Daily Market Update – December 29, 2014




Daily Market Update – December 29, 2014 (9:00 AM)

With only a few trading days left for 2014 the Santa Claus Rally doesn’t have much time left, but then again, it never does.

While December is typically the best month of the year, or at least right up there with the very best, by comparison to past years, so far the 1% advance is disappointing. It’s also a little deceiving, as essentially the entire net gain for the month came last week, after two very large moves in opposite directions the first two weeks of December.

So if you’re looking for trends or patterns to explain this December, you can keep looking for clues. What has been largely missing, as there have been some big international macro-economic stories, has been an almost complete absence of discussion about retail sales.

Maybe not today and maybe not tomorrow, but very soon lots of attention will be paid to those reports as they start to come out.

Usually at this time of the year, the last few days of December we find out that sales haven’t been as bad as we thought and that last minute price cutting by retailers helped to rescue the season.

So far, that’s not the way it hads been playing out, as there hasn’t been the kind of widely held cries about how preliminary sales were lagging projections and last year’s statistics.

Given what’s going on in the economy, with increasing employment, better jobs and much lower energy costs, you would have to think that unless people are paying down debt or saving, they would have to be spending.

If that’s the case, it doesn’t look as if the pre-opening futures knows about it. Based on the early trading it looks as if it’s going to be a quiet start to a quiet week and it isn’t looking as if anything is being done to push that rally forward.

There’s not too much scheduled news this week and the world is usually quiet during the final week of the year, as well.

It’s funny how that works out. Somehow the world is often able to put everything on the back burner and just watch the old year go out like a lamb.

As usual, whenever there’s going to be a week of relatively low volume, like this shortened 4 day trading week, there’s always the talk of artificially large moves created by the light volume.

That axiom doesn’t seem to be quite as true or frequent anymore, as those that really control market volume aren’t likely to just sit back and watch a large move in either direction occur without them, But still, there’s nothing lost by keeping fingers crossed and hoping for a nice rally to close the year and to get us off to a good start.

No matter what the last few days of the year will bring, the theories to explain any large moves are the same, year in and year out.

There will be those claiming traders taking tax losses. There will then be those claiming that those that already took tax losses are now jumping back in before a traditional January rally.

Of course, that traditional January Rally isn’t so traditional anymore, either.

With some cash replenished and only a single position set to expire this week, I’d be much more happy being able to use existing positions to create the week’s income stream. However, early indications aren’t showing the kind of broad advance that would make that likely.

The alternative is to add some new positions to begin the week and in all probability looking at the weekly option, although the shortened trading week again offers lower premiums, just as with last week.

The exception, just as with last week, is again found in the energy sector, which has lots of uncertainty built into option premiums, a oil is able to hold above $54 for now, which may be a good level at which to anchor energy related strategies, whether bullish or bearish on near term price.

However, because of the inherent near term risk, some thought, may be given to using longer option contracts, especially if considering trades directly based on the price of oil, such as BNO.

Otherwise, it’s more of the same for now. Sitting back and watching to see how the market wants to begin the week once the bell rings for real

Dashboard – December 29 – January 2, 2015







MONDAY: It lloks as if a quiet news week will begin in a quiet way, but not doing much to advance the idea of the Santa Claus Rally, as time runs out for that to happen and really rescue December, despite its 1% advance so far this month.

TUESDAY:     If looking for today to spark the Santa Claus Rally yoou may be in for some disappointment. Today looks to be another relatively flat kind of day with no news to change momentum in sight

WEDNESDAY: The final trading day of the year looks as if it going to be just like the previous two of this week and not too likely to offer anything to end the year on a really high note


FRIDAY:  Today is the last chance to get some of that Santa Claus Rally in and on what is probably going to be another light tarding day the early indications look as if that may be the initial direction




Today's TradesCash-o-Meter





Sneak PeekPie Chart Distribution








Weekly Summary


Weekend Update – December 28, 2014

A week ago, it seemed as perhaps the President of Russia, Vladimir Putin was the cause for the sudden turnaround in market fortunes and was the giver of the gift that we had all been expecting this December.

His relative calm demeanor and reasonable words surrounding the sudden collapse of the Ruble and surging interest rates helped to put an equally sudden stop to market fears.

Thank you, Vladimir, but what have you done for us lately?

At least, even with his finger pointing, there hasn’t been any saber rattling and no new obligatory face saving demonstrable shows of bravado on the international front. At least, not yet, but it can get awfully cold in Russia this time of the year. Luckily for them, heating fuel is unusually inexpensive right now, although maybe not so much in Ruble terms.

