Dashboard – October 27 – 31, 2014

 

 

 

 

 

SELECTIONS

MONDAY:  With very little scheduled news this week the FOMC Statement release this week looms more important than usual. For now the market digests election news from Brazil, whose market is down nearly 8% in the futures and barely even seems to burp.

TUESDAY:     Today’s early futures look to be a little less ambivalent than yesterday’s market, but there’s still very little reason for the market to do much today while still awaiting tomorrow’s FOMC Statement.

WEDNESDAY:  Very divided opinion over reaction to whatever is contained in today’s FOMC Statement release. With yesterday’s nearly 200 point gain you could excuse the market for not following through, although lately the pattern has been to celebrate before and after

THURSDAY:    The day after the end of QE, which was announced about a year ago and the world neither celebrated nor went into panic. I found that surprising, but there’s still today to deal with the hangover or its cure

FRIDAY

 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

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Weekend Update – October 26, 2014

It’s too bad that life doesn’t come with highly specific indicators that give us direction or at least warn us when our path isn’t the best available.

Parents are supposed to do that sort of thing, but in real life the rules are pretty simple. You don’t go swimming for 30 minutes after a meal, you don’t kill people and you don’t swallow your chewing gum.

The seven additional commandments are really just derivative of those critically important first three.

Knowing the difference between right and wrong gives one the ability to change direction when getting too close to what is known to be on the wrong side of what society finds acceptable. Most people get the concept and also apply it to their personal safety.

In stock investing it’s not that simple, although there are lots of rules and all kinds of advance warning signals that may or may not work, depending on whether you were giving or receiving the information. As opposed to adolescents who eventually become adults and lose the “it can never happen to me” mentality, investors often feel a sense of immunity from what may await just beyond that point that others would avoid.

It would have been really, really nice if there was some kind of warning system that both alerted us to an upcoming decline and especially the fact that it would be abruptly followed by a reversal.

Much has been said about the various kinds of recoveries that can be seen, but if this most recent bounce higher will in fact be the recovery to the nearly 9% drop on an intra-day basis, then it is certainly of the “V-shape” variety.

This week came word that by a very large margin the activity in personal 401(k) retirement accounts had been to move out of equities, after the declines, and into fixed income instruments, after those interest rates had seen a 15% increase.

What may really complicate things is that there really is no society to provide guidance and set the boundaries. There are short sellers who like to see movement in one direction and then there are the rest of us, although we can all change those roles at any moment in time that seems to suit us.

For those that depended on the “key reversal” of a few weeks ago as a sign to buy or dipping below the 200 day moving average as a sign to sell, the past few weeks have frustrating.

On the other hand, news of rampant selling in 401(k) accounts may offer precisely the kind of prognostic indicator that many have been looking for, as being a perfectly contrarian signal and indication that the time to buy had come once again.

But what caused the sudden change that created the “V shape?”

Technicians and chart watchers will point to the sudden reversal seen on October 15th in the early afternoon as the DJIA had fallen more than 400 points. However, that 260 point mid-day reversal was lost, almost in its entirety at the following morning’s opening bell.

However, we may also want to thank serendipity that IBM (IBM) and Coca Cola (KO) didn’t report their earnings last week, and that reports of a New York City Ebola patient didn’t surface until market and contagion fears had abated.

It wasn’t until the afternoon following that 400 point drop that St. Louis Federal Reserve Governor James Bullard suggested that the Federal Reserve should consider delaying its ending of Quantitative Easing.

If you were looking for a turning point, that was it.

Even those that are critical of the Federal Reserve for its QE policies have been happy to profit from those very same policies. The suggestion that QE might continue would be a definite reason to abandon fear and buy what appear to be bargain priced stocks, especially as the fixed income side’s sudden 15% increase in rates made bonds less of a bargain..

I was either flatfooted or disbelieving in the sudden climb higher, not having made any new purchases for the second consecutive week. I was almost ready to make some purchases last Thursday, following what Wednesday’s decline, but that was followed by a 120 point gap up the following morning. Instead of adding positions I remained content to watch fallen asset values recapture what had been lost, still in the belief that there was another shoe to drop while en-route perhaps to a “W-shape”

That other shoe may come on Wednesday as the FOMC releases its monthly statement. Lately, that has been a time when the FOMC has given a boost to markets. This time, however, as we continue so consumed by the nuances or changes in the wording contained in the statement, there could be some disappointment if it doesn’t give some indication that there will be a continuing injection of liquidity by the Federal Reserve into markets.

If Bullard was just giving a personal opinion rather than a glimpse into the majority of opinion by the voting members of the FOMC there may be some price to be paid.

While there will be many waiting for such a word confirming Bullard’s comments to come there also has to be a sizable faction that would wonder just how bad things are if the Federal Reserve can’t leave the stage as planned.

