Category Archives: Daily Market Update

Daily Market Update – August 20,  2015  (7:30 AM)

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 is 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 is 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.

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.

So today may be a day of trying to wait things out and if the opportunity to roll anything over may arrive, then taking that opportunity.

Daily Market Update – August 19,  2015  (Close)

Yesterday was a pretty boring day as far as markets go, despite having two DJIA component companies report their earnings.

If those two had gone in the same direction it might have become more interesting, but they basically offset one another both in the price weighted DJIA and market capitalization weighted S&P 500, so the day was pretty much a draw every where you looked.

Although the market was boring, there was some opportunity to get some trading done. Some of it was of a preventive nature, trying to get some more premium out of a position that had a large fall yesterday, a week before reporting earnings. Abercrombie and Fitch’s announcement that they were bringing in 6 outside executives in a re-structuring was basically sending the message to the market that next week’s earnings are going to reflect a need to restructure and the market interpreted it just that way, forcing a big sell-off before next week’s stampede.

Another rollover, Holly Frontier, was to try and still get the dividend on a stock that’s very likely to get assigned early for its dividend, by rolling it over, collecting the premium, while still being in decent position to have shares get assigned early.

The final trade, was the one that I was hoping to make on Monday, in order to capture a nice premium in exchange for giving up the dividend. That was Cablevision, and I thought that selling the well in the money call would result in shares being assigned. But this morning those shares are still in the account, although, as usual, I’ll do the tally to see if that was the general experience.

With all of that happening on an otherwise boring day,  I would have been very happy to see the rest of the week just coast until the end, trying to keep a few positions in contention for either rollover or assignment.

But not today.

It definitely wasn’t boring today. Not only a reversal, but a reversal to the reversal.

Although there were some major retailers reporting earnings today, Lowes and Target, as well as a specialty retailer, L Brands, after the close, it should have been a relatively quiet day.

That wasn’t the case, as the market headed for a triple digit loss fairly quickly as the futures deteriorated heading into the open.

But the real excitement came after the premature release of the FOMC minutes from last month. That caused people to trip all over one another in trying to interpret what was going on in the minds of its members.

The initial reaction was to wipe out a 175 point decline, but then the next reaction was to bring most of that decline right back.

Although not an FOMC member and soon to be departing as a Federal Reserve Governor, Narayana Kocherlakota came out this morning saying that it would be a mistake to raise interest rates in September. That’s not too much of a surprise, since he has generally been dovish, although a few months ago he gave some indication that the time for a rate increase was nearing.

While we may have been on the path to see those rates get increased in September, it’s very possible that the FOMC members didn’t believe that anything so substantial would be happening in China while they were on their vacations, so they may have some second thoughts.

That might be good for the markets, although I’m still of the belief that a small increase would be welcome. Not only would it offer a chance for a relief gasp, but it could also make it easier to have a smooth series of small increases, rather than having to take quantum leaps, which could be more unsettling.

For today, the market appeared as if it was going to get off to a negative start, but gave no indication of just how negative it would be. Futures continue having a fairly poor record of predicting what the market will do during the course of the regular trading day, but today it was more a problem of pred
icting the magnitude and not the direction.

Maybe tomorrow the market can reach deep down to find something good to celebrate, even as Lowes and Target failed to excite today.

 Note:  I had a couple of people ask today why the rollover of Holly Frontier, which has September 18, 2015 $50 calls written on both outstanding lots. Since Holly Frontier is now about $3.25 above the strike and shares go ex-dividend on August 31st, for $0.33, I expect early assignment if shares stay at this level.

So in a pre-emptive move in an effort to get the equivalent of the dividend if assigned early, I decided to rollover an got a $0.35 premium. If shares are assigned early on August 30th, then you still have that extra premium which is a tiny bit more than the dividend itself. Better yet, you then get the proceeds from the assignment and the opportunity to re-invest or add to cash reserves, without having to wait an additional 3 weeks for assignment.

Daily Market Update – August 19,  2015  (8:15 AM)

Yesterday was a pretty boring day as far as markets go, despite having two DJIA component companies report their earnings.

If those two had gone in the same direction it might have become more interesting, but they basically offset one another both in the price weighted DJIA and market capitalization weighted S&P 500, sothe day was pretty much a draw every where you looked.

