Daily Market Update – October 30, 2014 (Closed)

I really did expect some kind of a big move yesterday to come in the aftermath of the FOMC meeting. Sometimes that big move is simply a knee-jerk, sometimes it is a sustained move to finish the day.

Sometimes it is the next day, but frequently that next day is in the opposite direction.

Thanks to Visa, which contributed about 150 points to the DJIA gain of 221 points. The rest of the market eventually turned positive, but looked like it had to be pulled kicking and screaming. Then, it looked like it enjoyed what Visa was having.

For the past year, every FOMC Statement release has been met in a positive manner, especially those alternate months when Janet Yellen held her post-FOMC press conference.

This time around the reaction was pretty muted, but it was negative and in the early morning the indication was of some continuing negative tone. Excluding Visa that tone continued for the first two hours of trading.

The surprise of not having seen a large movement yesterday came because for the first time in about a year or more, there was reason to believe that there’s a movement to the hawkish side on the Federal Reserve, which now may mean that interest rate hikes will come sooner rather than later.

Even though every one knows that hikes are coming sooner or later the stock market doesn’t like that sort of thing and at the first whiff of it occurring the market will react with shock, as if it was the first time anyone had heard of such a  thing.

Just days ago there were those saying that the original thought that those increases would come somewhere around the middle of 2015, would now be moved to early 2016. That was bullish for stocks.

Suddenly, however, there is talk that it will be early 2015.

The fact that the two previous dissenters, both hawks, were now in support of the statement and a dove was now a dissenter says something that should have caused market bulls to question how much longer the party would continue..

The FOMC Statement also clearly was not in alignment with the comments made by James Bullard, which many attributed to the sudden market recovery from a 9% drop.

So, putting it all together, the anticipated reaction should have been strongly negative.

But it wasn’t. Far from it, in
fact, even without Visa in the mix.

For now, I just want to end the week with some assignments. Those haven’t been very frequent lately and they could come in handy to either re-invest or store for some time in the future.

I started this morning still hopeful that the last two days of this week would offer some opportunity to generate income, but those opportunities have been somewhat more difficult lately, but for an unexpected reason.

There have been just too few call options buyers to be found with so many positions not even having a single bid. In such cases you can’t really close a bid – ask gap through compromising on price. You need to have an able body on the other end to compromise with to make the sale. Fortunately, there were some of those able bodies around for Las Vegas Sands and T-Mobile today, but they weren’t there for those, either, earlier in the week.

That seems like an odd situation as the market is recovering from that 9% drop and did so in very convincing and rapid fashion. Past history would have suggested plenty of people betting on further market moves through their options market activity. Options buyers usually go on hunches or follow momentum. Either they have no hunches or don’t believe the momentum.

Overall, the Put/Call ratio over the past 2 weeks is higher than in the last 8 years, so it looks as if the the skew may be toward expecting declines, but that skew is probably enhanced by the increased used in portfolio protection, especially at low pricing.

If you really want to see the imbalance of put action, look no further than Intel, which had absolutely incredible put volume today both for this week’s expiring option and November 14th. In this case the complete absence of news pointed solely to speculative action in markets with great expectations for even more abrupt drops ahead, although the weekly put trade today was an in the money variety at $33.50. The week of November 14th expiry puts, however, were focused on the $31.50 and $32 strike and came at various times during the trading session, but also in very large quantity.

Since the option market usually gets it wrong, my hope is that the paucity in call activity and the skew toward puts is a sign of some further market advance.

Again, I don’t mind going along for the ride right now and will take gains in any way they may come.

 

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