Daily Market Update – February 17, 2015 (Close)

Another day and another day of snow on the east coast.

This week there’s very little going on in economic news other than tomorrow’s FOMC Statement release, so snow may be the top issue for the next few days.

Coming off of last week’s nice gains and adding to what has been a nice February, so far, I wouldn’t mind if this was a quiet week for the markets. The latest pattern of recovery from the last of several drops lower has been very different from the previous recoveries.

Instead of jumping straight back from those drops, usually about 5% lower, this time around the market has been taking two steps forward and then either a small step back or simply digesting the move higher.

Considering that in the past two months these market drops have been coming on a much more frequent basis, there was reason to start getting concerned. When they had been coming on a regular basis, just about every 2 months for nearly the past 3 years, it does get your attention when you get about 4 of those drops in the period of time that you normally would have seen just one. 

The manner in which Friday’s record close was set was a much better way to do so than those straight lines to the top. This week would be a perfect one to digest those gains for the month and take a rest to move even higher.

When looking at the pre-open futures it looked as if it would be a totally non-committal kind of opening and it stayed that way all day long with trading ending up in a pretty narrow range.

Last month was the first time in several months that the market didn’t go substantially higher on the day before an FOMC Statement release, which was a return to the more logical way of trading in advance of the release. Today was another month that returned to a more rational pattern of not getting too far ahead of the curve before some potentially substantive policy change may be made known.

As it is interest rates of the 10 Year Treasury shot up by 6% and is getting itself ahead of the FOMC.

With lots of positions expiring this week I hope that the FOMC Statement, whatever nuanced phrases it may contain that do or don’t signal a change in policy, does nothing to move the markets in any substantial way.

Since there are so many positions expiring this week and that currently are in a position to be assigned and there was some replenishment in cash from last week’s assignments, the likelihood is that if there are any new purchases for this trade shortened week I would want to look at expirations that are somewhere in the March 2015 cycle.

The problem with going out too far in those contracts is that while the market moves higher the general trend will be that those premiums will be getting relatively smaller. In the face of an advanci
ng market you really don’t want to commit your positions too far in advance and possibly miss more of the upside, especially at such low premiums.

With already a number of positions set to expire on the final week of the March 2015 option cycle, any new contracts would try to look at expiration dates in between, although some of this week’s potential stock picks have only monthly options available, so those go a little counter to strategies to diversify positions by expiration and optimize premiums.

For this morning my expectation was that I’ll be sitting tightly on the cash pile waiting to see if any thing of interest looks like it’s going on further sale or at least firming up and maybe poised for a small comeback.

That didn’t last long as there seemed to be enough reason to loosen up those purse strings, including for a position expiring this week, among others.

With a number of the week’s expiring positions in or near the money, there is a little bit of a cushion in the event that the market reacts poorly after the FOMC Statement, so there’s not too much need to think about doing rollovers early in the week, although even when there is reason to think about doing so there most often isn’t a worthwhile trade to be made.

The exception to that, however, was the GDX, once again, as gold took a big hit this morning and took the Gold Miners ETF along with it. That particular holding has been a joy as the premiums keep piling up on the position. Too bad others can’t do that on a regular basis.

Hopefully, then, this week will have little drama and little of that market heat for anything other than offering some more chance to sell calls on uncovered positions and melt some snow.

All in all, however, today was a good way to get a short week off the ground.