Although the market was boring, there was some opportunity to get some trading done. Some of it was of a preventive nature, trying to get some more premium out of a position that had a large fall yesterday, a week before reporting earnings. Abercrombia nd Fitch’s announcement that they were bringing in 6 outside executives in a re-structuring was basically sending the message to the market that next week’s earnings are going to reflect a need to restructure and the market interpretd it just that way, forcing a big sell-off before next week’s stampede.

Another rollover, Holly Frontier, was to try and still get the dividend on a stock that’s very likely to get assigned early for its dividend, by rolling it over, collecting the premium, while still being in decent position to have shares get assigned early.

The final trade, was the one that I was hoping to make on Monday, in order to capture a nice premium in exchange for giving up the dividend. That was Cablevision, and I thought that selling the well in the money call would result in shares being assigned. But this morning those shares are still in the account, although, as usual, I’ll do the tally to see if that was the general experience.

With all of that happening on an otherwise boring day, now I’d be happt to see the rest of the week just coast until the end, trying to keep a few positions in contention for either rollover or assignment.

ALthough there are some major retailers reporting earnings today, Lowes and Target, as well as a specialty retier, L Brands, it should be a relatively quiet day. The day also includes a release of last month’s FOMC minutes, which could give some insight into what is going on in the minds of its members.

Although not an FOMC member and soon to be departing as a Federal Reserve Governor, Narayana Kocherlakota came out this morning saying that it would be a mistake to raise interest rates in September. That’s not too much of a surprise, since he has generally been dovish, although a few months ago he gave some indication that the time for a rate increase was nearing.

While we may have been on the path to see those rates get increased in September, it’s very possible that the FOMC members didn’t believe that anyhting so substantial would be happening in China while they were on their vacations, so they may have some second thoughts.

That might be good for the markets, although I’m still of the belief that a small increase would be welcome. Not only would it offer a chance for a relief gasp, but it could also make it easier to have a smooth series of small increases, rather than having to take quantum leaps, which could be more unsettling.

For today, the market appears as if it’s going to get off to a negative start. Hopefully those futures will continue having a fairly poor record of predicting what the market will do during the course of the regular trading day and the market can reach deep down to find something good to celebrate, maybe coming from the aisles of Lowes and Target.

 Note:  I had a couple of people ask today why the rollover of Holly Frontier, which has September 18, 2015 $50 calls written on both outstanding lots. Since Holly Frontier is now about $3.25 above the strike and shares go ex-dividend on August 31st, for $0.33, I expect early assignment if shares stay at this level.

So in a pre-emptive move in an effort to get the equivalent of the dividend if assigned early, I decided to rollover an got a $0.35 premium. If shares are assigned early on August 30th, then you still have that extra premium which is a tiny bit more than the dividend itself. Better yet, you then get the proceeds from the assignment and the opportunity to re
-invest or add to cash reserves, without having to wait an additional 3 weeks for asignment.

Daily Market Update – August 18,  2015  (Close)

Yesterday was another one of those impressive comebacks from a triple digit decline, just as we saw mid-week last week.

Those kind of reversals would end up being much more impressive if they could be the beginning of something with at least a little bit of staying power.

That definitely wasn’t the case last week and it may not be the case this week, either as the morning was already showing declines and the market ended the day having traded in a narrow range, finishing with losses.

Sometimes it’s just a case of bad timing, as we woke up this morning to news of a 6% drop in the Shanghai market and an early 3% drop in shares of Wal-Mart, after it announced its earnings.

Neither of those are the kind of things that give our market a reason to go higher, although we may be getting a little bit immune to stock news from China. What may now matter is not the news, but whether the government or others begin selling their Treasury Notes as there is an increasing cash drain going on in China and they certainly have lots of cash tied up in the paper that we hold.

For now, though, those US Treasuries may represent just about the only thing with intrinsic value sitting in lots of Chinese portfolios, so a raid on those holdings is likely to be the very last thing anyone will want to do, unless they specifically want to see some pain felt within US markets, as well.

China, however, is probably more of a rational player than some other nations, such as Saudi Arabia, who sees inflicting pain on others as more important that its own cash flow needs.

It would be much nicer, though, if all we really had to think about were the earnings reports still coming through. The downside to having an interconnected world is that it’s interconnected.

Now, everything is important and there are tangible and intangible impacts coming from direct and indirect exposures of all sorts, some of which may be made up as we go along.

This morning’s early earnings reports were mixed and come from two key DJIA components. Home Depot is faring well in the futures trading, while Wal-Mart was getting punished, although it did something that hasn’t been reported very often lately. Wal-Mart actually beat on revenues and fell short on earnings. For the most part, it has been just the other way around for so many companies who have seen EPS data improve even as revenues fell, likely the result of share buybacks.

