Daily Market Update – December 15, 2014 (Close)

It’s hard to remember when a single story has been so influential for so long, to the point of almost knocking everything else out of everyone’s mind.

Crimea, Greece, government shutdown’s, sequestration and so much more, but they weren’t very lasting and over-powering kinds of stories that caused the market to succumb to those stories to the complete exclusion of everything else.

The price of oil continues to be the sole focus of attention during a season when the primary focus is on holiday retail sales. While we’ve seen price declines in the past, it seems as if the discussion is typically around price increases and we tend to shrug it off when those happen, as there is often a positive impact on the stock market when energy prices are increasing.

So far, we’ve been waiting for the logical outcome of sharply lower prices but haven’t seen any increase in stocks and aren’t yet hearing of any increases in consumer discretionary spending, which could single-handedly rescue the holiday shopping season and be the tonic that the market is looking for.

This week, as the pre-open futures was mid-way through its trading, appeared as if it was going to recover some of this past Friday’s large decline which saw last week ending up being the worst in more than 2 years, with the S&P 500 going 3.5% lower, as it was a lot more than the energy sector that felt the pain.

For a while after te opening bell it looked as if that would be the way the market would trade, but as oil reversed and headed lower, so too did the market. Another attempt to rally from there went nowhere and the market just finished lower again, unable to escape from the “good news” of lower energy prices.

With no assignments last week and a large number of positions set to expire this week, which also marks the end of the December 2014 cycle, I didn’t anticipate being very active in pursuing new positions. The past 6 weeks have seen an average of 3 new positions each week and although that represents a low threshold, I don’t know if even that will be met, as my focus will be very much centered on trying to steer this week’s expiring positions toward assignment or rollover. WIth only General Electric added today the week got off to a slow start, as even the oils, which looked appealing for a while, turned out to be anything but appealing, as they lost traction quickly.

Last week it turned out to have been fortunate to have rolled over a number of positions early in the week rather than waiting for the more common timing of Thursday or Friday. There may again be reason to consider early rollovers this week, as there is an end of the year FOMC Statement release and a follow up pres conference by Janet Yellen.

The former has been a non-event in the past two months, while the press conference usually offers some kind of relief rally.

The ques
tion at hand this week is whether the FOMC will finally drop the “considerable time” wording in the statement which would mean that interest rate hikes are coming sooner, rather than later.In the short term, news o such an increase, although expected, would likely lead to some selling, as higher rates aren’t the best thing for stocks. However, in the longer term any increase would be tiny and there’s no reason to expect incremental increases, as seen during the Greenspan era.

Recent data, however, don’t give any reason to believe that inflation is coming our way, although the drop in energy prices could be just the impetus to see a significant increase in GDP. However, the FOMC is supposed to be data driven rather than persuaded by theoretical events, so it should be a surprise to see a change in the phrasing, especially after last week’s PPI data was released.

As the market was momentarily looking to get the week off to a more optimistic start than which it ended last week, the aim early on was to find any opportunity to sell new calls or simply generate some income from positions that aren’t likely to be assigned. The optimism didn’t last very long and not too much was done, other than a sale of LuLuLemon calls, taking a longer term view.

Although the pre-open futures was heading higher and taking volatility lower before trading began, the increase in volatility over the past two weeks may continue to offer some opportunity to still look at expanded option expirations in an effort to keep the diversification in expiration dates going, without giving up too much in premium.in exchange for locking in more than a week of coverage.

The hope that oil prices would follow the morning’s recovery and find some stable level turned out to be a wasted one and any reason for the market itself to regain some stability and maybe even optimism will have to wait yet another day.

It would, however, take lots of that optimism to restore this December to the kind of December that most people have come to expect and the opportunities are getting less and less.