Category Archives: Daily Market Update

Daily Market Update – March 16, 2015 (8:15 AM)

Last week was another one wasted in worries over interest rates.

This week the worries may come to an end as the FOMC Statement is released on Wednesday and we’ll learn whether the word “patience” will continue to be used in offering some kind of a timeframe for the start of interest rate increases.

While everything was upended with the most recent Employment Situation Report, I still have to think that the recent words of Janet Yellen may carry more weight that the data from a single month of collection, particularly as that data is frequently adjusted in subsequent months,

While the stock market was getting bogged down with concerns about interest rate increases, which history has shown actually sends markets higher during the early stages of increase, the bond market was actually sending rates lower.

That has to add to some of the confusion as you would have to wonder on what basis they could believe that was the appropriate direction.

Very possibly, however, that’s the right decision regardless of what the FOMC does, as whether “patience” remains or not, it should provide either some comfort or clarity.

The real question may be what, if anything, further Janet Yellen may say during her press conference following the release of the FOMC Statement..

This morning, to start the week the pre-open futures are pointing moderately higher, but if the past two weeks have shown anything at all, it’s that these kind of pre-opening moves, whether mildly or moderately higher and in either direction, have no predictive value for the rest of the trading day.

There’s been lots of volatility over the past couple of weeks and some of the trading has opened bearing no resemblance at all to what preceded it in the pre-opening trades.

With a little bit of money spared up from assignments last week there’s some opportunity to add some new positions. However, with a number of positions set to expire this week as the monthly contract comes to an end, the concern is that the last 2 weeks have moved them further and further from assignment or rollover.

Ordinarily I wouldn‘t want to add more expiring positions to an already lengthy list, but insofar as there’s a need to try and re-generate funds through assignments for subsequent weeks, there may be reason to go against initial instincts.

Other than this week’s FOMC Statement, there isn’t very much else expected to be able to rock markets, but energy and interest rates still remain volatile, as so precious metals and currencies. Any of those, especially if facing another strong leg downward could put trickle down pressure on stocks, as well.

For a number of months in the recent past the Tuesday before the FOMC Statement release had been unexpectedly positive, as usually the market had been reserved in anticipation of the unknown, but had for a time become optimistic that the dovish position would prevail.

For the past two months that reservation has returned, so I expect the week to be fairly sedate until Wednesday, as right now there’s neither reason to be optimistic nor pessimistic about the dove’s ability to withstand pressure.

I expect to be watchful this morning and as always, hopeful, that there comes some opportunity to make sales of calls on uncovered positions, even though those have been scant of late.

However, all it may take is a pleasant surprise from the FOMC giving the green light to party on.

Daily Market Update – March 13, 2015 (8:45 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:  SNDK, UAL

Rollovers:  BAC

Expirations:   CHK, GDX, HAL, KO

The following were ex-dividend this week:  NEM (3/10 $0.02), KO (3/12 $0.33), GME (3/13 $0.36)

The following will be ex-dividend next week: LVS (3/19 $0.65)

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

Note:   Just a word about the rollover trade in GameStop late yesterday afternoon.

Shares go ex-dividend tomorrow for $0.36 and the option contract had a week to run. Further, the company reports earnings during the first week of the April 2015 cycle.

With shares trading about $0.44 above the threshold price for early assignment, the fact that a week still remained and that there could be some speculative trading in the days before earnings on March 26th, there was a chance the the $39 strikes wouldn’t be assigned early.

However, I wanted to do something to at least be able to get part of that dividend, especially since the position was more than 3 months old and I felt like I “deserved” the dividend.

The way to do that was by rolling shares over from $39 to $39.50 and using the same expiration date. Doing so incurred an ND of $0.27 in exchange for an additional $0.50 in the strike, which yields a net $0.23.

That’s the case if the shares are assigned early tonight.

With shares closing at $39.79 the chances of the March 20 $39.50 strikes being assigned early is very small, but there still remains a fair chance that the $39 strikes will face early assignment.

If neither the $39 nor $39.50 options are exercised early you also get to keep the dividend.

However, if you were able to roll over to the $39.50, then, based on the trading of shares subsequently, you can make the decision to rollover again, but this time, maybe even back down to $39 in order to get some additional premium to offset the reduction in strike price, in order that there is a better chance of getting out of the position prior to earnings.

Daily Market Update – March 12, 2015 (Close)

With another loss, albeit a small one yesterday, after having spent most of the session in the green, the market was about 3.7%.lower to start the day.

That’s the level of the declines seen in January 2015, when there were actually 3 such declines in succession during the course of that month. That period really stood out in contrast to the preceding 30 months or so that had been progressing in a very regular fashion, having declines every 2 months.

That was reason to take notice.