As the day came to its end, Home Depot went even higher and Wal-Mart went even lower. Home Depot’s move more than offset Wal-Mart’s move in the DJIA, but it was a draw as far as their impacts on the S&P 500 were concerned.

With the market showing some mild losses prior to the opening bell, I was still hoping to have some opportunity to add a new position or two. Yesterday I was focused on an in the money position in Cablevision which goes ex-dividend tomorrow. However, it along with the rest of the market turned around and that in the money trade became a deep in the money trade. Along with that, the benefit of the trade was lost, as in the low volatility environment the deeper in the money you are the less the time value, so the trade becomes much less attractive.

Today, I still wanted to make that trade and it finally went, but it may be another very quiet week, other than for the potential for rollovers or assignments at week’s end.

For that Cablevision trade, I wouldn’t at all be disappointed to wake up tomorrow morning to find that it was assigned early, as it did finish about $0.31 over the breakeven on the strike, but with 3 days of time value remaining.

I certainly wouldn’t mind that or other assignments on the week, but banking on anything these days is itself risky business, so instead of thinking of it as an entitlement, I would be very grateful if it became a reality about 72 hours from now.

 Note:  I had a couple of people ask today why the rollover of Holly Frontier, which has September 18, 2015 $50 calls written on both outstanding lots. Since Holly Frontier is now about $3.25 above the strike and shares go ex-dividend on August 31st, for $0.33, I expect early assignment if shares stay at this level.

So in a pre-emptive move in an effort to get the equivalent of the dividend if assigned early, I decided to rollover an got a $0.35 premium. If shares are assigned early on August 30th, then you still have that extra premium which is a tiny bit more than the dividend itself. Better yet, you then get the proceeds from the assignment and the opportunity to re-invest or add to cash reserves, without having to wait an additional 3 weeks for asignment.

Daily Market Update – August 18,  2015  (8:00 AM)

Yesterday was another one of those impressive comebacks from a triple digit decline, just as we saw mid-week last week.

Those kind of reversals would end up being much more impressive if they could be the beginning of something with at least a little bit of staying power.

That definitely wasn’t the case last week and it may not be the case this week, either.

Sometimes it’s just a case of bad timing, as we wake up this morning to news of a 6% drop in the Shanghai market and an early 3% drop in shares of Wal-Mart, after it announced its earnings.

Neither of those are the kind of things that give our market a reason to go higher, although we may be getting a little bit immune to stock news from China. What may now matter is not the news, but whether the government or others begin selling their Treasury Notes as there is an increasing cash drain going on in China and they certainly have lots of cash tied up in the paper that we hold.

For now, though, those US Treasuries may represent just about the only thing with intrinsic value sitting in lots of Chinese portfolios, so a raid on those holdings is likely to be the very last thing anyone will want to do, unless they specifically want to see some pain felt within US markets, as well.

China, however, is probably more of a rational player than some other nations, such as Saudi Arabia, who sees inflicting pain on others as more important that its own cash flow needs.

It would be much nicer, though, if all we really had to think about were the earnings reports still coming through. The downside to having an interconnected world is that it’s interconnected.

Now, everything is important and there are tangible and intangible impacts coming from direct and indirect exposures of all sorts, some of which may be made up as we go along.

This morning’s early earnings reports are mixed and come from two key DJIA components. Home Depot is faring well in the futures trading, while Wal-Mart is getting punished, although it did something that hasn’t been reported very often lately. Wal-Mart actually beat on revenues and fell short on earnings. For the most part, it has been just the other way around for so many companies who have seen EPS data improve even as revenues fell, likely the result of share buybacks.

With the market showing some mild losses prior to the opening bell, I would still like to have some opportunity to add a new position or two. Yesterday I was focused on an in the money position in Cablevision which goes ex-dividend tomorrow. However, it along with the rest of the market turned around and that in the money trade became a deep in the money trade. Along with that, the benefit of the trade was lost, as in the low volatility environment the deeper in the money you are the less the time value, so the trade becomes much less attractive.

Today, I’ll still keep an eye on that trade, but it may be another very quiet week, other than for the potential for rollovers or assignments at week’s end.

I certainly wouldn’t mind the assignments, but banking on anything these days is itself risky business, so instead of thinking of it as an entitlement, I would be very grateful if it became a reality about 80 hours from now.