Daily Market Update – July 15, 2014

 

 

 

Daily Market Update – July 15, 2014 (8:30 AM)

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

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.

For now, though, at least until the first potential newsworthy words coming from Yellen’s comments, the story is again on the financials, as more good news is awaiting the opening bell.

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 for most people, however.

I tried to get some trades in yesterday 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.

Hopefully the two sides of the transaction equation can come together better today than they did yesterday.

 

 

 

 

 

 

Daily Market Update – July 14, 2014

 

 

 

Daily Market Update – Jul 14 ,2014 (Close)

While there’s not too much economic news scheduled this week it will be a busy one for earnings and possibly international events.

For the most part, however, with the exception of the very initial military advance into Crimea, international events, other than in banking, have been almost completely ignored, even in precious metals markets.

Unless something truly unexpected and horrific happens overseas as everyone seems to have bigger and more destructive weapons and appear to have lost any reluctance in using them, those normal war-like events should be non-events for traders.

So it’s likely that most focus will be on earnings this week and we may live and die by those.

The week gets its start with a surprising earnings boost from Citigroup, which hasn’t found the way to deliver good news in a while and even failed the paint by numbers test necessary for regulators to allow it to initiate a stock buyback or raise the dividend.

A strong Citigroup would be the sort of thing to inspire some market confidence, especially if future strength is projected to be on the revenue side rather than through expense control.

It’s often said that the markets are lead out of their doldrums by the financial sector, although it’s hard to characterize current levels as anything but “near highs,” rather than “doldrums.” However, reports from JP Morgan, Morgan Stanley and Goldman Sachs this week could be just the thing to get the indexes back on track to surpass previous records and maybe take everyone along for the ride and not just select sectors.

When the final closing bell sounded the market, probably spurred on by Citigroup, traded in a remarkably narrow range, although individual stocks seemed to vary quite a bit through the day, possibly reflecting lots of rotation. It was a nice day, but the DJIA had its performance enhanced compared to the broad indexes due to the performance of some of its higher priced componetns, such as Visa, IBM and Goldman Sachs. Those higher priced Dow components have a disproportionate impact on the index.

This week will likely be very different from last week’s trading approach.

With no big event planned for the week there’s not too much reason to consider early rollovers where possible and instead there’s a greater need to create new positions if weekly income creation is a goal. Any broad market strength could create some opportunity to sell options on uncovered positions, but new positions  are likely to be a primary strategy this week.

With some money to spend thanks to some assignments last week, I’m willing to take cash down to about the 16% level, which could be as many as 6 new positions. As with previous weeks, however, the challenge is trying to find opportunities that aren’t so close to their peak prices or that could conceivably withstand broad market weakness better than the rest of the market. Today that was really challenging, especially with the latter criterion in mind.

With the market’s rise having come sector by sector, rather than as a broad wave of advances, it would be wonderful to be able to predict the next sector poised to move higher, but that is likely to be as successful of a venture than attempts to predict anything else, so it’s still better to look for individual positions and where possible, to diversify the selections.

Last week was a counter-example to that simple tenet, as all three new positions were energy related and two of the positions were the same – Chesapeake Energy.

While last week  was a good week to not have invested much capital, especially early in the week, and it is difficult establishing diversity if you don’t commit much funds, that lack of diversity isn’t something that I’d want to do on a regular basis.

Hopefully the opportunities this week will be a little more far flung and I would especially like to add some technology, industrials, healthcare and maybe even finance, despite the morning’s likely boost across that sector from the Citigroup news. The one trade of the day, in the industrial sector, didn’t come close to keeping up wiuth the market, as the entire industrial sector was weak throughout the day and never did catch up.

With a nearly triple digit advance in the pre-open market I didn’t think that I’d be rushing in if the market actually opened in the same manner, but unlike other sessions where there were false starts, today wasn’t one of those days. That was consistent with those kind of rallies that are fueled by financials. Knowing that, or at least believing that, however, and the willingness to do a little bit of chasing, still didn’t result in any great opportunity to find worthy new positions..

While I wanted to part of any party and was willing, uncharacteristically, to pay up for the privilege, today just wasn’t the day.

 

Daily Market Update – July 14, 2014

 

 

 

Daily Market Update – Jul 14 ,2014 (9:00 AM)

While there’s not too much economic news scheduled this week it will be a busy one for earnings and possibly international events.

For the most part, however, with the exception of the very initial military advance into Crimea, international events, other than in banking, have been almost completely ignored, even in precious metals markets.

Unless something truly unexpected and horrific happens overseas as everyone seems to have bigger and more destructive weapons and appear to have lost any reluctance in using them, those normal war-like events should be non-events for traders.