As the pilot episode of a basic cable show had one of its stars say “you don’t just break bad.”

But in looking back there really was a black and white difference between the market’s behavior from the end of 2014 to the beginning of 2015. It wasn’t just the difference between closing 2014 at a record high and then tradiung below those highs to start 2015, it was the quality of the trading. Not only increased volatility, since we hqad seen that a few times earlier in 2014, but the rapid stacatto behavior of the markets.

Not just the stock markets, but just about everything else surrounding it that can have direct and indirect impacts. While markets in such commodities as corn, lumber and cocoa may be interesting, they’re not the kind that have much impact on stock markets. On the other hand, government bonds, currencies, precious metals and oil markets do and they have been equally wild of late.

It’s hard, though, to explain the behavior. Although the simple thing is to point fingers at the dislocation in the oil markets, the dislocation isn’t that clear.

What is surprising is to hear so many well regarded analysts talk about being caught off guard by the trickle down effects of events, as if the impacts of a stronger US Dollar had never been studied before. Almost any middle school aged child could tell you that in an economy that runs a trade deficit that deficit is likely to increase as our goods become more expensive and competing goods get less expensive and begin coming into the country in greater numbers.

So you might think that someone along the line would have already used some logic, the kind that had proven itself correct in the past, to surmise that lower prices for goods in Europe and fewer exports of goods to Europe, would have an adverse impact on the earnings of companies that have business in Europe.

But as with so many things in economics, that’s just part of a well defined cycle, that you would have thought would have taken no one by surprise, especially the people that control the great majority of the stock market’s trading volume.

Since most stocks of any consequence are majority owned by institutions the moves you see on a daily basis, including the ones that feel so irrational, are all institutionally inspired.

This morning’s mild gain in the pre-open futures didn’t bring too much in the way of comfort and as always was the kind that could end up being meaningless as the day began to trade for real. At that moment in the morning that I was looking at the early numbers, I recalled that in the past 2 weeks there was no justification in counting chickens before they were hatched. Despite that there was still the possibility of some assignments this week and maybe even a rollover or two.

What no one had counted on, and there’s absolutely no reason for the market’s behavior today, but it simply went up 250 points as easily as it went down 300 points earlier in the week.

So that means that the assignments and rollovers are still in contention, at least, but there’s still tomorrow to contend with. Those would be nice if they could end up happening that way, but there’s still a lot of dust that has to settle as 2015 has thus far had 3 months of trading with extremely different characters that turned on and off on a dime and without much connection to real news.

Next week we get what may be a very consequential FOMC Statement release and a Chairman’s press conference where we may possibly be able to put some of the irrational fears of a small interest rate increase behind us and finally move on.

Note:   Just a word about the rollover trade in GameStop late in the afternoon.

Shares go ex-dividend tomorrow for $0.36 and the option contract had a week to run. Further, the company reports earnings during the first week of the April 2015 cycle.

With shares trading about $0.44 above the threshold price for early assignment, the fact that a week still remained and that there could be some speculative trading in the days before earnings on March 26th, there was a chance the the $39 strikes wouldn’t be assigned early.

However, I wanted to do something to at least be able to get part of that dividend, especially since the position was more than 3 months old and I felt like I “deserved” the dividend.

The way to do that was by rolling shares over from $39 to $39.50 and using the same expiration date. Doing so incurred an ND of $0.27 in exchange for an additional $0.50 in the strike, which yields a net $0.23.

That’s the case if the shares are assigned early tonight.

With shares closing at $39.79 the chances of the March 20 $39.50 strikes being assigned early is very small, but there still remains a fair chance that the $39 strikes will face early assignment.

If neither the $39 nor $39.50 options are exercised early you also get to keep the dividend.

However, if you were able to roll over to the $39.50, then, based on the trading of shares subsequently, you can make the decision to rollover again, but this time, maybe even back down to $39 in order to get some additional premium to offset the reduction in strike price, in order that there is a better chance of getting out of the position prior to earnings.

Daily Market Update – March 12, 2015 (8:30 AM)

With another loss, albeit a small one yesterday, after having spent most of the session in the green, the market is now now about 3.7%.

That’s the level of the declines seen in January 2015, when there were actually 3 such declines in succession during the course of that month. That period really stood out in contrast to the preceding 30 months or so that had been progressing in a very regular fashion, having declines every 2 months.

That was reason to take notice.

As the pilot episode of a basic cable show had one of its stars say “you don’t just break bad.”

But in looking back there really was a black and white difference between the market’s behavior from the end of 2014 to the beginning of 2015. It wasn’t just the difference between closing 2014 at a record high and then tradiung below those highs to start 2015, it was the quality of the trading. Not only increased volatility, since we hqad seen that a few times earlier in 2014, but the rapid stacatto behavior of the markets.

