Monthly Archives: August 2014

Daily Market Update – August 27, 2014 (Close)

The S&P 500 doesn’t get the attention from most people that the DJIA does, but it got its fair share yesterday as it eked out a close above 2000 for the very first time.

The milestone was celebrated on the national news, whereas it rarely gets otherwise mentioned, other than being briefly posted on screen along with other closing prices, When the DJIA hits a new record high, its announcement is obligatory, but not so for the S&P 500.

Yesterday was different, though. The world loves a round number and inevitably discussion will begin regarding the amount of time taken to double that index comparing it to previous round numbers. 500 in 1995, which was quickly doubled and 1000 in 1998, which was finally doubled after 16 years.

This morning the chairman of the S&P 500 Index Committee commented, in passing, that money was coming off the sidelines. Unfortunately, there was no follow-up to that comment, neither to clarify it, question it or interpret it.

It would be hard to imagine a doubling at the same pace as occurred between 1995 and 1998, which was fueled by the dot com boom, but now in hindsight the 16 years taken to get to this point seems so long and so slow, but along the way there were a few obstacles, such as the dot com bust and the financial crisis.

The belief by David Blitzer of S&P 500 that money is now coming off the sidelines should either make people very happy or very cautious. There’s reason to be both, but it’s the time frame for each that is the challenge.

Whether to be ebullient or cautious depends on whether the psychological component of investing, which also includes following pure emotion, trumps technical and fundamental analyses. If you’ve been keeping your cash on the sidelines and taking the number 2000 as an indication to do otherwise, its probably the latter

The early morning indication is of no follow through to yesterday’s gain, which was already in the process of being winnowed from the day’s earlier levels.

As the market came to its close it ended the day having traded in an incredibly flat tape. In fact, the SPDR S&P 500 traded in a $0.01 range for an 18 minute period.

That’s flat.

It’s hard to say what has been responsible for the sizeable gains of the past three weeks. The most likely explanation is that it is either the expected bounce back from the mini-correction which itself appeared to be related to geo-political news or the complete absence of such news in the past few weeks.

If following previous patterns of returning from mini-corrections the market will be seeking even higher levels from here. If there is, indeed,
new money coming from the sidelines, that would also mean that there’s fuel for that sort of rally.

Normally, the first key to  that sort of increased participation is inflow into mutual funds and then increasing trading volume. Unfortunately, with the summer now coming to an end, it may be difficult to discern any sidelines cash fueled increase in trading volume from what would normally be expected once the summer has ended.

That means the first sign of anything percolating may simply be continued price acceleration.

So, do you get ahead of the curve or do you believe that the scenario is too simplistic?

I have no clue, but generally being reluctant to chase prices, I have a hard time biting at the lure being dangled. I don’t mind sitting back and letting the heavy lifting being done by the market and being the beneficiary for now.

With very few positions set to expire this week, it may end up being the quietest week of the year, unless some more new covered positions can be created, which might be the best benefit of a continued market climb.

Daily Market Update – August 27, 2014 (9:00 AM)

The S&P 500 doesn’t get the attention from most people that the DJIA does, but it got its fair share yesterday as it eked out a close above 2000 for the very first time.

The milestone was celebrated on the national news, whereas it rarely gets otherwise mentioned, other than being briefly posted on screen along with other closing prices, When the DJIA hits a new record high, its announcement is obligatory, but not so for the S&P 500.

Yesterday was different, though. The world loves a round number and inevitably discussion will begin regarding the amount of time taken to double that index comparing it to previous round numbers. 500 in 1995, which was quickly doubled and 1000 in 1998, which was finally doubled after 16 years.

This morning the chairman of the S&P 500 Index Committee commented, in passing, that money was coming off the sidelines. Unfortunately, there was no follow-up to that comment, neither to clarify it, question it or interpret it.

