Category Archives: Daily Market Update

Daily Market Update – August 25,  2015  (8:15 AM)

It’s probably senseless to try and describe yesterday’s action.

Whatever it was that caused the 1000 point decline in the first 10 minutes, somehow it didn’t really frighten away some brave people.

No one was more surprised than me to be among those adding new positions yesterday morning, but in hindsight it may have seemed premature to have done so as the market ended up the day having done just as badly as it ended the previous week.

The conventional wisdom is that these kind of plunges are necessary in order to flush sellers out of the system and then you often see a significant bounce higher.

The late Mark Haines of CNBC used to be very calm in the face of these kind of early morning sell-offs that followed a similarly large sell off the previous day because his experience was that was the first step of the climb higher.

That seemed to be the case yesterday, but what was missing yesterday was any sense of frenzied selling, despite the fact that there was a 1000 point decline in those first 10 minutes.

Given how quickly the recovery set in, there had to be the realization that the decline was not something truly based on market forces, but rather the result of sell orders hitting mutual funds on Friday and perhaps some hedge funds calling it quits, in addition to forced margin selling.

Later, another reversal of the initial reversal, something that we may need to get used to, was fairly orderly.

So if you were waiting for a real blow off kind of moment, also called “capitulation,” it hasn’t really shown up yet. What we have been seeing, and this morning’s futures are consistent with that, is the typical kind of out-sized moves in alternating directions that you see in a bear market.

Those moves actually started more than 2 months ago. In fact, people who study this sort of thing will tell you that you don’t even need the alternating component. Simply seeing out-sized moves higher is emblematic of being in a bear market.

Who knows.

This morning comes as China’s Shanghai exchange was down another 7%.

I went to bed last night seeing the Shanghai futures trading much lower, but the US futures were picking up strength, which came as a surprise.

The extent of that divergence when waking up tghis morning was a real surprise, that was widened when the People’s Bank of China announced an easing on its lending and bank reserve requirements.

We’ll see.

So far the attempts to control China’s markets, currency and economy haven’t fared terribly well, but these things are like trying to stop a steaming locomotive. If you remember your basic physics, there’s that concept of “momentum” at play. It takes lots and lots of energy to put the brakes on something with momentum.

That’s exactly what economies have. Lots of momentum and typically very slow to respond to external forces.

With a couple of new positions opened yesterday and the market moving higher, I would love any opportunity to sell more calls, but with the move higher comes a drop in volatility. Yesterday, in looking for call sales opportunities the prevailing picture was that of a dumb struck options market. The moves were so sudden and pronounced that there were very, very few bids, so sellers were there to sell, but no one was there to bu
y. Not even offering a ceremonial bid that could offer some room for negotiation.

We’ll see how or if that changes today.

Daily Market Update – August 24,  2015  (Close)

Last night when looking at the thinly traded US futures, things were looking pretty bleak as the overseas futures were again pointing much lower.

However, the last time I looked before going to bed the tone had changed considerably as the US futures were down only 95 points.

Based on the way Friday had closed, with a loss of more than 500 points on the DJIA and accelerating at that, a mere 95 points would have felt like a rally.

This morning that picture was again totally different. The picture facing us this morning reflected the fact that the Shanghai market essentially had an entire correction in a single trading session, having gone down just shy of 10%, although not to the same degree.

Japan followed and the European markets aren’t being left too far behind.

Our own futures, now with trading less thin in the morning session was rapidly deteriorating and within 10 minutes of the opening bell the DJIA was down just over 1000 points.

None of what we are seeing on our shores reflects anything on our shores, but that doesn’t matter for now.

Yesterday;’s decision by China to allow the nation’s pension funds invest in stocks may have had one intent, but it sent an entirely different message.

That message was one of desperation and exasperation and when the Chinese government gets to the point that it feels as if it is being backed up against a wall, everyone needs to be very cautious.

A cash strapped China can have very powerful impact on us if they decide they need to get out of their immense Treasury holdings, which are now trading at below 2% for the 10 Year. That represents a 25% decline in rates at a time when everyone was banking on rising rates, although at the same time widespread selling by China could send those rates much higher again.

Then, add Saudi Arabia into that picture as oil falls even more this morning and is now below $40/barrel. Even Saudi Arabia may begin to have a need for cash soon.

This morning the futures were trading nearly 700 points lower and the S&P 500 was on track to join the DJIA in official correction territory if the futures trading losses would have persisted into the trading session.