Fortunately, it seems that there may be others willing to take up the mantle of prodding our markets forward when challenges appear, although it’s not very likely that they would want to do anything to lend us a helping hand or be part of the gift giving.

For the purists, there are still a steady stream of economic reports that can move markets depending on what kind of lens is used to interpret the data. Global personalities playing global games are just ephemeral distractions, even though a day old key economic report is also just as quickly forgotten when the next day’s, often contradictory report, is released.

Then it’s just a question of “what report have you delivered to me lately?”

Everyone should have expected good news coming from this week’s GDP report as the first glimpses of the impact of lower energy prices were revealed. That’s especially the case as 70% of GDP is said to be comprised of consumer spending and most everyone you know feels more wealthy. That’s not because of any great stock market rally but because of falling energy prices. Despite hitting a new record high an average of once each week in 2014 for most people that’s not where the feeling of wealth has come from this year.

The market still rallied in surprise. It was a case of good news being interpreted as good news, the way most normal people would have interpreted it.

What we can now await is the next GDP report which comes the morning after the next FOMC Statement release in January. Being data driven, it may be reasonable to expect that the FOMC may look at the initial data streams reflecting increasing consumer activity and GDP growth and throw “patience” out the window.

Then, we will simply be at the mercy of the lenses that decide whether that news is good or bad for markets as interest rate increases may seem to be warranted sooner than the last FOMC Statement led us to believe.

But this past week, it became clear that
if a Santa Claus Rally does await us these final days of 2014 as the DJIA closed at another record high, the real benefactor may be the diminutive leader of a nation that mandates haircut style and prohibits the personal use of “Dear Leader’s” actual name by anyone other than “Dear Leader” himself.

I don’t want to mention him by name, however, as I don’t deal well with threats or cyber-attacks of any kind, so we’ll just say that we may be able to thank Kim Jong Doe for this week’s establishment of more new closing record highs and setting the stage for the year end rally.

The lunacy surrounding the release of an otherwise inconsequential movie displaced most of our thoughts about the price of oil. While “Dear Leader” said nothing in a calming manner, offering threats rather than constructive strategies, the change of topic was a welcome relief, as oil continued to be a drag on the overall market, but no longer holds it in hostage, at least as long as it can continue to trade in the $54-60 range.

The alleged antics of a nation and a leader so far away was far better to focus upon than anything of substantive value, or anything that could have had us put on one of those lenses that interprets good news as being bad.

As a nation witnessed markets pass the 18000 level for the very first time, en route to setting its 51st record close of the year, more interest was directed at the outrage associated with a self-imposed censorship that appeared to be an acquiescence to external threats from someone with a funny haircut.

When the very idea of seeing a movie, that may turn out to be sophomorically delightful, is construed by reasonable and educated people as the patriotic thing to do, you know that no one is really paying attention to much else going on around them.

This week that was a good thing and I hope the final few trading days of the year are equally vacuous and that the market will continue rising in a vacuum.

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

I’m generally not a big user of ETF vehicles, although they do lend themselves to a covered option strategy, this week may be a little different.

While each of the past two weeks has offered an opportunity to dip a toe back into the energy sector, this week, rather than using individual names there may be reason to think about the most beaten down among the beaten down.

If you own anything in the oil services sector, as I already do, you know which sub-section of the energy sector that happens to be. The oil services sector has been absolutely abysmal, but like the rest of the sector has shown some ability to respond to anything resembling good news. At this point, however, simply being able to tread water would be a major victory for components of that sector.

The Market Vectors Oil Services ETF (NYSEARCA:OIH) can give you either the best or the worst way to establish a position or hedge existing positions. While some components may still be at risk of eliminating or reducing a dividend, there’s not too much doubt that at the first sign of oil prices creeping higher there will be some increase in drilling activity and the reward, at these low price levels, may now finally be greater than the risk.

While not an ETF, the United States Brent Oil Fund (NYSEARCA:BNO) tracks the price of its namesake very closely and offers a way to take a position on the direction and magnitude of future pricing. While I don’t believe that oil prices will be turning higher in the near term, the opportunity doers exist, however, to use a covered call strategy and elect to sell a longer term out of the money strike, if you believe that prices will be heading higher. At the moment, with shares trading at $23.26, for example, selling a $28 April 17, 2014 call option would deliver a premium of $0.80 while awaiting shares to return to a closing price last seen on December 1, 2014.

Pharmaceutical companies, long considered a conservative kind of investment, have been anything but that in recent months. Between the flurry of merger and inversion activity and the very recent across the board drops as a cheaper alternative to the management of Hepatitis C may become the drug of choice by those paying for coverage, the entire sector has responded poorly.

