Daily Market Update – October 9, 2014 (8:30 AM)

It’s almost a little eerie when one day can go down 272 points and the next day can go up 274 points.

While yesterday’s rebound was definitely welcome there’s still no escaping the historical significance of such large upward moves. They tend to occur during market downtrends and aren’t generally parts of the building blocks that take markets higher in a sustained fashion.

The October 2007 to March 2009 period was filled with those kind of days and if you can remember back to those days how many times did you think “finally, we’re done with all of the selling”?

There was a lot of talk about how yesterday represented a “key reversal” day.

That’s one where the market opens lower than the previous day, then moves to a new low, before reversing course to close higher than the previous day’s high.

There was a lot of talk about it because many see it as a very bullish sign, although like so many such signs it’s not as valid as many would like to believe. In fact, Thomas Bulkowski, who extensively studies chart patterns has reported that about 51% of the time that a key reversal occurs during a market downtrend, such as we’re currently experiencing, the trend continues downward after the  key reversal.

I don’t know if he’s right, but somebody is wrong when it comes to the significance of the exalted key reversal.

Still, yesterday was welcome as we head into the final days of the week and always hopeful for some combination of assignments and rollovers.

One of those hopes, The Gap, got dashed yesterday after the close, as its CEO unexpectedly announced hos retirement, saying he was unable to commit anew to the time being asked of him.

That’s a very bizarre reason, but more bizarre has been the immediate reaction to the announcement, particularly considering that there was nothing terribly spectacular about the CEO or his performance. If anything, during his reign, The Gap has been incredibly inconsistent in its performance and certainly not a stellar retail performer.

The market may be reacting to uncertainty over the real reasons for his sudden departure. The after hours response came before The Gap released its monthly same store sales, which were flat, but did indicate an increase in expenses, which ordinarily would probably have caused some drop in shares in the aftermarket. However, in the past, The Gap has typically made initial 5% moves in either direction upon same store sales, although often quickly reversing the initial reactions. This time, it’s a 10% move in the absence of significant same store sales news.

So that will be one to watch and weather as we await the real story.

For the morning there doesn’t appear to be a follow through forth
coming to yesterday’s gains, although precious metals are showing a large bounce after prolonged selling. As often is the case, there’s no readily apparent reason for doing so other than the possibility that those inclined to trade precious metals suddenly believe that the selling was overdone, perhaps buoyed a bit by yesterday’s FOMC.

While I’d like to see the same thing in today’s equity market, I’m not going to hold my breath. Instead, I’d be happy with some stability in  prices and a little respite from a large move opposite to yesterday’s in an effort to see those positions set to expire tomorrow either be assigned or rolled over.

As far as rollovers go,  you may have noticed that with, what may be a temporary increase in volatility, I’ve taken the opportunity to take advantage of some improving premiums in forward weeks by rolling over to periods other then the next coming week. That offers a little extra bit of diversification and reduces dependency on a single week, which can easily be subject to a sudden adverse price movement.

With a few positions already set to expire next week, I may look for today and tomorrow’s rollover opportunities beyond that monthly cycle end date to further add to that spreading of risk, if possible.