Category Archives: Daily Market Update

Daily Market Update – December 17, 2014 (Close)

Yesterday, as far as volatility goes, would be a really hard day to match.

While the big story of the day was the collapse of the Russian Ruble, it was still the price of oil that dictated in which direction the market went, and as oil waxed and waned during the day, so did the market.

Going from the various peaks to troughs and back throughout the day, without regard to any minor moves back and forth, the DJIA moved about 700 points, finally finishing with a tripe digit loss after having been more than 200 points higher.

Lately the day before an FOMC Statement release day has been inexplicably a strong day for markets. For a while some were crediting that phenomenon for the market’s strength yesterday, but it became clear that oil was still in charge of everything. The recovery in oil earlier in the day, beginning before the opening bell helped to greatly reduce the losses in the futures trading as reactions were coming in to the 65% increase in the Bank of Russia’s key lending rate and the collapse of the Ruble.

This morning oil is again down sharply, yet the futures are pointing higher, maybe as there’s some optimism regarding the FOMC and then looking ahead another hour or so, when Janet Yellen begins her press conference.

Other than on the occasion of her very first press conference when she made some vague comments regarding timeframes for action, she has done nothing but lift markets during her question and answer sessions.

Today was a little different, though.

Not only was the market nicely higher before the FOMC, but it skyrocketed after the release, as nothing really changed with regard to interest rates.

What did change was that during the press conference the market gave up about 100 points, falling to only about 150 points higher and then immediately made it all back and more as soon as she finished the press conference.

Go figure.

Today, the issue at hand was whether the FOMC would drop its “considerable time” language, which would indicate that interest rate hikes were going to be coming sooner, rather than later.

After today’s really big shocker regarding Cuba, maybe the phrase should have been “tiempo considerable.”

Since the FOMC is admittedly “data drive,” it’s hard to see how they could ignore last week’s decreases in PPI and the dropping rate on 10 Year Treasuries. While decreased energy costs and an increasing employment rate should send prices and wagers higher, that’s still a theoretical outcome, whereas the actual data isn’t looking as if it shows inflation in the immediate future.

Yesterday did look promising for a while as the rebounds were all across the board, but that sea of green faded very decisively, although the energy sector did maintain its gains, just at levels far lower than they had been earlier in the day.

Not today.

Both days, though, It was tempting to consider selling some DOH calls on some positions, but in the back of your mind you have to be concerned about a sudden pop higher in prices, especially through the energy sector and the chance of seeing positions assigned away when you would really prefer that not be the case.

As long as the option market continues to have very light volume the ability to rollover such positions in order to prevent assignment is difficult and so the risk-reward proposition becomes more risky, even as the reward, in the form of option premiums, climbs along with the volatility.

Still, even if there is another strong spike higher today and even if coming before and then again after the FOMC, there may not be too much justification in taking the kind of risk associated with DOH Trades.

And so it was.

Given that there has been considerable gaps down in the prices of many stocks it wouldn’t be inconceivable that there could also be gap ups once the fire is lit, so it seems only right to give it yet another day and maybe look at selling DOH calls for next week, which is a trade shortened one, anyway.

As we got set to begin trading for this morning, the S&P 500 was about 5% off from its recent highs, which has been the average for these every other month declines. The last one, however, was almost a bona fide correction, approaching 10%, so it was hard to have the same confidence that this is just another in a series of mini-corrections over nearly the past 3 years that will simply end up taking us to even more new highs.

This afternoon’s explosive move higher, very much on the back of stronger oil prices first and then a more dovish FOMC, gave some confidence that this was, indeed, one of those mini-corrections. If so, the next few weeks could achieve the kind of December everybody had been expecting, especially if retail holds up.

But if oil has further downside potential there has to be some concern that the market will continue to follow lower, despite the logic that such decreases should end up being a net positive. The one saving grace is that energy sector prices tend to recover more quickly than the underlying commodity and any economic news that indicates that falling energy prices are actually the tonic for the economy that we thought it would be should send stock prices broadly higher.

A one day move, like today, could be a taste for what’s in store, if only we knew when it would be for real and sustained.

Daily Market Update – December 17, 2014 (8:30 AM)

Yesterday, as far as volatility goes, would be a really hard day to match.

