Monthly Archives: July 2014

Daily Market Update – July 17, 2014 (Close)

The one thing that is probably not factored into many people’s equation for market direction is the completely unexpected.

Today, with the likely downing of a passenger aircraft over the Ukraine – Russian border, the unexpected happened and you saw some predictable responses in stocks, bonds and precious metals, although the responses weren’t really that large in relative terms.

Wherever the truth may be, the initial responses will have to wait, perhaps only overnight, to know whether they were valid and warranted a stock sell-off.

So tomorrow may be interesting, as news also comes of Israle’s announcement that there would be an expansion of operations against Hamas.

By comparison, yesterday’s big news seems so quaint, as the banks took a quick break from earnings reports, until this morning’s positive report from Morgan Stanley. That news centered around Rupert Murdoch threatening/offering/seeking to buy Time Warner.

The analysis of the situation seems to point out that doing the right thing may have bad consequences for some.

In this case it was a question of relatively new Time Warner CEO Jeff Bewkes doing the right thing by spinning off or selling non-core assets changing the company from a media conglomerate to a pure entertainment business.

That’s what may have made it more appealing for someone like Rupert Murdoch during an era when the likes of Comcast and Verizon are getting bigger and bigger. It becomes a battle of survival between the owners of the content and those that get the content to consumers willing to pay ever large increasing amounts for content.

In the short term mergers and acquisitions fuel the market, but they are also cause for some concern, as someone so wisely posted yesterday, looking back at some of Murdoch’s previous high profile buy-outs.

At what may be a $100 billion dollar deal this one is certainly a high profile deal and is definitely reminiscent of the timing of the ill-fated Time-AOL deal.

In the meantime after some decent gains yesterday the European markets were again weak, as they were last week following concern ov
er a Portuguese bank.

This time there’s not much identifiable to account for the weakness, but it’s looked to work its way to our shores as the pre-open trading, while improving from its early lows, was on track to erase yesterday’s gains.

Once the bell rang it was clear that today wasn’t going to be a day for more records. What wasn’t clear was the tragic surprise in store for everyone.

With next week’s options becoming available for those with weekly options but not expanded weekly options, some additional rollover opportunities began with today’s trading and hopefully some will still open up before tomorrow’s close, in an effort to make something worthwhile this week. The late day sell off today

While last week was exceptionally busy without having added too many new positions, so far this week is a polar opposite, with scant trades in any category. While there are still positions where rollovers or assignments can still potentially occur it would  have been nice to have a continuation of yesterday’s market and some continued upside to make the potential become a reality.

Even though it’s difficult to keep up with a market that moves more than 1% higher in any given week, sometimes those moves are necessary to be able to execute the kind of trades to keep the cash flowing. What isn’t necessary is a sudden and unforeseen reversal of good fortunes.

Lately the market, while not setting the world on fire, even while still setting new record highs, has continued to be incredibly resilient to any challenges, so overseas weakness and Murdoch’s profligacy may simply be momentary speed bumps. It’s the unknown, though, that can be a far bigger hurdle.

Daily Market Update – July 17, 2014 (8:15 AM)

Yesterday’s big news, as the banks took a quick break from earnings reports, until this morning’s positive report from Morgan Stanley, was the news that Rupert Murdoch was seeking to buy Time Warner.

The analysis of the situation seems to point out that doing the right thing may have bad consequences for some.

In this case it was a question of relatively new Time Warner CEO Jeff Bewkes doing the right thing by spinning off or selling non-core assets changing the company from a media conglomerate to a pure entertainment business.

That’s what may have made it more appealing for someone like Rupert Murdoch during an era when the likes of Comcast and Verizon are getting bigger and bigger. It becomes a battle of survival between the owners of the content andf those that get the content to consumers willing to pay ever large increasing amounts for content.

In the short term mergers and acquisitions fuel the market, but they are also cause for some concern, as someone so wisely posted yesterday, looking back at some of Murdoch’s previous high profile buyo-uts.

At what may be a $100 billion dollar deal this one is certainly a high profile deal and is definitely reminiscent of the timing of the ill-fated Time-AOL deal.

In the meantime after some decent gains yesterday the European markets are again weak, as they were last week following concern over a Portuguese bank.

This time there’s not much identifiable for the weakness, but it’s looking to work its way to our shores as the pre-open trading, while improving from its early lows, was on track to erase yesterday’s gains.

With next week’s options become available for those with weekly options but not expanded weekly options, some additional rollover opportunities begin with today’s trading and hopefully some will open up before tomorrow’s close, in an effort to make something worthwhile this week.

While last week was exceptionally busy without having added too many new positions, so far this week is a polar opposite, with scant trades in any category. While there are still positions where rollovers or assignments can still potentially occur it would be nice to hav
e a continuation of yesterday’s market and some continued upside to make the potential become a reality.

Even though it’s difficult to keep up with a market that moves more than 1% higher in any given week, sometimes those moves are necessary to be able to execute the kind of trades to keep the cash flowing.

Lately the market, while not setting the world on fire, even while still setting new record highs, has continued to be incredibly resilient to any challenges, so overseas weakness and Murdoch’s profligacy may simply be momentary speed bumps.