Welcome back to the days of is good news bad news.

As usual, the week’s potential stock selections ar
e classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

While the move higher this week was more than impressive, there’s still no denying that these large moves higher only happen in downturns. The question that will remain to be answered is whether the very rapid climb higher from recent lows will have any kind of sustainability.

For the coming week I expect another quiet one, at least personally. The markets may be anything but quiet, as they certainly haven’t been so for the past few weeks, but trying to guess where things may go is always a dicey prospect, just seemingly more so, right now.

Despite what may be continuing uncertainty I have increased interest in earnings related and momentum stocks in the coming week.

Among those is Joy Global (JOY) a stock whose fortunes are closely aligned with Chinese economic growth. Those prospects got somewhat of a boost as Caterpillar (CAT) delivered better than expected earnings during a week that was a cavalcade of good earnings, despite some high profile disappointments. While the S&P 500 advanced 4.1% for the week and Caterpillar rose 4.6%, Joy Global may just be warming up following only a 2.1% climb higher, but still trading well below its mean for the past year.

In that year it has generally done well in recovering from any downward moves in price and after two months in that kind of trajectory may be ready to finally make that recovery.

With “old technology” continuing to do well, EMC Corp (EMC) held up surprisingly well after its majority owned VMWare (VMW) fell sharply after its own earnings were announced. EMC typically announces its earnings the morning after VMWare announces and while showing some impact from VMWare’s disappointment, rapidly corrected itself after its own earnings were released.

EMC has simply been a very steady performer and stands to do well whether staying as an independent company, being bought out pr merged, or spinning off the large remainder of its stake in VMWare. Neither its dividend nor option premium is stunning, but there is a sense of comfort in its stability and future prospects.

Halliburton (HAL) has been trading wildly of late and is well below the cost of my most recent lot of shares. WHile the entire energy sector has fallen on some hard times of late, there’s little reason to believe that will continue, even if unusually warm weather continues. Halliburton, as have others, have been down this path before and generally investors do well with some patience.

That will be what I practice with my more expensive lot. However, at its current price and volatility, Halliburton, with its just announced dividend increase offers an exceptional option premium that is worthy of consideration, as long as patience isn’t in short supply.

Another stock having required more patience than usual has been Coach (COH). It reports earnings this week and as has been the case over the past 3 years it wouldn’t be unusual to see a large price move in shares.

The options market is expecting a 7% move in shares, although in the past the moves have been larger than that and very frequently to the downside. Lately, however, Coach seems to have stabilized as it has gotten a reorganization underway and as its competitor in the hearts and minds of investors, Michael Kors (KORS) has also fallen from its highs and stagnated.

The current lot of shares of Coach that I purchased were done so after it took a large earnings related decline and I didn’t believe that it would continue doing so. This time around, I’m likely to wait until earnings are announced and if shares suffer a decline I may be tempted to sell puts, with the objective of rolling over those puts into the future if assignment appears to be likely.

For those that like dabbling in excitement, both Facebook (FB) and Twitter (TWTR) announce their earnings this week.

< span style="font-size: medium;">I recently came off an 8 month odyssey that began with the sale of a Twitter put, another and another, but that ultimately saw assignment as shares dropped about $14. During that period of time, until shares were assigned, the ROI was just shy of 25%. I wouldn’t mind doing that again, despite the high degree of maintenance that was required in the process.

The options market’s pricing of weekly options is implying a price movement of about 13% next week. However, at current premiums, a drop of anywhere less than 18% could still deliver a weekly ROI of about 1.2%. I look at that as a good return relative to the risk undertaken, albeit being aware that another long ride may be in store. Since Twitter is, to a large degree, a black box filled with so many unknowns, especially regarding earnings and growth prospects, even that 18% level below could conceivably be breached.

Facebook seems to have long ago quieted its critics with regard to its strategy and ability to monetize mobile platforms. In the 2 years that it has been a publicly traded company Facebook has almost always beaten earnings estimates and it very much looks like a stock that wants to get to $100.

The option market is implying a much more sedate 7.5% in price movement upon earnings release and the decline cushion is only about 9.5% if one is seeking a 1% ROI.

Both Facebook and Twitter are potentially enticing plays this coming week and the opportunities may be available before and after earnings, particularly in the event of a subsequent share decline. If trying to decide between one or the other, my preference is Twitter, as it hasn’t had the same upside move, as Facebook has had and I generally prefer selling puts into price weakness rather than strength.

After some disappointing earnings Ford Motor (F) goes ex-dividend this week. Everyone from a recent Seeking Alpha reader who commented on his Ford covered call trade to just about every talking head on television is now touting Ford shares.