While the big story of the day was the collapse of the Russian Ruble, it was still the price of oil that dictated in which direction the market went, and as oil waxed and eaned during the day, so did the market.

Going from the various peaks to troughs and back throughout the day, without regard to any minor moves back and forth, the DJIA moved about 700 points, finally finishing with a tripe digit loss after having been more than 200 points higher.

Lately the day before an FOMC Statement release day has been inexplicably a strong day for markets. For a while some were crediting that phenomenon for the market’s strength yesterday, but it became clear that oil was still in charge of everything. The recovery in oil earlier in the day, beginning before the opening bell helped to greatly reduce the losses in the futures trading as reactions were coming in to the 65% increase in the Bank of Russia’s key lending rate and the collapse of the Ruble.

This morning oil is again down sharply, yet the futures are pointing higher, maybe as there’s some optimism regarding the FOMC and then looking ahead another hour or so, when Janet Yellen begins her press conference.

Other than on the occassion of her very first press conference when she made some vague comments regarding timeframes for action, she has done nothing but lift markets during her question and answer sessions.

Today, the issue at ahnd is whether the FOMC will drop its “considerable time” language, which would indicate that interest rate hikes were going to be coming sooner, rather than later.

Since the FOMC is admittedly “data drive,” it’s hard to see how they would ignore last week’s decreases in PPI and the dropping rate on 10 Year Treasuries. While decreased energy costs and an increasing employment rate should send prices and wagers higher, that’s still a theoretical outcome, whereas the actual data isn’t looking as if it shows inflation in the immediate future.

Yesterday did look promising for a while as the rebounds were all across the board, but that sea of green faded very decisively, although the energy sector did maintain its gains, just at levels far lower than they had been earlier in the day.

It was tempting to consider selling some DOH calls on some positions, but in the back of your mind you have to be concerned about a sudden pop higher in prices, especially through the energy sector and the chance of seeing positions assigned away when you would really prefer that not be the case.

As long as the option market continues to have very light volume the ability to rollover uch positions in order to prevent assignment is difficult and so the risk-reward proposition becomes more risky, even as the reward, in the form of option premiums, climbs along with the volatilty.

Still, even if there is another strong spike higher today and even if coming before and then again after the FOMC, there may not be too much justification in taking the kind of risk associated with DOH Trades.

Given that there has been considerable gaps down in the prices of many stocks it wouldn’t be inconceivable that there could also be gap ups once the fire is lit.

At the moment, as we get set to begin trading for this morning, the S&P 500 is about 5% off from its recent highs, which has been the average for these every other month declines. The last one, however, was almost a bona fide correction, approaching 10%, so it’s hard to have the same confidence that this is just another in a series of mini-corrections over nearly the past 3 years that will simply end up taking us to even more new highs.

As long as oil has further downside potential there has to be some concern that the market will continue to follow lower, despite the logic that such decreases should end up being a net positive. The one saving grace is that energy sector prices tend to recover more quickly than the underlying commodity and any economic news that indicates that falling energy prices are actually the tonic for the economy that we thought it would be should send stock prices broadly higher.

Daily Market Update – December 16, 2014 (Close)

While our stock market has been struggling at a time when logic would have it thriving, except for the energy sector, it has been going lower and lower, as energy prices continue to decline and take all stocks along for the ride.

Thus far, though, the overall decline is about 4%, although depending on an individual portfolio’s exposure to oil and commodities, it can be much more. The declines in the energy sector have been absolutely stunning and sudden and there’s no indication of when they end is at hand.

The longest period of declining energy prices in the last 30 years lasted for about 2 years and took oil prices down by 50%. Interestingly, energy stocks didn’t stay in their funk anywhere near that long, starting their recovery at the 4 month period.

Additionally, the most steep decline was just 6 years ago, going from $133 to $41 over a period of 6 months.

Yesterday, at least for a little while it appeared as if there would be some bounce from the past Friday’s 300+ point loss, but that disappeared, then came back and then disappeared again, ending just a hair shy of another triple digit loss.

That’s volatility and it appeared to be related to a reversal in oil, which had shown some stability early in the session and then went on to rack up even more losses.

But that volatility was just a prelude to that seen in this morning’s early futures trading, as oil was again lower. The difference is that it probably wasn’t what drove the market to change its course.