Daily Market Update – July 16, 2014 (Close)

While today was Day 2 of Janet Yellen’s testimony, which was fairly tepid in response to very tame questioning, the big news to start the morning was more merger and acquisition news.

It was odd listening to an interview with Gerald Levin, who in 1999-2000 was at the center of the Time Earner – AOL merger, which happened to occur on the precipice of what became known as the “dot com bubble.”

He was now commenting on a proposed buyout of Time Warner by Rupert Murdoch’s Twenty First Century Fox. At this point no one really cares about the eventual outcome of that merger, but rather what that merger represented in the scope of everything going on at that time and era.

It may be hard to draw a parallel to that era as right now there’s really no singularly spectacularly performing sector that could be called a bubble, unless it’s all a bubble. Nearly a generation ago it was obviously technology and the internet that was going wild, but the same just doesn’t exist these days.

While everything is at or near relative high points and everything seems expensive, it’s a far stretch to think that the current market is in bubble territory.

The early speculation is that talk of a buyout will spur others to start looking for their own synergies, so that more of the same can be expected. The same companies that received a boost when the Supreme Court ruled against Aereo could now be expected to more overtly look for those synergies.

The funny thing is that when you do start seeing an increase in merger and acquisition activity it is rarely something done at or near market bottoms.

Imagine the opportunities to pick up companies at fire sale prices back in 2008 and 2009. How many of those happened when it really seemed to make sense?

Instead, that kind of activity, just like IPO activity comes when prices are high.

That’s certainly understandable for the beneficiaries of IPOs, but it doesn’t make too much sense for buyouts and mergers, except when you realize that it’s other people’s money that’s being spent.

There’s rarely reason to be concerned about value when it’s not yours and it’s easy to be incredibly indifferent to getting value. It’s all about the getting
and trying to stay ahead at any price, even if that price will turn out to be a noose around your neck.

The news this morning seemed to be the catalyst sending the pre-open futures nicely higher. It would have been interesting to see Janet Yellen, who did discuss, in a limited fashion,  stock market valuation yesterday, asked questions about merger and IPO activity and whether that represents any cause for concern.

That question and its answer could be as explosive as when Greenspan commented about “froth” and “irrational exuberance.”

While the market looked to open higher this morning my only hope was that some of that move adds to some gains for the week, because it has otherwise been a very, very quiet trading week. In sharp contrast to last week.there have so far been no real activity in generating income from option sales, with the exception of some DOH trades of Holly Frontier.

If the market does generate some more strength this week any opportunity to sell some more contracts on existing positions will be more likely that looking to add new positions, at this point. Any new positions are likely to look at expiration dates beginning with the August 2014 cycle, which begins next week.

With monthly and weekly contract expiration just 2 days away, the process of looking for rollovers begins today and there may at least be some opportunity to generate some of the weekly income that’s be really missing this week. Hopefully that will be coupled with some assignments so that the August cycle can get off to a good start.

Daily Market Update – July 16, 2014 (9:00 AM)

While today will be Day 2 of Janet Yellen’s testimony, which was fairly tepid in response to very tame questioning, the big news to start the morning is more merger and acquisition news.

It was odd listening to an interview with Gerald Levin, who in 1999-2000 was at the center of the Time Earner – AOL merger, which happened to occur on the precipice of what became known as the “dot com bubble.”

He was now commenting on a proposed buyout of Time Warner by Rupert Murdoch’s Twenty First Century Fox. At this point no one really cares about the eventual outcome of that merger, but rather what that merger represented in the scope of everything going on at that time and era.

It may be hard to draw a parallel to that era as right now there’s really no singularly spectacularly performing sector that could be called a bubble, unless it’s all a bubble. Nearly a generation ago it was obviously technology and the internet that was going wild, but the same just doesn’t exist these days.

While everything is at or near relative high points and everything seems expensive, it’s a far stretch to think that the current market is in bubble territory.

The early speculation is that talk of a buyout will spur others to start looking for their own synergies, so that more of the same can be expected. The same companies that received a boost when the Supreme Court ruled against Aereo could now be expected to more overtly look for those synergies.

The funny thing is that when you do start seeing an increase in merger and acquisition activity it is rarely something done at or near market bottoms.

Imagine the opportunities to pick up companies at fire sale prices back in 2008 and 2009. How many of those happened when it really seemed to make sense?

Instead, that kind of activity, just like IPO activity comes when prices are high.

That’s certainly understandable for the beneficiaries of IPOs, but it doesn’t make too much sense for buyouts and mergers, except when you realize that it’s other people’s money that’s being spent.

There’s rarely reason to be concerned about value when it’s not yours and it’s easy to be incredibly indifferent to getting value. It’s all about the getting and trying to stay ahead at any price, even if that price will turn out to be a noose around your neck.

The news this morning seems to be the catalyss sending the pre-open futures nicely higher. It will be interesting to see whether or not Janet Yellen, who did discuss, in a limited fashion,  stock market valuation yesterday, will be asked questions about merger and IPO activity and whether that represents any cause for concern.

