Daily Market Update – July 6, 2015

 

 

 

Daily Market Update – July 6,  2015  (8:45 AM)

 

Waking up this morning was like a throwback to last week at the same time.

Both Monday mornings were preceded by a meltdown of the S&P 500 Futures trading on Sunday, but both seemed to recover as Monday morning’s futures trading got underway prior to  heading into the opening bell.

Last Monday it ended up actually further deteriorating instead of improving, once the bell rang.

This morning the futures, while greatly improved from yesterday evening’s levels, are not really showing any movement higher from their preliminary opening levels, as we all wait to see what the next step of this Greek tragedy will be.

Still, with the S&P 500 Futures having been down by as much as 28 points last night, a decline of 16 points with an hour to go until the opening is a rally of sorts.

It’s still bad, just not as bad.

With the announcement of the resignation of the controversial Greek Finance Minister, who threatened to resign in the event of a “Yes” vote and did so anyway even with a resoundinly large “No” vote, there may be some room for compromise between the EU and Greece, both of whom were willing to play their cards.

While the Greek Prime Minister is thought to be a polarizing figure, his Finance Minister was even more so and has likely been the architect of the greek strategy in dealing with the EU and plotting out a course that could be followed in a post_EU membership Greece.

The very thought that a major impediment to any reasonable resolution to the debt crisis has left the picture could be a very positive event.

What happens next is still anyone’s guess, as we are really in uncharted territory.

While the markets are weaker this morning as we get ready for trading to begin for the week the only real downside for US stocks, once the dust settles, is that the USD may again begin its march to parity with the Euro. The cessation of that march is something that I’ve been expecting to be the good news coming out of this new earnings season, which begins after the market close on Wednesday.

However, always as important and sometimes more important than earnings, which represent old news, is the forward guidance. If the USD looks as if it may go back to getting stronger and stronger against the EUro, that forward guidance may have to be tempered.

With another large decline looming this morning, there’s always the temptation of looking for bargains. With a little bit of cash in reserve I would ordinarily be reluctant to dip into that reserve, butI start the morning with a belief that the market may have discounted much of the worst that could occur with this crisis, including factoring in an exit from the EU by Greece.

That may make it a reason to be buying on this dip, as if it occurs to the level that the Futures are indicating, will be bringing us into “mini-correction” territory.

The fact that I also have no option contracts expiring this week, and therefore none that could be potentially assigned or rolled over, may also play into the decision to loosen up the purse strings just a little.

Other than Greece, there’s not too much economic news this week to contend with, other than earnings. Those earnoings, however, don’t really get going for real until next week and by then you would think that whatever will happen in Greece will have settled down by then.

So I will begin the morning as an observer, but may be willing to test the waters, as there’s not likely to be the kind of bad news ahead that we haven’t already thought about, unless you want to start thinking about China and its attempts to manipulate their stock market.

That may be a story for another time.

Dashboard – July 6 – 10, 2015

 

 

 

 

 

SELECTIONS

MONDAY:   Just another manic Monday, but not as bad as the overnight futures were pointing, although that was the case last Monday, as well. Today begins the next part of the story as Greece is risking an EU exit after yesterday’s referendum vote.

TUESDAY:   Yesterday could have been far worse of a day, so there’s some optimism that we will get through the Greek debt crisis, regardless of where the road may take the EU. Today is shaping up to start with a mildly positive open, with only the JOLTS Report to offer any economic insight

WEDNESDAY:  After yesterday’s very impresive reversal comes the reality that manipulation of markets doesn’t work very well, as the sell-off seen in China was only delayed by a day or so and spreading elsewhere, including the US. While our futures are down triple digits, they are better than they had been earlier, which has been a theme of these recent large pre-open declines.

THURSDAY:  Four steps forward and 3 steps backward isn’t that bad. This morning futures trading is an attempt to catch up with the steps taken backwward, which has left the S&P 500 at aboput a 4.5% decline from the highs and within 3 points of a support level.

FRIDAY:. We lost most of yesterdy’s gain related to the CHinese market’s surgeing bounce, but today there’s another opportunity to maybe close out the week on an up note

 

 

 

 

 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

Weekend Update – July 5, 2015

I used to work with someone who used the expression “It’s as clear as mud,” for just about every occasion, even the ones that had obvious causes, answers or paths forward.

Initially, most of us thought that was just some kind of an attempt at humor until eventually coming to the realization that the person truly understood nothing.