Normally, the latter would be a sign to turn around and head the other way. However, despite still being saddled with shares of a very beleaguered General Motors (GM), I do like the prospects of Ford going forward and after a respite of a few years it may be time to buy shares again. The dividend is appealing and more importantly, appears to be safe and the option premiums are enough to garner some interest as shares are just slightly above their yearly low.

Finally, I don’t know of anyone that has anything good to say about Abercrombie and FItch (ANF), regardless of what the perspective happens to be. It, along with some other teen retailers received some downgrades this past Friday and its shares plummeted.

I have lost count of how often that’s been the case with Abercrombie and FItch shares and I’ve come to expect them to rise and plunge on a very regular basis. If history is any guide Abercrombie and Fitch will be derided for being out of touch with consumers and then will surprise everyone with better than expected earnings and growth in one sector or another.

I’ve generally liked to jump on any Abercrombie post-plunge opportunity with the sale of puts and while I’d be inclined to roll those over in the event of likely assignment, I wouldn’t be adverse to taking possession of shares in advance of its earnings and ex-dividend date, which are usually nearly concurrent, with earnings scheduled for November 20t, 2014.

Traditional Stocks: EMC, Halliburton

Momentum: Abercrombie and Fitch, Joy Global

Double Dip Dividend: Ford (10/29)

Premiums Enhanced by Earnings: Coach (10/28 AM), Facebook (10/28 PM), Twitter (10/27 PM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

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Week in Review – October 20 -24, 2014

 

Option to Profit Week in Review
October 20 – 24,  2014
 
NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
0 / 0 2 2 0  / 0 6  / 0 0

    

Weekly Up to Date Performance

October 20 – 24, 2014

Last week was the first time in years with no new purchases, but it was more easy the second time around. This week it was just much easier letting everything go along for a ride higher.

Like the previous week which moved strongly lower despite a 300 point move higher to close the week, there really wasn’t much in the way of real news, but there was continuing good earnings from most companies.

This was also the third consecutive weeks with no assignments and so the performance of closed positions remains unchanged again, out-performing the S&P 500 performance by 1.7%. They were up 3.5% out-performing the market by 91.8%. 

There’s not much you can say about a week that the market climbs 4.1% other than to hope that portfolios went along for the ride.

There really wasn’t any news to propel the markets forward as much as perhaps the lack of truly bad news. Even word of an Ebola case identified in New York City did little to spook the over night futures.

Imagine if some of the earnings reports, such as from IBM, Coca Cola and McDonalds, along with the New York Ebola story had hit the markets in the early part of last week when everything looked as if it was sliding lower and lower.

In barely a bit more than a week the market has gone from an intra-day decline of 9% from its September highs to its current 2.4%.lower level. During that time, it’s possible that the market has focused on what has been some really pretty decent earnings, thus far, despite some high profile misses.

Those misses have really been punished brutally by a market that seemingly has less and less patience for anything that can’t stand on its own.

This coming week there is very little news, but lots of continuing earnings reports.

However, in this upcoming news shortened week there is another FOMC Statement scheduled for Wednesday.

What makes this one a bit more critical is that it comes about two weeks after what may have been the true primary cause of the market’s reversal.

That reversal, maybe totally coincidentally, came mid-day on October 16th, when Federal Reserve Governor Jeffrey Bullard said that there should be some consideration given to delaying the end of Quantitative Easing.

Who wouldn’t find that to be music to their ears?

Even those that deride the Federal Reserve for its QE policies have been happy to profit from them.

The suggestion that QE might continue would would be a definite boost to those pushing stocks.

So the risk comes that next Wednesday, lately normally a time when the FOMC gives a boost to markets, there could be some disappointment if the statement doesn’t give some indication that there will be a continuing injection of liquidity by the Federal Reserve into markets.

While there will be many waiting for such a word to come there also has to be a sizable faction that would wonder just how bad things are if the Federal Reserve can’t leave the stage as planned.

Welcome back to the days of is good news bad news.

While the move higher this week was beyond impressive, there’s still no escaping the fact that these kinds of moves only happen in downturns. The question that will remain to be answered is whether the very rapid climb higher from recent lows will have any kind of sustainability.

Although I was ready to make some purchases earlier in the week when there was a brief moment of weakness, I d
on’t have that urge right now. I would be much happier finding the opportunity to simply sell calls on existing positions and let the market go wherever it needs to go.

I was happy to go along for the ride this week, but there weren’t many chances to sell calls, particularly as volatility was drying up, so the happiness was very limited.

As much as everyone was talking about the rise in volatility just a week ago, no one seems to be anxious to speak about the nearly 40% drop since the turnaround began last week.

For the coming week I expect another quiet one, at least personally. The markets may be anything but quiet, as they certainly haven’t been so for the past few weeks, but trying to guess where things may go is always a dicey prospect, just seemingly more so, right now.

