it’s the eighth time.

With Argentina in technical default of loans after a very protracted legal battle you can understand how the market may take that as a negative signal, although  there’s really no reason to believe that problem goes any further or deeper. The expectation shouldn’t be that it becomes the nidus for a larger and systemic market decline.

Beyond Argentina there are increasing concerns that growing sanctions against Russia will also have adverse impact on a number of corporations, particularly in the energy sector, but there is always the threat of trickle down and growing economic “tit for tat” that take out the innocent, as well. It might come as no surprise if suddenly McDonalds or Coca Cola were to find themselves in the cross hairs of some previously inert regulatory mechanism.

Adding to those bits of international news was some further futures weakening as jobless claims rose in the most recent period.

That’s consistent with the less than expected numbers seen in yesterday’s ADP report and may hold some clue as to what we might expect with tomorrow’s Employment Situation Report.

No one, other than a Republican in a congressional race, really wants to see anything that can be construed as a slowing down of the growth of employment. Most of us would prefer to see growth, especially to confirm the good GDP numbers that were released yesterday, to only transient applause.

So today may hold some challenges and tomorrow will be a wild card as the non-farm payroll numbers will have their influence one way or another.

That likely means that today will be a day to look for whatever rollover opportunities may exist and attempt to secure those trades, if any, while they are still possibilities, as you never know what tomorrow will bring.

I only wish I would have realized that expression had so much meaning yesterday.

 

 

 

 

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Daily Market Update – July 30, 2014 (Close)

 

 

 

 

Daily Market Update – July 30, 2014 (Close)

When did the FOMC become such a yawner?

Actually, today was a disappointing one. Given the strong GDP number you might have expected a strong reaction, but just as when the market didn’t give a strong reaction to the significant downward revision last month, you really can’t expect to have it both ways.

The market did seem to react to some more news of sanctions against Russia and then generally moved higher after the FOMC release, despite an initial move lower.

The real story of the day was Twitter.

The reaction to Twitter’s earnings released yesterday afternoon was pretty implausible and makes you wonder who exactly runs in to purchase shares after hours when a buying frenzy is going on. You have to have lots and lots of confidence to commit to a stock when its shares jump about 30% in the blink of an eye, especially when they’ve shown that they can also do the same in the opposite direction.

I have enough trouble running in and doing so after a 1% climb, but there’s something unnerving about buying into something when there’s a big price gap, just as there’s something unnerving about being on the wrong side of a gap lower.

For me, the good news is that if the price holds until Friday I will finally be out of shares that started as a put sale at $47, then an assignment at $43.50 and a large number of rollovers of both puts and calls in an effort to stay ahead of assignment, including the sale of even more puts at lower prices to generate offsetting revenues. 

First the fear was that of assignment of puts and then the fear was that of assignment of calls when executing DOH trades.

Fear can be a good motivator, but it’s a lot easier to take than stress, because somewhere along the line I believed that somehow everything would work out, or at least not be as bad as things may appear.

What the process, now that it’s coming to an end demonstrates is that it is possible to make proverbial lemonade even when things aren’t looking very good. Unfortunately, there are plenty of lemons to deal with sometimes.

In the case of Twitter it was easier because the shares have some volatility. That’s the secret sauce that makes some things more likely.It is what enhances premiums, even when they’re deep in the money. It is what is
lacking in most other positions and that makes it difficult to maneuver in the event of an adverse price movement.

That adverse price movement can be higher, just as easily as it can be lower.

I mention that because of one subscriber who had sold August 16, 2014 calls on his Family Dollar Store holdings. With shares being now deep in the money after the buyout bid the likelihood of being able to roll those shares over into the future at a higher strike price in order to gain some benefit from the buyout isn’t very high as long as the volatility is low.

When the original stake by Icahn was announced we were able to rollover shares to a higher strike and participate in the share’s appreciation due to  having selected an option expiration that coincided with earnings. That alone caused the enhanced volatility that allowed a trade to be made, and to live to see another day.

In the current case the next earnings date is in October. While that may give some opportunity, there is another difference between the Family Dollar of old and the Family Dollar of today.

Back then there was still an unlimited potential for the share price to climb, as Icahn had just entered the picture. Now, there is a defined offer that prices shares at about $74.50. While that can change if some other player comes in, the volatility won’t appear again unless that  happens. That immediately limits potential trade opportunities.

But, like today’s FOMC statement release, you just never know if a surprise is just around the corner. You really can’t take anything for granted.

As long as a company still has some breath in it there’s always the chance, in fact, the probability that it will show some recovery. The key is whether that recovery is enough to start instituting some measures, such as DOH trades, to start resurrecting the position’s ability to support itself and justify its existence in a portfolio.

That requires a lot of patience sometimes, but that patience, as it grows, also comes with a remarkable reduction in stress.

Of course, nothing reduces that stress more than profits.

 

 

 

 

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Daily Market Update – July 30, 2014

 

 

 

 

Daily Market Update – July 30, 2014 (8:30 AM)

The reaction to Twitter’s earnings released yesterday afternoon was pretty implausible and makes you wonder who exactly runs in to purchase shares after hours when a buying frenzy is going on. You have to have lots and lots of confidence to commit to a stock when its shares jump about 30% in the blink of an eye, especially when they’ve shown that they can also do the same in the opposite direction.

I have enough trouble running in and doing so after a 1% climb, but there’s something unnerving about buying into something when there’s a big price gap, just as there’s something unnerving about being on the wrong side of a gap lower.

For me, the good news is that if the price holds until Friday I will finally be out of shares that started as a put sale at $47, then an assignment at $43.50 and a large number of rollovers of both puts and calls in an effort to stay ahead of assignment, including the sale of even more puts at lower prices to generate offsetting revenues. 