So it’s likely that most focus will be on earnings this week and we may live and die by those.

The week gets its start with a surprising earnings boost from Citigroup, which hasn’t found the way to deliver good news in a while and even failed the paint by numbers test necessary for regulators to allow it to initiate a stock buyback or raise the dividend.

A strong Citigroup would be the sort of thing to inspire some market confidence, especially if future strength is projected to be on the revenue side rather than through expense control.

It’s often said that the markets are lead out of their doldrums by the financial sector, although it’s hard to characterize current levels as anything but “near highs,” rather than “doldrums.” However, reports from JP Morgan, Morgan Stanley and Goldman Sachs this week could be just the thing to get the indexes back on track to surpass previous records and maybe take everyone along for the ride and not just select sectors.

This week will likely be very different from last week’s trading approach.

With no big event planned for the week there’s not too much reason to consider early rollovers where possible and instead there’s a greater need to create new positions if weekly income creation is a goal. Any broad market strength could create some opportunirty to sell options on uncovered positions, but new positions  are likely to be a primary strategy this week.

With some money to spend thanks to some assignments last week, I’m willing to take cash down to about the 16% level, which could be as many as 6 new positions. As with previous weeks, however, the challenge is trying to find opportunities that aren’t so close to their peak prices or that could conceivably withstand broad market weakness better than the rest of the market.

With the market’s rise having come sector
by sector, rather than as a broad wave of advances, it would be wonderful to be able to predict the next sector poised to move higher, but that is likely to be as successful of a venture than attempts to predict anything else, so it’s still better to look for individual positions and where possible, to diversify the selections.

Last week was a counter-example to that simple tenet, as all three new positions were energy related and two of the positions were the same – Chesapeake Energy.

While last week  was a good week to not have invested much capital, especially early in the week, and it is difficult establishing diversity if you don’t commit much funds, that lack of diversity isn’t something that I’d want to do on a regular basis.

Hopefully the opportunities this week will be a little more far flung and I would especiually like to add some technology, industrials, healthcare and maybe even finance, despite the morning’s likely boost across that sector from the Citigroup news.

With a nearly triple digit advance in the pre-open market I don’t think that I’ll be rushing in if that is how the opening goes, but unlike other false starts sometimes coming from the pre-open, one that is fueled by the financials may be one that has greater legs, so I may be a little less likely to wait for a fallback from higher levels.

If there will be a party going on I want to be part of it.

 

 

 

 

 

Dashboard – July 14 – 18, 2014

 

 

 

 

Selections

MONDAY:  Not much news scheduled this week, other than lots of earnings reports, but the market appears to be ready to get off to a nice start to begin trading, with a little bit of surprising earnings help from Citigroup.

TUESDAY:     More good earnings from financial sector with JP Morgan and Goldman Sachs reporting. Congressional testimony from Janet Yellen over the next two days could add to sense that economic expansion is now really taking hold.

WEDNESDAY:  More mergers may add market fuel, but historically that has meant the approach of a market top. When you’re spending other people’s money you’re very often unaware of  or indifferent to value

THURSDAY:    Weak European markets looking to upset the party here, as more bank earnings point to something good going on, at least on one level of the economy.

FRIDAY:  With news of airplane downing and ground assault on Gaza now old, the market seems to be ready to settle down after yesterday’s accelerating sell off during afternoon trading

 

 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 

 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

Weekly Summary

  

Weekend Update – July 13, 2014

In the past month Janet Yellen has reaffirmed the commitment to keeping stocks the preferred investment vehicle yet after the initial euphoria, skepticism and askance looks greeted any attempts to set even more new record highs.

For stock investors the greatest gift of all was there, delivered on a platter, just waiting to be taken advantage of this past week. But we didn’t do so, maybe having learned a lesson from Greek mythology and avoiding obvious and superficial temptation.

Unfortunately, the application of that lesson may have been misguided as the temptations offered by the Federal Reserve had already run fairly deep, having already been acknowledged to have fueled much of the years long rally in stocks.

Instead of focusing on accepting and making good use of the gifts this past week it didn’t take long to re-ignite talk of the beginning of the long overdue correction after a failed start to the week’s trading.

The week itself was a bizarre one with some fairly odd stories diverting attention from what really mattered.

There was the frivolous news of a wildly successful potato salad Kickstarter campaign, the inconsequential news of the demise of Crumbs (CRMB), the laughably sad news of the sudden appearance of a seemingly phony social media company in Belize with a $5 billion market capitalization while the SEC slept and feel good news of LeBron James taking his talents back to the fine people of Cleveland.

Somewhere in-between was also the news that a Portuguese bank was having some difficulty paying back short term debt obligations.