This morning the very early futures trading was indicating a moderate advance and then suddenly turned around.

It did so as the aftermath of the Bank of Russia’s move to raise its key interest rate by 650 bps overnight, bringing the rate up to 17%, reminiscent of the late 1970s in the US.

What happened afterward, and which spooked the market was another plunge in the Ruble, adding onto yesterday’s large devaluation against the US Dollar. This morning, and it’s a rapidly changing picture, the Ruble was down to an exchange rate approaching 75 per USD, almost reaching 80 at one point, having stabilized yesterday at 60, despite massive Russian intervention.

For those that remember the late 1990s, before the dot com bubble was the Russian Ruble Crisis, which is eerily reminiscent of what may be unfolding right now. During what what also known as “The Russian Flu,” the S&P 500 dropped nearly 20% in less than 2 months, but was fully recovered about 3 months after those lows.

Probably not too coincidentally, the price of oil had dropped by nearly 50% from 1996 to 1998 and the recovery from that “flu” only began as oil prices started climbing.

This morning’s news and events represent another hurdle, but as the morning progressed heading into the opening bell the selling was moderating and hopefully some sanity and even more importantly, buyers, will re-appear and snap up what they believe to be bargains.

I, for one, was grateful as that turned out to be the case, but it was certainly not the theme for the day.

That was reserved for reversals, as the market steadily alternated between large gains and losses.

Going from peak to trough and trough to peak and over again, the DJIA moved about 700 points on the day.

While the Ruble stabilized, oil which had reversed its decline then went on the decline again.

Today, though was a good day not to chase the oil stocks, which went nicely higher and then gave up about 50% of their gains. They probably were propelled higher as most traders realize that historically the stocks move higher before the beaten down commodities do, as in 1998, but today, if just getting into positions, was a day to add to losses by the time the day came to its end.

As a holder of positions, I’m certainly not looking to lighten up on energy stocks, as they are the very definition of what being cyclical is all about.

If only someone could now define the time frame, that would be nice.

Tomorrow will bring the FOMC statement, which was all but forgotten today, as Russia, the Ruble and oil stole all attention.

Hopefully Janet Yellen will be able to put a positive spin on things as she closes out the year with a press conference and can inject some calm into a very uncetain environment.

Daily Market Update – December 16, 2014 (8:30 AM)

While our stock market has been struggling at a time when logic would have it thriving, except for the energy sector, it has been going lower and lower, as energy prices continue to decline and take all stocks along for the ride.

Thus far, though, the overall decline is about 4%, although depending on an individual portfolio’s exposure to oil and commodities, it can be much more. The declines in the energy sector have been absolutely stunning and sudden and there’s no indication of when they end is at hand.

The longest period of declining energy prices in the last 30 years lasted for about 2 years and took oil prices down by 50%. Interestingly, energy stocks didn’t stay in their funk anywhere near that long, starting their recovery at the 4 month period.

Additionally, the most steep decline was just 6 years ago, going from $133 to $41 over a period of 6 months.

Yesterday, at least for a little while it appeared as if there would be some bounce from the past Friday’s 300+ point loss, but that disappeared, then came back and then disappeared again, ending just a hair shy of another triple digit loss.

That’s volatility and it appeared to be related to a reversal in oil, which had shown some stability early in the session and then went on to rack up even more losses.

But that volatility was just a prelude to that seen in this morning’s early futures trading, as oil was again lower. The difference is that it probably wasn’t what drove the market to change its course.

This morning the very early futures trading was indicating a moderate advance and then suddenly turned around.

It did so as the aftermath of the Bank of Russia’s move to raise its key interest rate by 650 bps overnight, bringing the rate up to 17%, reminiscent of the late 1970s in the US.

What happened afterward, and which spooked the market was another plunge inthe Ruble, adding onto yesterday’s large devaluation against the US Dollar. This morning, and it’s a rapidly changing picture, the Ruble is down to an exchange rate approaching 75 per USD, almost reaching 80 at one point, having stabilized yesterday at 60, despite massive Russian intervention.

For those that remember the late 1990s, before the dot com bubble was the Russian Ruble Crisis, which is eerily reminiscent of what may be unfolding right now. During what what also known as “The Russian Flu,” the S&P 500 dropped nearly 20% in less than 2 months, but was fully recovered about 3 months after those lows.