They did. Then they didn’t and then they did again to finish the day.

Some of these individual stock price drops that have been seen and were being seen in the morning’s futures trading were really stunning. They are the kind that we really haven’t seen in 7 years, as it’s hard to imagine companies such as Apple and others being down 25% in such a short time frame.

There’s very little to do in the face of that kind of selling.

The one thing to look for is any opportunity to take advantage of should be increasing option premiums and the use of out of the money strikes. That was actually a good combination in 2008 and early 2009, as it was again in the latter half of 2011.

Volatility, while so very significantly higher over the past 2 weeks is still afar cry from 2008, 2009 or even 2011, but the search for those premium opportunities can at least begin to take place.

There are no positions set to expire this week and that was partially by design as last weeks rollovers specifically sought to buy some time as the market was already deteriorating. Seeing this morning’s sharp decline the first thought is that more time should have been bought.

While I didn’t plan on being one of those brave ones to try and figure out where the market’s bottom will be, I surprised myself with 2 new positions added this morning. I thought tha today’s focus
would be on where income generation can be found to try and offset the broadly distributed declines.

At least there was one of those, as well.

The one positive note this morning was that, if on heavy volume, it may have represented a “blow off” kind of selling that is very often followed by a bounce higher.

That bounce higher came and did so very emphatically, but had no staying power, as there may have been lots of mutual fund and ETF redemptions that still needed to be dealt with.

The late in the day sell off will undoubtedly leave a hangover for tomorrow as there were very likely an additional wave of sell orders hitting mutual funds as the market came to its close.

If that’s the case, the question will again fall to China to see what its next step will be and then back to the FOMC to see whether it begins to look at the loss of wealth experienced over this summer in deciding what to do regarding interest rates.

For now, the only hope may be that whoever has cash overseas may begin to look to the United States as their safety haven and flee with whatever cash they have to our shores to at least inject some buying.

While people are divided over the issue of immigration, right now most everyone would welcome foreign cash on our shores, even if caked in white powder.

Daily Market Update – August 24,  2015  (9:00 AM)

Last night when looking at the thinly traded US Futures, things were looking pretty bleak as the overseas futures were again pointing much lower.

However, the last time I looked before going to bed the tone had changed considerably as the US futures were down only 95 points.

Based on the way Friday had closed, with a loss of more than 500 points on the DJIA and accelerating at that, a mere 95 points would have felt like a rally.

This morning that picture is again totally different. The picture facing us this morning reflects the fact that the Shanghai market essentially had an entire correction in a single trading session, having gone down just shy of 10%, although not to the same degree.

Japan followed and the European markets aren’t being left too far behind.

Our own futures, now with trading less thin in the morning session is rapidly deteriorating.

None of what we are seeing on our shores reflects anything on our shores, but that doesn’t matter for now.

Yesterday;’s decsion by China to allow the nation’s pension funds invest in stocks may have had one intent, but it sent an entirely different message.

That message was one of desperation and exasperation and when the Chinese government gets to the point that it feels as if it is being backed up against a wall, everyone needs to be very cautious.

A cash strapped China can have very powerful impact on us if they decide they need to get out of their immense Treasury holdings, which are now trading at below 2% for the 10 Year. That represents a 25% decline in rates at a time when everyone was banking on rising rates, although at the same time widespread selling by China could send those rates much higher again.

Then, add Saudi Arabia into that picture as oil falls even more this morning and is now below $40/barrel. Even Saudi Arabia may begin to have a need for cash soon.

This morning the futures were trading nearly 700 points lower and the S&P 500 is on track to join the DJIA in official correction territory if the futures trading losses persist into the trading session.

Some of these individual stock price drops that have been seen and are being seen in the morning’s futures trading are really stunning. They are the kind that we really haven’t seen in 7 years, as it’s hard to imagine companies such as Apple and others being down 25% in such a short time frame.

There’s very little to do in the face of that kind of selling.

The one thing to look for is any opportunity to take advantage of should be increasing option premiums and the use of out of the money strikes. That wa actually agood combination in 2008 and early 2009, as it was again in thelatter half of 2011.

Volatility, while so very significantly higher over the past 2 weeks is still afar cry from 2008, 2009 or even 2011, but the search for those premium opportunities can at least begin to take place.