Merck (NYSE:MRK) was one of those companies that appeared to be simply caught in the crosswinds between battling insurance companies and those who play in role in delivering health care and want to be paid for their services. A quick 6% drop in Merck shares isn’t something that happens with any regularity and it can be a suitable longer term covered option position, particularly with its dividend in mind.

In addition the Healthcare Select SPDR (NYSEARCA:XLV) is off of its recent highs in response to the same assault, although not to the degree of some individual names. It offers a reasonable option premium with greater diversification of risk, but without sacrificing inordinately on the reward side of the equation. Like so many surprises, in this case, the decision of a pharmacy benefit management company to squeeze profits, the initial response by investors is swift and often in over-reaction to events. The Healthcare Select SPDR may be a good vehicle to capitalize on some of the immediate reaction as some of the recovery has already begun to take form.

EMC Corp (NYSE:EMC) and VMWare (NYSE:VMW) continue to have the kind of relationship that is too close for many, particularly those who believe that EMC should capitalize by selling its large remaining holding in VMWare.

EMC shares are ex-dividend this week and despite having considered adding shares over the past few weeks, instead, I’ve just watched its price climb higher from the brief drop it took along with the rest of the market, as falling oil prices indiscriminately took most everything lower.

Whether on the basis of its own businesses, its appeal to other larger technology companies or because of its stake in VMWare, EMC remains a steadfast company that has offered moderate share appreciation, a marginally acceptable dividend and competitive option premiums. Individually, none of those is spectacular, but that reflects the kind of company that EMC is in a universe of higher profile and higher risk companies.

VMWare, on the other hand offers no dividend, but does offer some more excitement, and therefore, higher option premiums, than does EMC. I haven’t owned shares in a
while, but might consider entering into a position by first selling puts and rolling over, if necessary, if assignment is trying to be avoided. With earnings being reported in a month, the evening before EMC reports its earnings, there may be additional opportunities to leverage the put premium in advance of earnings, particularly as VMWare is prone to large earnings moves.

There’s nothing terribly exciting about considering adding either Apple (NASDAQ:AAPL) or AT&T (NYSE:T) to a portfolio. With cellphone companies under some pressure, in part due to the popularity of Apple’s offerings, share price is attractive, although there may be some additional surprises as earnings season begins next month and may reflect not only on the competitive pressures, but also on the costs of having Apple as a partner.

AT&T, despite a nice recovery in the past week is still nearly 5% lower than just a month ago. With its generous dividend up for distribution the following week and earnings still nearly 3 weeks after that date, there may be opportunity to create a short term position to collect the dividend and some option premiums in the interim.

There aren’t very many insights that can be offered on Apple. It continues to be on most everyone’s wish list and continues to command premium pricing, even when there may be reasons to believe that competitors may have reasonable alternatives to offer.

Despite having gone more than 20% higher since its stock split, the climb has been reasonably orderly over the past 6 months. However, in the past month, despite the 2% climb to end last week, it has significantly under-performed the S&P 500 during December. I think that if the Santa Claus Rally is for real, Apple shares are bound to atone for some of that drop, just as there is likelihood that all of those consumers feeling more wealthy from the nice surprise of lower oil prices may have treated themselves or a loved one to a new iPhone.

Finally, this will likely be just another week where someone finds reason to either extol or criticize the leadership skills of Marissa Mayer, the CEO of Yahoo (NASDAQ:YHOO).

Like EMC, at least some of Yahoo’s fortunes are tied up in the performance of another company. However, that other company hasn’t yet been tested in any meaningful manner since its recent IPO.

For that matter neither has Marissa Mayer since her ascension, but shares have done nicely during her tenure, perhaps due to a very fortunate situation that she inherited

In the meantime as all of the speculation mounts as to what Yahoo will do with all of its cash, the shares have settled into a narrow range over the past month, having significantly trailed the S&P 500. However, in that time, it has also significantly out-performed shares of Ali Baba (NYSE:BABA), the company to which most believe its fortunes are intimately tied.

Yahoo will report earnings a week before Ali Baba and if considering a position I would probably want to consider one, perhaps the sale of puts, that might allow some reasonable ability to be out of the position before Yahoo’s earnings. If not, I’d especially want to be
out before those of Ali Baba, amid reports that it spent more than $160 million in the past year countering fake listings on its websites.

While I trust that Santa Claus exists, Jack Ma’s request of “trust” may need a little more time to be earned, as apparently trustworthiness may not be a core quality extending very deeply into those who fuel the money making enterprise that took Wall Street by storm just a few months ago.