Talk of an impending correction came before this week’s FOMC statement release, which did much to erase the previous two days of weakness, but it was short lived, as fears related to the European banking system swept through the European markets and made their ways to our shores on Thursday.

This was yet another week when the market wasn’t willing to accept the assurance of continuing gifts from the Federal Reserve after the initial giddiness upon the delivery of its news. While we all know that sooner or later the gifts from the Federal Reserve will slow down and then stop altogether in advance of that time when it actually begins to impede our over-fed avarice, there isn’t too much reason to refuse the gifts that are still there to be given. While perhaps those gifts could be viewed as an entitlement perhaps the additional lesson learned is that we are resilient enough to not allow a natural sense of cautionary behavior to be disarmed.

Somehow, I doubt that’s the case, just as I doubt that Greek mythology has taught very many or lasting lessons to many of us lately.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Puts I sold on Bed Bath and Beyond (BBBY) that I sold a few weeks ago expired this past week, as they were within easy range of assignment or in need of rollover on Friday until murmurings of a leveraged buyout started to lift shares.

Had those murmurings waited until sometime on Monday I might have considered them as a gift, as I wanted to now add shares to my portfolio. However, coming as they did, although securing the ability to see the puts sold expire worthless, may have snatched a gift away, as I rarely want to chase a stock once it has started moving higher. However, on any weakness that see shares trading lower to begin the week, I would be anxious to add shares as I believe Bed Bath and Beyond was already in recovery mode from the strong selling pressure after it reported earnings a few weeks ago.

The Gap (GPS) continues to be one of the dwindling few that report monthly sales statistics. As it does, it regularly has paroxysms of movement when those statistics are released. Rarely does it string together more than two successive months of consistent data, such that its share price bounces quite a bit, despite shares themselves not being terribly volatile in the longer run. Those movements often provide nice option premiums and makes The Gap an attractive buy, although it can also be a frustrating position, as a result. However, it is one that I frequently like as part of my portfolio and currently do own shares. This most recent report on Friday don’t send shares moving as much as in the recent past, however, it did create an opportunity to consider the addition of more shares.

With earnings season beginning to high gear this week there is no shortage of potential candidates. However, unless most weeks when considering earnings related trades I only think in terms of put sales and would prefer not to own shares.

That is certainly the case with SanDisk (SNDK).

The option market believes that there may be a 6.6% movement in either direction next week upon earnings being released. However, a 1.1% ROI can potentially be achieved at a strike level that is outside of the range implied by the option market, making it an appealing trade, if willing to also manage the position in the event that assignment may be likely by attempting to roll over the put sale to a new time period.

On the other hand both Blackstone (BX) and Cypress Semiconductor (CY) are shares that I would want to own
at a lower price and would consider accepting assignment rather than rolling over and trying to stay one step ahead of assignment.

In the case of Cypress Semiconductor, whose products are quietly ubiquitous, since it has only monthly options available, there aren’t good opportunies to try such evasive techniques, so being prepared for ownership is a requisite if selling puts. Shares have traded in an identifiable range, so if assigned and patient there’s liukely to be an escape path while collecting option premiums and perhaps dividends, as well.

Blackstone is off from its recent highs and has been a beneficiary of the rash of IPO offerings of late. While I wouldn’t mind owning shares again at this level, the fact that it offers many expanded weekly options does allow for the possibility of managing the position through rollovers in the event that assignment may be imminent. However, with a generous dividend upcoming there may also be reason to consider ownership if assignment may be likely.

Finally, A stock that I love to own is Fastenal (FAST). To me it represents a snapshot of the US economy. Depending on your perspective when the economy does well, Fastenal does well or when Fastenal is doing well the economy is doing well. While that’s fairly simple and easy to understand, even if not entirely validated, what is always less easy to understand is how a stock responds to its earnings reports. In this case shares of Fastenal tumbled as top line numbers were very good, but margins were decreasing.

While that may not be great news for Fastenal and it certainly wasn’t for its shareholders today, the growth in sales revenues may be a positive sign for the economy. For me, the negative response provides opportunity to once again own shares and to do so as either a potential short term purchase or with a longer term horizon.

While Fastenal trades only monthly options with this being the final week of the July 2014 cycle it could potentially be purchased with the mindset of a weekly option trader. However, in the event that shares aren’t assigned, they do go ex-dividend the following week, so there may be reason to consider immediately considering an August 2014 option in hedging the share purchase.

Traditional Stocks: Bad Bath and Beyond, Fastenal, The Gap

Momentum: none

Double Dip Dividend: none

Premiums Enhanced by Earnings: Blackstone, Cypress Semiconductor, SanDisk

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.