It would be hard to imagine a doubling at the same pace as occurred between 1995 and 1998, which was fueled by the dot com boom, but now in hindsight the 16 years taken to get to this point seems so long and so slow, but along the way there were a few obstacles, such as the dot com bust and the financial crisis.

The belief by David Blitzer of S&P 500 that money is now coming off the sidelines should either make people very happy or very cautious. There’s reason to be both, but it’s the time frame for each that is the challenge.

Whether to be ebullient or cautious depends on whether the psychological component of investing, which also includes following pure emotion, trumps technical and fundamental analyses. If you’ve been keeping your cash on the sidelines and taking the number 2000 as an indication to do otherwise, its probably the latter

The early morning indication is of no follow through to yesterday’s gain, which was already in the process of being winnowed from the day’s earlier levels.

It’s hard to say what has been responsible for the sizeable gains of the past three weeks. The most likely explanation is that it is either the expected bounce back from the mini-correction which itself appeared to be related to geo-political news or the complete absence of such news in the past few weeks.

If following previous patterns of returning from mini-corrections the market will be seeking even higher levels from here. If there is, indeed, new money coming from the sidelines, that would also mean that there’s fuel for that sort of rally.

Normally, the first key to  that sort of increased participation is inflow into mutual funds and then increasing trading volume. Unfortunately, with the summer now coming to an end, it may be difficult to discern any sidelines cash fueled increase in trading volume from what would normally be expected once the summer
has ended.

That means the first sign of anything percolating may simply be continued price acceleration.

So, do you get ahead of the curve or do you believe that the scenario is too simplistic?

I have no clue, but generally being reluctant to chase prices, I have a hard time biting at the lure being dangled. I don’t mind sitting back and letting the heavy lifting being done by the market and being the beneficiary for now.

With very few positions set to expire this week, it may end up being the quietest week of the year, unless some more new covered positions can be created, which might be the best benefit of a continued market climb.

Daily Market Update – August 26, 2014 (Close)

Yesterday was just another day in what suddenly is becoming the same runaway train as has been seen throughout the past two years.

I don’t spend too much time looking at charts, but you do have to be impressed by the S&P 500 chart of the past two years. I’m far from a technician, but it’s hard to not notice a periodicity that demonstrates market dips, generally every 2 to 4 months and then predictable bounces higher.

Then, on top of that, it’s hard not to notice the fact that the lows encountered at each of those pullbacks are higher than the previous lows and the highs are higher than the previous highs.

For the technician that’s certainly a sign of more good things to come.

Certainly those who lived by the  credo “don’t fight the Fed” were well rewarded for believing in that correlation, while those who similarly believed “don’t fight the trend” were equally rewarded.

The latter, though, is harder to abide, as there are so many invitations to try and game or time the trend, especially when it is punctuated by reasonably predictable ups and downs. Even with regular patterns there can still be some variation in periodicity and magnitude that can be sought to be exploited.

That was also the case from 2004 to early 2008 and then suddenly it wasn’t. But today, despite coming down from its intra-day highs, it still is.

With the S&P 500 hitting 2000 for the first time, the rally continued as the DJIA also hit a new high and the NASDAQ is closer to its generation ago high than many of us would have ever thought would occur in our lifetimes.

What really presents the challenge is similar to deciding whether small tremors, such as may be felt in California on such a regular basis are going to be harbingers for the big one.

Looking back at that 2004 to 2008 era with the great advantage of hindsight its tempting to suggest that the tremor felt in July 2007 may have taken the market to a low point that was below the line established by the previous two low points.

What does that mean?

Last night I was at a county hearing and had an opportunity to question an “expert” on his studies that he had portrayed as being of a scientific nature and had taken great pains to describe his methodology. His conclusions were then based upon these studies which were presumed to have validity, based upon systematic analysis.

He kept referring to the data he gathered as “facts,” with the expectation that there could only be one conclusion drawn from facts, when in fact, they were nothing more than data points. Facts are subject to interpretation, while data points are subject to analysis and
then interpretation. and were subject to interpretation.