Right now, I feel like that person, although the fact that it took a group of relatively smart people quite a while to realize that person had no clue, may be more of a problem.

It should have been obvious. That’s why we were getting the big bucks, but the very possibility that someone who was expected to be capable, was in reality not capable, wasn’t even remotely considered, until it, too, became painfully obvious.

I see parallels in many of life’s events and the behavior of stock markets. As an individual investor the “clear as mud” character of the market seems apparent to me, but it’s not clear that the same level of diminished clarity is permeating the thought processes of those who are much smarter than me and responsible for directing the use of much more money than I could ever dream.

What often brings clarity is a storm that washes away the clouds and that perfect storm may now be brewing.

Whatever the outcome of the Greek referendum and whatever interpretation of the referendum question is used, the integrity of the EU is threatened if contagion is a by-product of the vote and any subsequent steps to resolve their debt crisis.

Most everyone agrees that the Greek economy and the size of the debt is small potatoes compared to what other dominoes in the EU may threaten to topple, or extract concessions on their debt.

Unless the stock market has been expressing fear of that contagion, accounting for some of the past week’s losses, there should be some real cause for concern. If those market declines were only focused on Greece and not any more forward looking than that, an already tentative market has no reason to do anything other than express its uncertainty, especially as critical support levels are approached.

Moving somewhat to the right on the world map, or the left, depending on how much you’re willing to travel, there is news that The People’s Republic of China is establishing a market-stabilization fund aimed at fighting off the biggest stock selloff in years and fears that it could spread to other parts of the economy. Despite the investment of $120 billion Yuan (about $19.3 billion USD) by 21 of the largest Chinese brokerages, the lesson of history is that attempts to manipulate markets tends not to work very well for more than a day or so.

That lesson seems to rarely be learned, as market forces can be tamed about as well as can forces of nature.

The speculative fervor in China and the health of its stock markets can create another kind of contagion that may begin with US Treasury Notes. Whether that means an increased escape to their safety or cashing in massive holdings is anyone’s guess. Understanding that is far beyond my ken, but somehow I don’t think that those much smarter than me have any clue, either.

Back on our own shores, this week is the start of another earnings season, although that season never really seems to end.

While I’ve been of the belief that this upcoming series of reports will benefit from a better than expected currency exchange situation, as previous forward guidance had been factoring in USD/Euro parity, the issue at hand may be the next round of forward guidance, as the Euro may be coming under renewed pressure.

Disappointing earnings at a time that the market is only 3% below its all time highs together with international pressures seems to paint a clear picture for me, but what do I know, as you can’t escape the fact that the market is only 3% below those highs.

The upcoming week may be another in a succession of recent weeks that I’ve had a difficult time finding a compelling reason to part with any money, even if that was merely a recycling of money from assigned positions.

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

Much of my interests this week are driven purely by performance relative to the S&P 500 over the previous 5 trading days and the belief that the extent of those price moves were largely unwarranted given the storm factors.

One exception, in that it marginally out-performed the S&P 500 last week, is International Paper (NYSE:IP). However, that hasn’t been the case over the past month, as the shares have badly trailed the market, possibly because its tender offer to retire high interest notes wasn’t as widely accepted as analysts had expected and interest payment savings won’t be realized to the anticipated degree.

Subsequently, shares have traded at the low end of a recent price cut target range. As it’s done so, it has finally returned to a price that I last owned shares, nearly a year ago and this appears to be an opportune time to consider a new position.

With that possibility, however, comes an awareness that earnings will be reported at the end of the month, as analysts have reduced their paper sales and expectations and profit margins have been squeezed as demand has fallen and input costs have risen.

DuPont’s (NYSE:DD) share decline wasn’t as large as it seemed as hitting a new 52 week low. That decline was exaggerated by about $3.20 after the completion of their spin-off of Chemours (NYSE:CC).

As shares have declined following the defeat of Nelson Peltz’s move to gain a seat on the Board of Directors, the option premium has remained unusually high, reflecting continued perception of volatility ahead. At a time when revenues are expected to grow in 2016 and shares may find some solace is better than expected currency exchange rates.

Cypress Semiconductor (NASDAQ:CY) has been on my wish list for the past few weeks and continues to be a possible addition during a week that I’m not expecting to be overly active in adding new positions.