Probably not too coincid
entally, the price of oil had dropped by nearly 50% from 1996 to 1998 and the recovery from that “flu” only began as oil prices started climbing.

This morning’s news and events represent another hurdle, but as the morning progressed heading into the opening bell the selling was moderating and hopefully some sanity and even more importantly, buyers, will re-appear and snap up what they believe to be bargains.

I, for one, would be grateful if that turns out to be the case, but am certainly not looking to lighten up on energy stocks, which are the very definition of what being cyclical is all about.

Daily Market Update – December 15, 2014 (Close)

It’s hard to remember when a single story has been so influential for so long, to the point of almost knocking everything else out of everyone’s mind.

Crimea, Greece, government shutdown’s, sequestration and so much more, but they weren’t very lasting and over-powering kinds of stories that caused the market to succumb to those stories to the complete exclusion of everything else.

The price of oil continues to be the sole focus of attention during a season when the primary focus is on holiday retail sales. While we’ve seen price declines in the past, it seems as if the discussion is typically around price increases and we tend to shrug it off when those happen, as there is often a positive impact on the stock market when energy prices are increasing.

So far, we’ve been waiting for the logical outcome of sharply lower prices but haven’t seen any increase in stocks and aren’t yet hearing of any increases in consumer discretionary spending, which could single-handedly rescue the holiday shopping season and be the tonic that the market is looking for.

This week, as the pre-open futures was mid-way through its trading, appeared as if it was going to recover some of this past Friday’s large decline which saw last week ending up being the worst in more than 2 years, with the S&P 500 going 3.5% lower, as it was a lot more than the energy sector that felt the pain.

For a while after te opening bell it looked as if that would be the way the market would trade, but as oil reversed and headed lower, so too did the market. Another attempt to rally from there went nowhere and the market just finished lower again, unable to escape from the “good news” of lower energy prices.

With no assignments last week and a large number of positions set to expire this week, which also marks the end of the December 2014 cycle, I didn’t anticipate being very active in pursuing new positions. The past 6 weeks have seen an average of 3 new positions each week and although that represents a low threshold, I don’t know if even that will be met, as my focus will be very much centered on trying to steer this week’s expiring positions toward assignment or rollover. WIth only General Electric added today the week got off to a slow start, as even the oils, which looked appealing for a while, turned out to be anything but appealing, as they lost traction quickly.

Last week it turned out to have been fortunate to have rolled over a number of positions early in the week rather than waiting for the more common timing of Thursday or Friday. There may again be reason to consider early rollovers this week, as there is an end of the year FOMC Statement release and a follow up pres conference by Janet Yellen.

The former has been a non-event in the past two months, while the press conference usually offers some kind of relief rally.

The ques
tion at hand this week is whether the FOMC will finally drop the “considerable time” wording in the statement which would mean that interest rate hikes are coming sooner, rather than later.In the short term, news o such an increase, although expected, would likely lead to some selling, as higher rates aren’t the best thing for stocks. However, in the longer term any increase would be tiny and there’s no reason to expect incremental increases, as seen during the Greenspan era.

Recent data, however, don’t give any reason to believe that inflation is coming our way, although the drop in energy prices could be just the impetus to see a significant increase in GDP. However, the FOMC is supposed to be data driven rather than persuaded by theoretical events, so it should be a surprise to see a change in the phrasing, especially after last week’s PPI data was released.

As the market was momentarily looking to get the week off to a more optimistic start than which it ended last week, the aim early on was to find any opportunity to sell new calls or simply generate some income from positions that aren’t likely to be assigned. The optimism didn’t last very long and not too much was done, other than a sale of LuLuLemon calls, taking a longer term view.

Although the pre-open futures was heading higher and taking volatility lower before trading began, the increase in volatility over the past two weeks may continue to offer some opportunity to still look at expanded option expirations in an effort to keep the diversification in expiration dates going, without giving up too much in premium.in exchange for locking in more than a week of coverage.

The hope that oil prices would follow the morning’s recovery and find some stable level turned out to be a wasted one and any reason for the market itself to regain some stability and maybe even optimism will have to wait yet another day.

It would, however, take lots of that optimism to restore this December to the kind of December that most people have come to expect and the opportunities are getting less and less.