Upon questioning, he admitted that his conclusion, which were very firmly held, was based on only 4 data points and, in fact, there was no statistically significant validity to his claims, as he had also not performed any kind of statistical analysis there being so few points. Upon questioning, it was also clear that despite the manner in which he represented himself, he had no concept of simple and basic statistical concepts.

That, of course, didn’t stop him from the liberal use of the word “significant,” until ultimately questioned about its use.

The technical analysis and chart study isn’t very different.

The suggestion is there, but the validity is missing.

Still, it’s hard to argue with observable “facts.” The market keeps moving higher, despite attempts, that are half-hearted at best.

The question becomes one of recognizing the tremor that counts. The more tremors we experience that turn out to be meaningless, the more likely we are to ignore that which happens around us.

But the question “what does that mean?” again is worth asking.

Despite a market that seems to be very nervous about any challenges and despite a market that demonstrates a desire to ignore those challenges as quickly as possible, there is reason to continue having a foot in both worlds. One that exercises some caution and one that is hopeful of the trend continuing.

If you have cash that means there is reason to use it and reason to not use it all.

If there are profits? Take them. If there are profits to be made? Take the opportunities.

The uncertainty and the potential for opportunity are the only certainties. I plan to pay attention to both as the summer is soon a distant memory and some more serious activity comes our way.

Daily Market Update – August 26, 2014 (9:00 AM)

Yesterday was just another day in what suddenly is becoming the same runaway train as has been seen throughout the past two years.

I don’t spend too much time looking at charts, but you do have to be impressed by the S&P 500 chart of the past two years. I’m far from a technician, but it’s hard to not notice a periodicity that demonstrates market dips, generally every 2 to 4 months and then predictable bounces higher.

Then, on top of that, it’s hard not to notice the fact that the lows encountered at each of those pullbacks are higher than the previous lows and the highs are higher than the previous highs.

For the technician that’s certainly a sign of more good things to come.

Certainly those who lived by the  credo “don’t fight the Fed” were well rewarded for believing in that correlation, while those who similarly believed “don’t fight the trend” were equally rewarded.

The latter, though, is harder to abide, as there are so many invitations to try and game or time the trend, especially when it is punctuated by reasonably predictable ups and downs. Even with regular patterns there can still be some variation in periodicity and magnitude that can be sought to be exploited.

That was also the case from 2004 to early 2008 and then suddenly it wasn’t.

What really presents the challenge is similar to deciding whether small tremors, such as may be felt in California on such a regular basis are going to be harbingers for the big one.

Looking back at that 2004 to 2008 era with the great advantage of hindsight its tempting to suggest that the tremor felt in July 2007 may have taken the market to a low point that was below the line established by the previous two low points.

What does that mean?

Last night I was at a county hearing and had an opportunity to question an “expert” on his studies that he had portrayed as being of a scientific nature and had taken great pains to describe his methodology. His conclusions were then based upon these studies which were presumed to have validity, based upon systematic analysis.

He kept referring to the data he gathered as “facts,” with the expectation that there could only be one conclusion drawn from facts, when in fact, they were nothing more than data points. Facts are subject to interpretation, while data points are subject to analysis and then interpretation. and were subject to interpretation.

Upon questioning, he admitted that his conclusion, which were very firmly held, was based on only 4 data points and, in fact, there was no statistically significant validity to his claims, as he had also not performed any kind of statistical analysis there being so few points. Upon questioning, it was also
clear that despite the manner in which he represented himself, he had no concept of simple and basic statistical concepts.

That, of course, didn’t stop him from the liberal use of the word “significant,” until ultimately questioned about its use.

The technical analysis and chart study isn’t very different.

The suggestion is there, but the validity is missing.

Still, it’s hard to argue with observable “facts.” The market keeps moving higher, despite attempts, that are half-hearted at best.

The question becomes one of recognizing the tremor that counts. The more tremors we experience that turn out to be meaningless, the more likely we are to ignore that which happens around us.

