Daily Market Update – October 13, 2014 (Close)

Sigh.

What a lousy finish to a totally nondescript kind of day that for a few brief moments after the opening bell looked as if it would have at least held some prospect for a bounce higher.

After 3 weeks of triple digit moves that seem to be getting bigger, the volatility has really climbed and is now at a two year high level, although still not terribly high by historical standards.

There isn’t very much happening this week as far as economic reports go, but lately it has been the injudicious use of words that have made markets move as nerves may be more frayed than is healthy.

This week there aren’t too many scheduled speeches, talks or conferences, so it’s possible that the market may actually focus on fundamentals, like earnings, which start going in full force this week.

But it looks as if that will have to wait until tomorrow, as the market badly deteriorated in the final hour, probably on technical factors or sell programs.

For more than a year each quarterly earnings season has been lead off by strong earnings from the financial sector, especially the big money center banks, but the rest of the market hasn’t necessarily kept up, especially on the retail side.

This year, the laggard is likely to be the energy sector and their forward guidance may be especially critical, while retail may be expected to do better than in the past.

If the focus does turn to earnings this week should be one with much less volatility, but predicting what may happen coming after the past three weeks is probably not a good idea.

This week, with less cash than I would like to have, but still uncertain about whether there i still more declines ahead, I’m not eager to spend much money.

As mentioned in the Weekend in Review, I may be more inclined to look at put sales as a means of entering positions and creating the week’s revenue streams.

However, based on where premiums were headed as the market came to its close on Friday, the volatility may be at that level where it may become possible to start thinking increasingly about DOH trades.

Doing so, though, requires some more nimbleness, in the event that an unwanted assignment looks as if iy may occur.

While I generally look at DOH trades as being short term, depending on where those premiums are and whether they extend to forward week contracts, there m
ay be reason to consider their use in some out of the money expanded contracts.

Further, as earnings season is now also a factor, selective positions may also have their premiums enhanced by earnings, so there may be opportunity for the DOH trades to encompass the earnings enhancement and also take advantage of volatility enhanced time premium.

So this week the trading may be of a very different nature, although as always, once the opening bell rings, all of those well laid out plans may get scuttled.

The real challenge ahead is trying to discern between what seems to be a sea of value from the value traps that just want to suck up your investment dollars.

The way today’s market ended up working out, this time with a really unexpected triple digit loss coming almost entirely in the final 30 minutes, it’s probably a good thing to not have fallen for any “values” today.

So there’s certainly no reason to rush in to commit cash reserves at this point, especially resisting the temptation to get lured in by any single day’s strong move higher, as those tend to occur with great frequency during downtrends and just serve to have you buy at artificially higher prices.

Instead, I would be very happy to create the week’s income from simply selling as many calls as possible on existing positions and would certainly welcome a one day pop higher as the stimulus to do so.

Although this morning’s pre-opening futures showed recovery from last nights early trading and the volatility headed lower, as so often has been the case that strength didn’t last. Today, it lasted about 20 minutes and then just bounced back and forth, alternating between mild losses and mild gains, until the bottom fell out. That should help premiums tomorrow, but I’m reluctant to sell those calls while stocks are moving lower. 

So, tomorrow morning may be like today and be another good one to sit back and see how the trading evolves after the opening bell, while assuming a defensive posture for the rest of the week.

Hopefully tomorrow will at least offer some opportunity to do something other than just watch the back and forth of prices that continue their downward trend.