That question and its answer could be as explosive as when Greenspan commented about “froth” and “irrational exuberance.”

While the market looks to open higher this morning my only hope is that some of that move adds to some gains for the week, but it has otherwise been a very, very quiet trading week. In sharp contrast to last week.there have so far been no real activity in generating income from option sales, with the exception of some DOH trades of Holly Frontier.

If the market does generate some more strength this morning any opportunity to sell some more contracts on existing positions will be more likely that looking to add new positions, at this point. Any new positions are likely to look at expiration dates beginning with the August 2014 cycle, which begins next week.

With monthly and weekly contract expiration just 3 days away, the process of looking for rollovers begins today and there may at least be some opportunity to generate some of the weekly income that’s be really missing this week. Hopefully that will be coupled with some assignments so that the August cycle can get off to a good start.

Daily Market Update – July 15, 2014 (Close)

For the next two days Janet Yellen will be providing some testimony in front of congressional banking and finance committees.

Today no one really cared about what she said, it was about what she didn’t say, but had appeared in printed comments regarding her opinion of stock pricing of some”smaller”  bio-technology and social media stocks as being over valued.

Based on her latest two rounds of public statements it has been pretty clear that anyone with money who was inclined to invest would be better off in stocks as their vehicle as opposed to alternatives, such as bonds. However, today’s comments gave some room for pause, at least in two sectors.

For now, though, at least until the first potential real newsworthy words coming from Yellen’s comments, the story is again on the financials, as more good news is awaited the opening bell and did bring the market higher until the comments from Yellen dragged some of the life out of the decent rise.

With JP Morgan and Goldman Sachs reporting earnings this morning that were in line with the previous day’s report from Citigroup, there’s reason to believe that the economy may be heating up. When the financial sector does well it’s not a far stretch to imagine other sectors doing well, although that’s not always a given.

Over the past 4-6 quarters there have been a couple of earnings seasons that started with the financial sector reporting better than expected earnings but with no follow through from other market sectors.

Sooner or later, though, the rest of the market has to catch up to good fortunes in the banking world.

Goldman Sachs, for example, actually reported revenues that were a $1 billion  more than expected. Additionally, both JP Morgan and Goldman Sachs seem to have indicated that their own fortunes significantly improved during the latter part of the past quarter. For its part, Johnson and Johnson also reported this morning and their revenues came in $600 million higher than expected.

Yesterday’s strong gain was fueled by Citigroup’s results. This morning the impact of the early reports weren’t as obvious, although they did turn the pre-open around from mildly negative to mildly positive.

Yesterday’s triple digit gain came close to setting another record on the DJIA, although the broader market didn’t perform quite as well. It was good enough fo
r most people, however.

Today we were again close to setting another new high, but also again, the broader market trailed the DJIA by a considerable margin.

Yesterday I tried to get some trades in Bed Bath and Beyond, Cypress Semiconductor and even Riverbed Technology. However, while there was a fair amount of volatility with share pricing yesterday, representing give and take between buyers and sellers, despite the fact that the actual indexes were virtually unchanged during the day, there was very little such give and take in the option markets.

What that meant was that even as share prices changed the option prices didn’t follow along, making it a challenge to get trades done, as the “Net Debit” prices couldn’t be realized. In all likelihood that meant that those in the option markets weren’t convinced by yesterday’s trading. Buyers and sellers just couldn’t come to agreement.

That was fairly frustrating.

Generally I don’t mind being the one to give in on pricing because I’m motivated to get the trade done.

However, when volatility is so low and the premiums are, as well, that kind of giving in makes it harder to justify the trade on an ROI basis, especially as the market is sitting at such heights.

When looking at charts of so many potential positions it certainly looks as if there’s more room to drop than there is to climb, even though the potential climb is unlimited. With the small premiums, if using them for downside price protection they don’t offer very much to counter the risk. However, if using the premiums for income, then it’s a little easier to justify the transaction, but still not as easy as even a few months ago.

Today will be yet another day with cash available to spend and a willing, but not reckless spender, looking for an opportunity.

I was hoping that the two sides of the transaction equation could come together better today than they did yesterday, but there really wasn’t too much reason to test the market’s desire to transact on much of anything, today.

The one new position trade in Lorillard oddly disintegrated as the day went on.

Prior to conformation of the buyout of Lorillard by Reynolds American the market seemed to price the transaction at $65.

Today it expressed disappointment that the deal was priced at about $68, based on the details of the deal which included about 0.29 shares of Reynolds stock.

I still don’t understand how Lorillard shares plummeted and then fell even further. None of the issues being discussed later in the day as potential negatives were newly discovered, yet suddenly they have become issues.

I don’t understand, but I wouldn’t mind holding shares, as Reynolds believes that the deal will be completed sometime in the first half of 2015 and they have already committed to the cash portion of the deal, as well as maintaining the dividend at its current rate.

Unless something wild and crazy pops up over the course of the next day, like the world discovering that smoking is bad for you, this is one large drop that I expect to correct itself fairly quickly.

For now we’ll just wait and see what Janet Yellen will say tomorrow that will get tongues wagging.