What caused Cypress Semiconductor shares to soar is also what was the likely culprit in its decline. That was the proposed purchase of Integrated Silicon Solution (NASDAQ:ISSI) that subsequently accepted a bid from a consortium of private Chinese investors.

What especially caught my attention this past week was an unusually large option transaction at the $12 strike and September 18, 2015 expiration. That expiration comes a couple of days before the next anticipated ex-dividend date, so I might consider going all the way out to the December 18, 2015 expiration, to have a chance at the dividend and also to put some distance between the expiration and earnings announcements in July and October.

Potash (NYSE:POT) is ex-dividend this week and was put back on my radar by a reader who commented on a recent article about the company. While I generally lie to trade Mosaic (NYSE:MOS), the reader’s comments made me take another look after almost 3 years since the last time I owned shares.

The real difference, for me at least, between the 2 companies was the size of the dividend. While Potash has a dividend yield that is about twice the size of that of Mosaic, it’s payout ratio is about 2.7 times the rate of that of Mosaic.

While that may be of concern over the longer term, it’s not ever-present on my mind for a shorter term trade. When I last traded Potash it only offered monthly options. Now it has weekly and expanded weekly offerings, which could give opportunity to manage the position aiming for an assignment prior to its earnings report on July 30th.

During a week that caution should prevail, there are a couple of “Momentum” stocks that I would consider for purchase, also purely on their recent price activity.

It’s hard to find anything positive to say about Abercrombie and Fitch (NYSE:ANF). However, if you do sell call options, the fact that it has been trading at a reasonably well defined range of late while offering an attractive dividend, may be the best nice thing that can be said about the stock.

I recently had shares assigned and still sit with a much more expensive lot of shares that are uncovered. I’ve had 2 new lots opened in 2015 and subsequently assigned, both at prices higher than the closing price for the past week. There’s little reason to expect any real catalyst to move shares much higher, at least until earnings at the end of next month. However, perhaps more importantly, there’s little reason to expect shares to be disproportionately influenced by Greek or Chinese woes.

Trading in a narrow range and having a nice premium makes Abercrombie and Fitch a continuing attractive position, that can either be done as a covered call or through the sale of puts.

Bank of America (NYSE:BAC) is another whose shares were recently assigned and has given back some of its recent price gains while banks have been moving back and forth along with interest rates.

With the uncertainty of those interest rate movements over the next week and with earnings scheduled to be released the following week, I would consider a covered call trade that utilizes the monthly July 17, 2015 option, or even considering the August 21, 2015 expiration, to get the gift of time.

Finally, Alcoa (NYSE:AA) reports earnings this week after having sustained a 21.5% fall in shares in the past 2 months. That’s still not quite as bad as the 31% one month tumble it took 5 years ago, but shares have now fallen 36% in the past 7 months.

The option market is implying a 5% price movement next week, which on the downside would bring shares to an 18 month low.

Normally, I look for the opportunity to sell a put option in advance of earnings if I can get a 1% ROI for a weekly contract at a strike price that’s below the lower level determined by the option market’s implied movement. I usually would prefer not to take possession of shares and would attempt to delay any assignment by rolling over the short put position in an effort to wait out the price decline.

In this case the ROI is a little bit less than 1% if the price moves less than 6%, however, at this level, I wouldn’t mind taking ownership of shares, especially if Alcoa is going to move back to a prolonged period of share price stagnation as during 2012 and 2013.

That was an excellent time to be selling covered calls on the shares as premiums were elevated as so many were expecting price recovery and were willing to bet on it through options.

You can’t really go back in time, but sometimes history does repeat itself.

At least that much is clear.

Traditional Stocks: Cypress Semiconductor, DuPont, International Paper

Momentum Stocks: Abercrombie and Fitch, Bank of America

Double-Dip Dividend: Potash (7/8)

Premiums Enhanced by Earnings: Alcoa (7/8 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.

Week in Review – June 29 – July 2, 2015

 

Option to Profit

Week in Review

 

June 29 July 2, 2015

 

NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED EX-DIVIDEND
1 / 1 1 1 0 /  0 2  /  0 0 3

 

Weekly Up to Date Performance

June 29 – July 2,  2015

Another miserable week in the markets, highlighted by a 350 point drop and some half-hearted attempts to bounce back.

You know that it’s a bad week when your new positions, or in this case, a single poistion, could be down 1.0% for the week and still out-perform the market.

That position beat the adjusted and unadjusted S&P 500 by 0.2%. It was down 1.0% for the week, while both the adjusted and unadjusted S&P 500 were 1.2% lower.

