Daily Market Update – December 10, 2014 (Close)

Yesterday was an impressive kind of day.

Today was not, although it followed the same early path.

The market deterioration yesterday started fairly suddenly in the pre-opening futures about an hour before the open of trading, but came to a relatively abrupt halt in the early afternoon as the market had fallen more than 200 points.

Today that halt was missing.

There wasn’t very much reason for the fall, as the news that had been blamed was already many hours old and pointed toward China. Neither was there much reason for the turnaround. Not even technicians could come up with a reason to explain the move, even if they squinted really, really hard at their charts.

The JOLT Survey, which everyone was now believing had newfound importance, was a non-event and so no fingers could be pointed at it for moving the market as it had done in the previous month.

Oil actually showed some stability yesterday and maybe that played some role in re-introducing some strength into the market, if you’re the kind of person that really needs an explanation for why things happened, even if that explanation isn’t necessarily correct or accurate.

Today, however, that theory of the role of oil was put to a test as the Petroleum Status Report was released.

For me, that mid-morning Wednesday report is usually a yawner, but it may take on some new significance as inventory builds or draws may have greater impact on the overall market as long as oil continues being an area of focus.

As it would turn out, it’s hard to say whether today’s inventory news sparked broad weakness, as by the time the figures were released there was already some weakness and it didn’t really accelerate until about 3 hours later.

It was just a bad day with energy being the worst among a lot of very bad sectors.

This morning, before the market’s open, everything other than oil was just treading water. Stocks, precious metals and interest rates all seemed to either be taking a breather from yesterday or waiting to see where oil prices may be heading after the Petroleum Status Report release.

With a surprise trade that added shares of Dow Chemical yesterday, when the morning was set to begin, I didn’t believe that I’d be adding any more this week. That was an under-statement. With today’s real drag on oil and the further drag on anything remotely oil related, Dow Chemical went along for the ride, as well. and what seemed like a bargain yesterday is now even more of a bargain, but with fewer takers.

For those that follow volatility, yesterday was a day that saw some nice bounces in it, reflecting what the market itself was doing. From an incredibly low level, volatility is up nearly 30%
in less than a week, but still far below where it had been just 2 months ago. In fact, it would have to climb another 100% to get to those levels which were also fairly low, but at least at acceptable levels for trading.

It did, however, climb more than 25% more today, so we’re getting there.

What would be a nice impact of maybe even marginally increasing volatility would be some return of volume to the option market. That sparse volume has made it very challenging to get trades done, especially since it has also created a greater schism between motivated buyers and sellers, creating bigger bid and ask spreads than I recall ever seeing.

With the volatility rising today it was somewhat easier to get some rollovers executed.

For today, I expected that like most Wednesdays it would be a quiet day, however, it was nice to get the opportunity to execute some rollovers early, especially as it would turn out that prices really deteriorated as the afternoon wore on and on.

Tomorrow will be interesting as no one can stop looking at oil and still debating what kind of an impact lower prices will have on the economy and the stock market. Sooner or later supply and demand dynamics will begin to stabilize prices and when that happens you can be reasonably assured that there will be an over-reaction on the buying side of the equation that has so far taken the energy sector down about 40%