But the question “what does that mean?” again is worth asking.

Despite a market that seems to be very nervous about any challenges and despite a market that demonstrates a desire to ignore those challenges as quickly as possible, there is reason to continue having a foot in both worlds. One that exercises some caution and one that is hopeful of the trend continuing.

If you have cash that means there is reason to use it and reason to not use it all.

If there are profits? Take them. If there are profits to be made? Take the opportunities.

The uncertainty and the potential for opportunity are the only certainties. I plan to pay attention to both as the summer is soon a distant memory and some more serious activity comes our way.

Daily Market Update – August 25, 2014 (Close)

Looking back, last week was an odd one.

Looking ahead, this week may be equally so, but for different reasons.

I don’t really recall the last time that not a single new position was from the Weekend Update playlist, but last Monday’s strong weekly opening saw immediate jumps in the playlist components and made them less desirable.

That part was true for today, as well.

Couple that with last week being another week of just a few scant new position purchases and there was little opportunity to follow the script.

This week appeared to be ready to get off to a moderately positive start as there was no substantive geo-political news over the weekend, no blockbuster comments coming from Jackson Hole and little on the scheduled economic news front to act as a potential challenge.

That all sounded good, especially if your sights are set on a very short term horizon.

But the continued strength led to a different problem, especially in an already volume challenged environment. No one wanted to trade.

With a lot of assignments last week I had cash to take advantage of any opportunities that may have appeared, but there weren’t very many willing buyers of options and there was lots of price rigidity. But as the week got ready to open I found myself not particularly interested in too much risk, anyway, and wanted to be focused more on blue chips, with the possible exception of some earnings related trades, that as usual have elevated risk.

However, because there are so few rollover opportunities as we enter this week and also so few opportunities for assignment to help offset some of the funding necessary for next week, there was reason to try and establish some new weekly positions, as it is true that it takes money to make money.

But as with most of those weekly scripts there has to be room for re-writes that take a measure of what appears before you. At the week’s outset I would have loved the idea of accumulating more dividends and focusing on blue chips, but that could easily be subject to change.

Today, no one appeared very willing to move on price. As the volatility is so very low and the premiums are fairtly pathetic, increasingly every penny becomes more significant part of the return and is ahrder and harder to let go.

With relatively few positions already in place that are set to expire this Friday, I wasn’t thinking of spending too much time looking at expanded weekly contracts, whose premiums are severely challenged by the continuing low volatility environment. By the same token, with a number of positions already having contracts expiring at the cycle’s end, I also wasn’t too not anxious to add to those with four weeks still left
to go. However, some of the potential trades for this week, such as McDonalds, which is also ex-dividend, may be better as a monthly trade, to also attempt to capitalize on the possibility for capital appreciation as well.

That’s part of the theme of this week’s playlist, as the majority of the positions have under-performed the S&P 500 over the past two months and may have some capability of making up for those losses, at least in relative terms.

Since it really is a fool’s game to try and time markets or even individual stocks, some of those depressed positions may still need some time to acquit themselves and the monthly contracts may be better suited, despite the low premiums.

It’s always nice to have a plan, it’s just too bad that there is no shortage of factors to alter the plan and no shortage of conflicting considerations in its implementation.

P.S. On a bookkeeping note, if you have shares of Holly Frontier and had sold calls on that position, your contracts have been adjusted by $0.50 to reflect the special $0.50 dividend, that is made on a quarterly basis, yet is somehow still “special.” Because of that nature the strike levels are all adjusted to reflect the distribution of that additional dividend, as long as it’s more than $0.125/share..

Holly Frontier will also go ex-dividend on August 28th for its regular $0.32 quarterly dividend, so the threshold price target is $50.82, before any rational person would consider making an early exercise in order to capture the dividend. However, the use of the September 20 option means that a truly rational person would likely want to see a price somewhat greater than $50.82, due to the additional time value remaining in the option, that may make its trading more valuable than capturing a dividend.