Traditional Stocks: Apple, AT&T, Healthcare Select SPDR, Merck

Momentum Stocks: United States Brent Oil Fund, Market Vectors Oil Services ETF, VMWare, Yahoo

Double Dip Dividend: EMC Corp (12/30)

Premiums Enhanced by Earnings: none

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.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in AAPL, BNO, EMC, MRK, OIH, T, VMW, XLV, YHOO over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Week in Review – December 22 – 26, 2014



Option to Profit Week in Review
December 22 –  26,  2014
3 / 3 2 1 3  /  0 2  / 0 0


Weekly Up to Date Performance

December 22 – 26, 2014

For once in the past month oil was not the headline story. All anyone cared about was “The Interview” and the fact that the DJIA hit and then surpassed the 18000 level.

While not exactly a week setting any records for opening new positions, the 3 added this week was much more than last week’s single new position and they ended the week 1.8% higher, beating the unadjusted S&P 500 by 0.9% and the adjusted index by 1.2%.

he market still put in a respectable week ending 0.9% higher on an unadjusted basis and 0.6% on an unadjusted basis.

An equal number of assignments occurred this week as the number of new positions and the closed positions for 2014 finished 3.6% higher, as compared to 2.1% for the S&P 500 for the comparable holding periods. That 1.6% advantage represents a 75.5% difference in return.

This was an interesting week in that there was very little news other than the GDP report, which helped push the DJIA past the 18000 level. Not that anyone really expected too much news in what is usually a very slow week, anyway.

Otherwise all anyone discussed was the goings on surrounding the film “The Interview.”

While all attention was focused on the story and the story behind the story, as well as the various games being played, no one really talked about oil and the market simply went higher every day, setting more and more closing highs, although just barely on Christmas Eve.

Still, it was record after record, with 2014 now guaranteed to close the year having set a new closing high record on average once a week.

You would think, that being the case, that the market would have been much, much higher than it is going into the final 3 trading days of the year.

This week was a good one, but I would have been much happier had there been more opportunities to sell calls on uncovered positions. There weren’t too many positions that required rollovers, so there weren’t too many trades for this trade shortened week.

Next week will be the first in about 2 months that there aren’t very many option contracts already scheduled to expire at the end of the week.That will limit the kind of strategies used as they will all likely focus on simply weekly options, without looking at forward contracts very much.

With the sudden turnaround when the market was about 5% lower and volatility was relatively high, at least by standards of the last 3 years, the attraction of suitable premiums to look at expanded weekly options has dried up.

That means that for the coming week, with some additional cash having come from assigned positions, the likelihood is to look for new positions with options expiring next week, rather than looking to far ahead into the future. The problem, however, is that next week is another trade shortened week and so the premiums are going to reflect the reduced time value, not to mention the reduced volatility.

That seems to set up the same kind of conditions that were around for this week. I wouldn’t mind if that were the case, as long as the market itself moved forward.

The exception to those low premiums is with any possible trades in the oil sector, where a longer term horizon may still be able to generate a decent premium and would be well suited for the kind of time horizon necessary to see some meaningful recovery in prices.

Next week may offer some opportunities to dip toes in a little more to continue adding some energy positions as there continues to be some evidence of some cautious buying going on as prices just seem so incredibly low.While there are still those calling for oil to go to $40/barrel, it’s not to easy to see how that happens unless some producers totally dismiss the laws of supply and demand and try to stab either their competitors or their fellow cartel members in the back before they can stabbed themselves.

With some cash being recycled I’m willing to redeploy it, especially since I want to have something to actually be in a position to generate some income. However, if there really is a Santa Claus Rally coming next week, I would much rather conserve that cash and have the opportunity to sell calls on uncovered positions.and would especially like to get a few more assignments in the process.

Given that I was definitely not on the “naughty list” this year, that’s the least I expect to close out the year.







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:   DNKN, DOW, HAL

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:  none

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

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

Calls Rolled Up, taking net profits into same cyclenone

New STO:  GME (1/17/15), LXK (1/17/15)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: DOW, HAL, MOS

Calls Expired:  GDX, JOY

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 Positions: none

Ex-dividend Positions Next Week:  DOW (12/29 $0.42)



For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, AZN, BP, CHK, CLF, COH, DOW, FCX, GDX, GME, HAL, HFC, .JCP, JOY, LVS, MAT, MCP, MOS,  NEM, RIG, SBGI, 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.

Daily Market Update – December 26, 2014




Daily Market Update – December 26, 2014 (8:30 AM)

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

The following trade outcomnes are possible today:

Assignments:  DOW, MOS

Rollovers:  HAL

ExpirationsGDX, GM, JOY

There were no ex-dividend positions this week.

Next week’s ex-dividend position is DOW


Trades, if any, will be attempted to be made before 3:30 PM EST