Once again, it was a week that ended without giving any compelling reason to want to commit money toward new positions the following week, although that could change following the results of the Greek referendum on Sunday.

Existing positions, over-invested in energy stocks, lagged the general market this week, despite a rally for some energy positions to close the week. 

With no assignments for the week theere remain 44 closed lots in 2015 andd they out-perform the market. They are an average of 5.0% higher, while the comparable time adjusted S&P 500 average performance has been 1.3% higher. That  3.7% difference represents a 283.3% performance differential.  

It has been a while since there has been any good news to give the markets a reason to move higher.

But despite the lack of good news and the fretting about interest rates moving higher and the uncertainty that comes with the Greek debt crisis, the market is barely down 3%.

That puts it at about the mid-way point for one of those mini-corrections that we’ve come to know over the past 3 years, but that has now itself been long overdue.

I’ve been reluctant to spend down cash reserves, as small as they are, for the past few weeks, but did loosen up a bit this week, only to see that a market that goes much lower and still go even lower.

With no positions set to expire next week and only 2 lots going ex-dividend, it looks like another week of diminished income.

There wasn’t much of a silver lining in last week, although volatility did go up about 20%, but the option premiums are still on the paltry side. That’s especially true in further out weeks, indicating that the options market isn’t expecting the volatility t pick up.

As that’s been the case the volume in the options market is much less liquid and it’s harder to get trades done.

That’s been especially true for rollovers, which require trades on both sides of the equation, but it has also made it more difficult to sell options on uncovered positions.

When the closing bell rang on Thursday to end this week, I had 6 unexecuted trades. That has been the story for quite a while.

I usually place trades on a “day” basis so that if unexecuted, they get cancelled. Lately, however, I’ve been placing them on a “good until canceled” basis, getting tired of having to re-do order entry.

I tend not to be greedy over a penny, especially if that makes the difference between getting a trade done or not, but with forward week volatility being so low and the premiums along with it, it’s very difficult with some trades to justify leaving the pennies on the table, because they constitute a much larger portion of the net premium than ever before, as do the trading costs.

With Sunday being t
he scheduled date of the Greek referendum, it is entirely possible that a “Yes” vote, which most would interpret as an affirmation of wanting to stay in the EU and keeping a common currency, might be just the catalyst the market needs, at least for the short term.

That, at least, could get us to July 8th, when another earnings season begins.

I continue to believe that many companies are going to surprise to the upside on revenue and profits as their worries about currency exchange didn’t materialize to the extent that they projected.

Interestingly, though, no one has revised upward prior to earnings.

Any sense that profits are higher, as long as the USD and EUro can maintain their current relationship going into the next quarter, should be viewed as being positive.

Taken together with employment data that, at best, were in line with expectations, or perhaps even a bit disappointing, that may mean “later, rather than sooner” for those keeping an eye of the FOMC’s intentions to hike interest rates.

Needless to say, it will be a week for watching and again not much of a reason to spend new money. Any pop on Monday, if the news from Greece is received in a positive way, will hpefully be an excuse to sell calls. The question, if that opposrtunity arises, is whether to go for a short term contract, or to try and take advantage of what may be a short lived pop and lock in a longer term contract, even if the forward volatility keeps those premiums low.

 

 

 

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

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



New Positions Opened:   CSCO

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:  WY (8/14)

Calls Rolled over, taking profits, into the monthly cycle: none

Calls Rolled Over, taking profits, into a future monthly cycle:  none

Calls Rolled Up, taking net profits into same cyclenone

New STO:  BBY (9/18)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: none

Calls Expired:  CSCO, DOW

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 PositionsEMC (6/29 $0.11), WFM (6/20 $0.13), CSCO (7/1 $0.21)

Ex-dividend Positions Next Week: GPS (7/6 $0.23)

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, AZN, CHK, CLF,  CSCO, DOW, FCX, GPS, HAL, INTC, JCP, JOY, KMI, LVS,  MCP, MOS, RIG, 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 – July 2, 2015

 

 

 

Daily Market Update – July 2,  2015  (8:15 AM)

 

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

The following trade outcomes are possible today:

Assignments:  none

Rollovers:  none

Expirations: CSCO, DOW, WY

The following were ex-dividend this week: EMC (6/29 $0.12), WFM (6/30 $0.13), CSCO (7/1 $0.21)

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