Not just the stock markets, but just about everything else surrounding it that can have direct and indirect impacts. While markets in such commodities as corn, lumber and cocoa may be interesting, they’re not the kind that have much impact on stock markets. On the other hand, government bonds, currencies, precious metals and oil markets do and they have been equally wild of late.

It’s hard, though, to explain the behavior. Although the simple thing is to point fingers at the dislocation in the oil markets, the dislocation isn’t that clear.

What is surprising is to hear so many well regarded analysts talk about being caught off guard by the trickle down effects of events, as if the impacts of a stronger US Dollar had never been studied before. Almost any middle school aged child could tell you that in an economy that runs a trade deficit that deficit is likely to increase as our goods become more expensive and competing goods get less expensive and begin coming into the country in greater numbers.

So you might think that someone along the line would have already used some logic, the kind that had proven itself correct in the past, to surmise that lower prices for goods in Europe and fewer exports of goods to Europe, would have an adverse impact on the earnings of companies that have business in Europe.

But as with so many things in economics, that’s just part of a well defined cycle, that you would have thought would have taken no one by surprise, especially the people that control the great majority of the stock market’s trading volume.

Since most stocks of any consequence are majority owned by institutions the moves you see on a daily basis, including the ones that feel so irrational, are all institution
ally inspired.

This morning’s mild gain in the pre-open futures doesn’t bring too much in the way of comfort and could end up being meaningless as the day begins to trade for real. At the moment, recalling that in the past 2 weeks there was no justification in counting chickens before they were hatched, there is still the possibility of some assignments this week and maybe even a rollover or two.

Those would be nice if they could end up happening that way, but there’s still a lot of dust that has to settle as 2015 has thus far had 3 months of trading with extremely different characters that turned on and off on a dime and without much connection to real news.

Next week we get what may be a very consequential FOMC Statement release and a Chairman’s press conference where we may possibly be able to put some of the irrational fears of a small interest rate increase behind us and finally move on.

Daily Market Update – March 11, 2015 (Close)

After yesterday’s 300 point loss, following a nearly similar loss last Friday which was only half recovered to open the week, this morning’s small gains in the pre-open futures trading were no where close to recovering what’s been lost.

It still astonishes me that people can keep a straight face and talk about how it’s the realization that currency exchange rates are now serious challenges to corporate earnings, that was responsible for yesterday’s decline.’

The S&P 500 was now about 3.5% below its high from less than 2 weeks ago, as the morning was set to begin. However, the rise to that high occurred over a 4 week period. For the 6 weeks preceding that rise the market had been toying with 3-5% drops every 2 weeks. For the 2 1’2 years before that it was more like every 2 months that some sort of sell-off got our attention.

I’m not of the belief that there’s reason to believe that this time we’ll finally see the 10% kind of decline that everyone agrees is long overdue. While you can’t deny that it’s long overdue, it’s hard to point at any surprises that would be responsible for taking us there. However, based on yesterday’s market, apparently surprises aren’t a necessary component in the mix.

While so many, including myself wouldn’t have been surprised by a “dead cat bounce” today, it’s probably better that one didn’t occur. You saw what happened on Monday when we got one in response to Friday’s decline.

I’d rather see digestion of large moves, whether gains or losses. Today turned out to be a day for digesting.

While all of this is going on with stocks the volatility in other markets is also striking. Precious metals, interest rates, currencies and oil continue to move in big ways and all of those have direct and indirect influences on US equity markets, as well.

Is all of what’s going on, including the initiation of European Quantitative Easing now constituting a “Perfect Storm” that conspires against stocks?

I don’t think so, but it is making things unnecessarily challenging right now.

With a couple of new purchases for the week and little indication of anything positive to come for the rest of the week, my guess is that I won’t be adding any new positions and instead will be focusing on trying to get rollovers or maybe get lucky and get an assignment, or two to end out the week.

It’s always tempting, however, to want to buy something after the kind of price drops that we’ve seen in the past few days. The problem is that as we begin to approach the next earnings season, which begins in just 4 weeks, we may start getting earnings warnings from companies before their official reports, that reflect the currency exchange rates of late.

It’s hard to want to get in front of that kind of news. At the very least you would want to see some kind of evidence that there’s some stability ahead sooner rather than later.

With only a paltry advance in the pre-open futures, that wasn’t not the kind of advance that I’d be looking for to signal some kind of stability, although when it was all other it did turn out that way, even though the direction at the end of the day was reverse that of the futures, but at least the magnitude was predictive.

At this point, you have to believe that there may be another 1.5-2% left in the current decline, so I might rather be content to be wrong about that while I’m on the sidelines watching existing positions recover.