Daily Market Update – September 4, 2014 (Close)

Comparatively speaking, today was a big news day with both the ADP Jobs reports and an announcement from the ECB regarding its forward policies, in addition to comments from its head, Mario Draghi.

As it would turn out, neither would really be very important nor really change anyone’s minds about anything.

Early this morning came the unusual leak of information confirming the initiation of ECB’s version of quantitative easing and placed it at 500 billion Euros, which would be about 7 months worth of Federal Reserve easing, so while sounding like a lot, may be only a down-payment on what may be required to jump start the European economies that are lagging.

The pre-opening market seemed to like the unconfirmed information contained in that leak, but as I mentioned yesterday, that kind of  embracing the ECB decision by US markets may be short lived if it ends up firming up European markets, whose offerings can be in direction competition to our own.

If that’s going to be a problem it will likely be one that gets set into place in relatively slow motion, at least in its early phases. Other than the day when someone finally opines that is going to be the case and the market takes a quick hit, there should be plenty of time to position a portfolio to not get blind-sided.

With Thursday now here, my attention shifted to positioning for next week. That’s far enough into the future to be planning, for now.

With only five positions set to expire this week there’s wasn’t too much to work with, although as Thursday’s trading got ready to begin they were all in striking range of either being rollover candidates or getting assigned. Either of those is acceptable, although, as with most weeks it’s always nice to have a combination.

Surprisingly, there was some opportunity to add another new position as British Petroleum had a horrible day after receiving news of the court’s decision regarding the fine for its role in the Gulf of Mexico spill some 4 years ago. Shockingly, the claim was that British Petroleum put cost savings ahead of safety and for that they have another $17 billion in fines and penalties facing them.

Does anyone remember Anadarko?

In addition to that purchase came some reason to rollover some positions early. One of those, Coach, goes ex-dividend tomorrow and it saw its price run up sharply at about 2 PM, as there were two separate large trades that sent shares sharply higher very quickly. More intriguing were the two very large options trades made a few minutes later after the jump from $37.10 to $37.37.

There was a very aggressive trade for the $37.50 contracts expiring tomorrow, about 800 contracts worth and then an equally sized, but more cautious trade for the $37 September 20th contracts.

I hope that whoev
er made those trades is right, but I did want to keep my dividend, hence the rollover, which as it turned out in the final 10 minutes of trading, may not have been necessary, as shares closed inside of the $37.34 threshold.

Despite some unexpected activity today, what’s still missing this week is the ability to reduce the number of uncovered positions as the market has been fairly milquetoastish during the first couple of days of trading. Ideally, what helps to get a position to leave its uncovered status is a price spurt and there haven’t been too many of those of late.

What I think has been telling of late of the health of the market is that individual stocks seem to be taking longer to recover from any moves lower. Those moves seem to be sharper and more sustained. In a period of low volatility it is then difficult to find an option premium that can justify the trade off of potential future gains.

One can argue that is the case simply because there may be alternative investments and so money flees from a weakened position to others. That’s precisely the same kind of dynamic that could be the undoing of our current market run higher.

While so much has been said of the US equity markets offering the best opportunities, not only in terms of geography, but also in terms of products, such as in comparison to bonds, any perception in that advantage waning will shift investor allegiances.

The micro-economic issues are important, witness this mornings further erosion in YUM Brands, but the various macro-economic issues are all of concern, as well.

For now, it’s just time to take it all in, as the only consistency is inconsistency. Following the ECB statement and comments from Draghi, we may be entering an altered landscape, but one that could be a much more easy one in which to trade if it slows down the rush of US stock markets higher.