Daily Market Update – August 28, 2014 (Close)

While the market will be closed this coming Monday in celebration of Labor Day, there was a nearly 20 minute period of time yesterday when the S&P 500 stayed in a 0.10 range. You would have been excused for believing that the Labor Day holiday had already arrived.  I actually rebooted my computer twice, because I thought the program had frozen.

Still the S&P 500 was able to set another new record, using every bit of the 0.10 point trading range to close precisely that amount higher.

This morning gave initial appearances of taking a break from the past three weeks of recovery from the transient decline that had everyone preparing for Armageddon and introducing the word “volatility” into their lexicons.

With the release of GDP statistics and Jobless claims a little later in the morning the futures had not changed very much. They continued to point to a lower open, despite some improvement in the GDP, after a couple of very disappointing reports earlier in the year.

With economic news not being much of a factor lately, the only real thing that the market has responded to has been geo-political news and in the past week it seems to have turned a blind eye to events, or at least their reporting, perhaps after having learned from a series of reactions and over-reactions.

Somewhat amazingly the market hasn’t seemed to care about the vary same kind of news that had so consistently upended it in recent weeks, even when there appears to be independent corroboration, thereby elevating the state from that of rumor.. Despite some dour news in the Ukraine – Russia conflict, there appears to be no real reaction, with an apparent expectation that everyone will come out singing praises of peace.

I don’t know how realistic that image is, but as summer ebbs and a Russian winter looms there is certainly bound to be a different kind of offensive that will tax everyone’s credulity regarding Russian intentions and that can only further depress European economies.

On a positive note that could see a shift into US equities, but that’s all in the future and lately the market seems to have stopped discounting the future as it used to do back in the old days.

Other than a shift of money, either from Europe or from the mythical money that may be on the sidelines it’s hard to see what the catalyst will be for the next phase higher. Listening to those who continue to pound on the “historically low P/E multiple,” one has to wonder why they haven’t factored in EPS data that’s been elevated from widespread and aggressive buyback programs that have served to keep that multiple low.

With this week now having entered into that period that I usually start looking for rollover opportunities, but with relatively little to potentially roll over, and still having cash to spend, there is still a possibility of adding some new positions with either a very short term time frame or more likely, with expirations next week, which currently has only a single position set to expire. That was the situation behind today’s sale of Abercrombie and Fitch puts after earnings were released.

Since next week is already a shortened one who knows what opportunities will pop up and just how puny the premiums might be unless those opportunities happen very early in what’s left of the week. So with that in mind, I would like to see that kind of opportunity present itself as this week hasn’t had too much in the way of option income generating activity, although there have been more than the usual number of dividend payers.

The latter, however, doesn’t really count until those funds actually get deposited. For now, they’re only deductions from net asset value, but during a phase of very low option premiums they are more important than ever in trying to develop a predictable stream of income from existing or new assets, as long as their value gets recovered by shares over a short time frame.

 

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