There are no positions set to expire this week and that was partially by design as last weeks rollovers specifically sought to buy some time as the market was already deteriorating. Seeing this morning’s sharp decline the first thought is that more time should have been bought.

While I don’t plan on being one of those brave ones to try and figure out where the market’s bottom will be the focus will be on where income generation can be found to try and offset the broadly distributed declines.

The one positive note this morning is that, if on heavy volume, may represent a “blow off” kind of selling that is very often followed by a bounce higher
. If that’s the case, teh question will again fall to China to see what its next step will be and then back to the FOMC to see whether it begins to look at the loss of wealth experienced over this summer in deciding what to do regarding interest rates.

For now, the only hope may be that whoever has cash overseas may begin to look to the United States as their safety haven and flee with whatever cash they have to sour shorws to at least inject some buying.

While people are divided over the issue of immigration, right now most everyone would welcome foreign cash on our shores, even if caked in white poder.

Daily Market Update – August 21,  2015  (9:00 AM)

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

The following trade outcomes are possible today:

Assignments:  none

Rollovers:  none

Expirations:  COH, CSCO, CVC, FAST, INTC, LVS

The following were ex-dividend this week: MRO (8/17 $0.21), CVC (8/19 $0.15), RIG (8/21 $0.15)

The following are ex-dividend next week: (MAT 8/27 $0.38)

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

Daily Market Update – August 20,  2015  (Close)

Yesterday was a rare kind of day.

For one thing there was a very premature release of the FOMC minutes from the previous month. That doesn’t happen too often, but every time there’s an early release, whether it’s on embargoed items or company earnings, the fingers start pointing very quickly.

The other thing that seems to characterize early releases is large moves and then reversals of those moves as traders try to out jockey one another and take whatever advantage they can of the unexpected.

This time they all pointed to Bloomberg News and instead of it being a leak done in high frequency trading time terms, this one was about 20 minutes early.

What there was no shortage of was surprise, nor was there any shortage of attempting to take advantage of the surprise and then either profiting from those quick actions or coming to regret those quick actions.

That’s because the real story was that there was another strong reversal to a triple digit drop, which had to offer some encouragement, particularly in light of earlier in the week, when such a reversal couldn’t find some staying power.

So ordinarily today would be a day of hope. That hope would be that the reversal could find some staying power, but unfortunately there was a reversal to that reversal.

That was the really big news for the day as traders were really confused over how to interpret the FOMC minutes. Now only were they divided over whether the tone was hawkish or dovish, but whether their interpretation should then be acted up in paradoxical ways or accordingly.

So this morning was destined to be one opening on continuing confusion, but added to it is some clarity.

That clarity comes from China, which was continuing its steep decline from earlier in the week.

I’ve lost track, but I think that this morning’s decline in China brings it to more than 10% on the week.

This morning’s triple digit decline in the futures seems reasonable given yesterday’s real disappointing lack of follow through and the morning’s overseas news.

I had thought about doing some early rollovers yesterday, but then felt briefly vindicated as the market recovered and gave some hope that there could still be some assignments. That hope didn’t deteriorate too much as the market then reversed its reversal, but this morning it was not looking terribly good.

In a week, however, that has really been characterized by reversals, it wouldn’t be unusual to expect that at some points those bargain hunters are going to come in, but it may first take some kind of capitulation in the oil sector to really get things going.

As it would turn out, if anything resembled panic or at least accelerated selling, it wasn’t really in oil. It was in everything else today.

It’s tempting to want to call a bottom in oil, but the fervor in selling hasn’t really occurred. With the prospects of Iranian oil hitting the market and the intransigence of the Saudis, the prospects of oil climbing higher in the face of a Chinese economic slowdown doesn’t seem too likely.

And so I thought that today may be a day of trying to wait things out and hoping for the opportunity to roll anything over.

Surprisingly, some of those opportunities came, but in keeping with a theme of surprises, nothing surprised me more than digging into my other pocket and adding some shares of Bank of America, which along with everything else was hit very hard today. It could just as easily have been Blackstone or MetLife, but Bank of America is ex-dividend in a couple of weeks and I’m looking at bypassing next week for expirations to give the market some more time to get things out of its syst
em.

While I thought today might be a day of leisure, I was happy to see that it wasn’t and am hopeful that tomorrow may offer some opportunity for shares of Cisco, Cablevision and Intel.

Meanwhile, I’m prepared to be in watching mode next week and would love to just sit back until this August comes to its end.