First the fear was that of assignment of puts and then the fear was that of assignment of calls when executing DOH trades.

Fear can be a good motivator, but it’s a lot easier to take than stress, because somewhere along the line I believed that somehow everything would work out, or at least not be as bad as things may appear.

What the process, now that it’s coming to an end demonstrates is that it is possible to make proverbial lemonade even when things aren’t looking very good. Unfortunately, there are plenty of lemons to deal with sometimes.

In the case of Twitter it was easier because the shares have some volatility. That’s the secret sauce that makes some things more likely.It is what enhances premiums, even when they’re deep in the money. It is what is lacking in most other positions and that makes it difficult to maneuver in the event of an adverse price movement.

That adverse price movement can be higher, just as easily as it can be lower.

I mention that because of one subscriber who had sold August 16, 2014 calls on his Family Dollar Store holdings. With shares being now deep in the money after the buyout bid the likelihood of being able to roll those shares over into the future at a higher strike price in order to gain some benefit from the buyout isn’t very high as long as the volatility is low.

When the original stake by Icahn was announced we were able to rollover shares to a higher strike and participate in the share’s appreciation due to  having selected an option expiration that coincided with earnings. Tha
t alone caused the enhanced volatility that allowed a trade to be made, and to live to see another day.

In the current case the next earnings date is in October. While that may give some opportunity, there is another difference between the Family Dollar of old and the Family Dollar of today.

Back then there was still an unlimited potential for the share price to climb, as Icahn had just entered the picture. Now, there is a defined offer that prices shares at about $74.50. While that can change if some other player comes in, the volatility won’t appear again unless that  happens. That immediately limits potential trade opportunities.

But, like today’s FOMC statement release, you just never know if a surprise is just around the corner. You really can’t take anything for granted.

As long as a company still has some breath in it there’s always the chance, in fact, the probability that it will show some recovery. The key is whether that recovery is enough to start instituting some measures, such as DOH trades, to start resurrecting the position’s ability to support itself and justify its existence in a portfolio.

That requires a lot of patience sometimes, but that patience, as it grows, also comes with a remarkable reduction in stress.

Of course, nothing reduces that stress more than profits.

 

 

 

 

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Daily Market Update – July 29, 2014 (Close)

 

 

 

 

Daily Market Update – July 29, 2014 (Close)

While today will be another busy earnings day, having already gotten underway with Pfizer and others, it’s likely to be relatively quiet as it usually is once the FOMC meeting gets underway.

While some additional sanctions on Russia did have some mildly negative impact on the market, ringing it down from an equally mild gain, it was really a quiet day and no surprises were in store, other than from a possible gift from the IRS to companies with significant land holdings used to bury cables, such as for land telephone lines and cable television.

However, the real surprise would be if at 2 PM tomorrow there is some surprise coming from the statement released after the two day meeting. However, increasingly the words are being parsed for the slightest hint of nuance or the appearance of a new word or deletion of an old one, in order to ascertain what is really going on in the minds of those in control of the economy. That could mean some reaction beyond the usual knee-jerk response, which itself was actually missing at least month’s release.

Following a nice recovery from yesterday’s early sell-off there’s reason to believe that records could easily be assaulted again, especially if some of the bigger names come out with earnings. It doesn’t take too much to move the DJIA and this morning both Merck and Pfizer seem to be contributing to the pre-open advance, as they have released their earnings. Verizon and AT&T are also both up strongly, helping to give the DJIA an early lead over the broader S&P 500.

Pfizer, itself, later gave up a nice gain, not because of earnings, but almost the instant it mentioned that it wasn’t giving up on the idea of a blockbuster kind of acquisition, perhaps even another run at Astra Zeneca. Apparently the market didn’t like that kind of aggressiveness particularly with the flurry of concern around so called “inversions” which could include being ineligible for any kind of federal contracting, which could be a huge blow to a company like Pfizer. 

Otherwise, with the early assignment of Texas Instruments in order to capture the dividend that pesky problem of having cash is even greater now. I would still have liked the opportunity to spend some down and would have liked to have to seen another day of some downward moves or at least some flatness while awaiting something that looks appealing.

That downward move didn’t come until the end of the day, but hopefully the day’s earlier purchases in International Paper and Blackstone will still turn out to have been a relative bargain prices.

As with other times that problem of having cash has been the case, I’m not too likely to want to compound that problem by spending it down
just for the sake of spending it down. Last Friday seemed to bring some relative bargains, but the key word is “relative.” Many stocks still look and feel expensive so there has to be a nagging voice somewhere questioning every potential new purchase as being without value.

By the same token everything that looks like a bargain may get the same scrutiny as a 45 year old bachelor. People want validation for their biases. Why in the world hasn’t he never been married? Why would it be so “cheap” when everything else is going higher?

While one may certainly be a lifestyle choice, it would be hard to find anyone other than a short seller who wouldn’t want to see shares higher, so wondering why something hasn’t been participating may be a justified question.

Whereas yesterday I felt willing to jump in without waiting for much validation, in the hopes of picking up some of those seeming bargains, I don’t have that same confidence this morning. With the very strong early moves in some of the DJIA components there may be some early skew to the perception of how the market will actually trade. Those gains just seem to be illusory, very much based on some financial engineering ideas put forth by a tiny player in the communications sector that may have big implications for the likes of the behemoths, Verizon and AT&T.

So while I thought I would revert back to recent style and watch and see how the market’s trend, if any, would develop this morning, sometimes those plans gets scuttled as the opportunities seem to appear.

Sit would turn out, whether due to the new sanctions or not, much of the early rise fueled by the IRS decision died down as investors may have come to the realization that what matters for Verizon and others may have little to no relevance for anyone else and still may have some regulatory and even some further IRS hurdles ahead.

 

 

 

 

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