   

This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):



New Positions Opened:   none

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:  none

Calls Rolled over, taking profits, into extended weekly cycle:  WFM

Calls Rolled over, taking profits, into the monthly cycle: IP

Calls Rolled Over, taking profits, into a future monthly cyclenone

Calls Rolled Up, taking net profits into same cyclenone

New STO:  CPB (11/22), CY (11/22)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: none

Calls Expired:  ANF, CHK, EBAY, GDX, JOY, LVS

Puts Assigned:  none

Stock positions Closed to take profits:  none

Stock positions Closed to take losses: none

Calls Closed to Take Profits: none

Ex-dividend PositionsFAST (10/22 $0.25), BX (10/23 $0.44)

Ex-dividend Positions Next Week:  none

 

 

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, CHK, CLF, COH, CPB, CY, EBAY, FAST, FCX, GDX, GM, GPS, HAL, HFC, .JCP, JOY, K,  LULU, LVS, MCP, MOS,  NEM, RIG, TGT, TMUS, WFM, WLT (See “Weekly Performance” spreadsheet or PDF file)



* If you don’t have a program to read or modify spreadsheets, you can download the OpenOffice Suite at no cost.



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Daily Market Update – October 24, 2014

 

  

 

Daily Market Update – October 24, 2014 (8:30 AM)

The Week in Review will be posted by 6 PM and the Weekend Update will be posted by noon on Sunday.

The following outcomes are possible today:

Assignments:  none

RolloversCHK

ExpirationsANF, EBAY, GDX, JOY, LVS

In general, DOH Trades are preferred to expire, with the least preferable outcome being assignment. This past week had 3 DOH Trades and 2 early in the week rollovers, all trades that were made as volatility was somewhat higher than during the latter half of the week.

The past week’s ex-dividend positions were Fastenal (10/22 $0.25) and Blackstone (10/23 $0.44)

There are no ex-dividend positions next week.

 

Trades, if any, will be attempted to be made prior to 3:30 PM EDT

 

 

 

 

 

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Daily Market Update – October 23, 2014 (Close)

 

  

 

Daily Market Update – October 23, 2014 (Close)

Since we always look for answers to everything, it’s most likely that the events in Canada influenced the market’s unexpected downturn yesterday, but it’s also not likely that was the case.

While it was unusually slow in being reported and events developed slowly, the market really didn’t have too much of a reaction until early in the afternoon.That reaction may have also been influenced by the continuing slide in oil prices.

This morning the futures are acting as if yesterday was an aberration.

On the other hand it may be possible that once again earnings are taking center stage as a number of good earnings were reported this morning, with the industrial side of things continuing to look good.

One of those companies reporting this morning, Caterpillar, may be a little like the kind of market leader that IBM used to be. These days when Caterpillar does well, it’s also taken as an indicator that China is doing well and increasingly China is where so much of our focus needs to be.

Those earnings, as well as for 3M, are as good of a reason as you can find to explain why today offset all of yesterday’s loss and then some, bringing this week, so far to a 3.4% gain.

Yesterday was a disappointing one as I was hoping for some chance to sell covered calls in a rising price environment. .

That didn’t happen, but with today’s early indication, perhaps today could have been that kind of day, although the volatility that had continued to fall as the market shoots higher served to make it less appealing to either take DOH related risks or less appealing to look at extended weekly trades.

Today wasn’t much better, at least in that regard.

The morning began with the S&P 500 about 4% below it’s September highs and while it was nice seeing the early morning indication higher, it did remove some of the inclination that I found myself with as yesterday’s market was coming to a close. I now felt less inclined to add positions as the increase just added another layer of uncertainty.

While the net result of the week thus far has been decidedly positive, the ease of the reversal lower, as seen yesterday is a reminder that the climb back from 9% lower may have some unsteadiness in it.

Although I certainly don’t mind watching net asset value increase as the market moves higher it’s really not the same if you’re not deriving some real and tangible benefit from the market’s actions.

So far this week there have been scant few trades and so there has been scant little income derived. While I would love to see that change during the remainder of the week, I just
don’t know if that will be the case and with little to no assignments for the week the coming week may be one that continues the recent trend of little to no activity, especially on the new position purchase end of things.

That puts more reliance on the ability to rollover and sell new option positions.

Sooner or later we’ll get some more clear idea of what is really going on right now.

Are we climbing back from a 9% correction or is this just a trap?

Other than in hindsight there is just no way to know. Other than looking at data points from the past that strongly suggest that very large moves higher are illusory, there’s little to give an indication of what days like today mean. Certainly the previous 200 and 300 point gains over the past few weeks haven’t had the kind of short term impact that we would have expected or liked.

But maybe today was different? Tomorrow may give some clue to that question.

 

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