Category Archives: Daily Market Update

Daily Market Update – December 15, 2014 (8:30 AM)

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 is mid-way through its trading, appears as if it is 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.

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 don’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.

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 question 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 may get the week off to a more optimistic start than which it ended last week, the aim will be to find any opportunity to sell new calls or simply generate some income from positions that aren’t likely to be assigned.

Although the pre-open futures is heading higher and taking volatility lower, the increase in volatility over the past two weeks may 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.

Hopefully oil prices will follow the morning’s recovery and find some stable level. That could provide some reason for the market itself to regain some stability and maybe even optimism. It would, however, take lots of that optimism to restore this December to the kind of December that most people have come to expect.

Daily Market Update – December 12, 2014 (9:00 AM)

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

The following outcomes are possible today:

Assignments: none

Rollovers: AZN, MOS

Expirations: DOW, GME, LULU, LVS, TMUS

The following were ex-dividend this week: GM (12/8 $0.30).

The following will be ex-dividend next week: LVS (12/16 $0.50)

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

Daily Market Update – December 11, 2014 (Close)

Yesterday was just an awful day and unlike the previous day, there was no attempt to recover from the depth of the loss at any point.

It was another day that seemed to be directly related to oil, but this time it wasn’t just the quantity of the price, it was also the quality.

While oil fell sharply again that may not have been as important as the suggestion that the declines we’ve been seeing, which most everyone attributed to rising supply, may actually, in part, be due to falling demand from China and elsewhere around the globe.

That puts a new wrinkle on things.

Up until yesterday’s quip by the Saudi Arabian Oil Minister, the conventional thinking had been that the price declines were all the result of increasing supply. That would have meant that declining oil was the result of good things, as opposed to a decreased demand, which is a bad thing.

While there have been so many questions as to whether the decrease in oil pricing would be good for our economy and markets, it would be hard to predict the outcome if the drop had been due to increasing supply, since we have had so little experience with that phenomenon.

But we do have experience with what happens when price drops as a result of decreased demand.

Fortunately, it appears that it’s really not a US problem of increasing demand. It may be a world-wide problem that has bypassed us and will likely be of great benefit to our economy and absent the energy sector, should be a great boost to the bottom lines of businesses.

While it certainly makes Chinese related investments suddenly appear more risky, it may also mean even more focus and investment in US stocks and companies, as we may be the most vibrant and growing economy among the major economies in the world.

That, though, is still a more long term kind of outlook. For now we’re stuck in a whirlpool with oil prices and the energy sector sucking the life out of everything.

While me may gloat a little about some weakness in China the fact is that US businesses are so highly dependent on China and its continued growth. As a nation we are also dependent on their demand for our debt issuances.  A decrease in demand for Treasuries could easily start the upward climb in interest rates.

While it may not be a bad thing to see some moderate increase in rates you would much rather see those increases come from a heating up of the economy and upward pressure on wages and prices, rather than because of decreased demand for debt.

This morning the November Retail Sales report was released and expectations, ex-auto, were for a nice increase in sales. That was the case as the morning’s tiny advance in the pre-op
ening futures really could have used the type of boost that the Retail Sales report ended up providing, especially since there wasn’t much of a reflex bounce from yesterday’s 1.6% decline.

With a couple of rollovers yesterday, there was a little less pressure as the week comes to its close, but there is still some opportunity for some more rollovers and assignments as we head into next week’s close to the monthly cycle.

Just not today, though, but a repeat of today’s trading, even well off its highs for the day would be a nice way to end the week and even more.

I would certainly like to see 2015 get off to a good start and a good end to this week could start to offset the prevalent weakness that oil has spawned

Daily Market Update – December 11, 2014 (7:30 AM)

Yesterday was just an awful day and unlike the previous day, there was no attempt to recover from the depth of the loss at any point.

It was another day that seemed to be directly related to oil, but this time it wasn’t just the quantity of the price, it was also the quality.

While oil fell sharply again that may not have been as important as the suggestion that the declines we’ve been seeing, which most everyone attributed to rising supply, may actually, in part, be due to falling demand from China and elsewhere around the globe.

That puts a new wrinkle on things.

Up until yesterday’s quip by the Saudi Arabian Oil Minister, the conventional thinking had been that the price declines were all the result of increasing supply. That would have meant that declining oil was the result of good things, as opposed to a decreased demand, which is a bad thing.

While there have been so many questions as to whether the decrease in oil pricing would be good for our economy and markets, it would be hard to predict the outcome if the drop had been due to increasing supply, since we have had so little experience with that phenomenon.

But we do have experience with what happens when price drops as a result of decreased demand.

Fortunately, it appears that it’s really not a US problem of increasing demand. It may be a world-wide problem that has bypassed us and will likely be of great benefit to our economy and absent the energy sector, should be a great boost to the bottom lines of businesses.

While it certainly makes Chinese related investments suddenly appear more risky, it may also mean even more focus and investment in US stocks and companies, as we may be the most vibrant and growing economy among the major economies in the world.

That, though, is still a more long term kind of outlook. For now we’re stuck in a whirlpool with oil prices and the energy sector sucking the life out of everything.

While me may gloat a little about some weakness in China the fact is that US businesses are so highly dependent on China and its continued growth. As a nation we are also dependent on their demand for our debt issuances.  A decrease in demand for Treasuries could easily start the upward climb in interest rates.

While it may not be a bad thing to see some moderate increase in rates you would much rather see those increases come from a heating up of the economy and upward pressure on wages and prices, rather than because of decreased demand for debt.

This morning the November Retail Sales report is released and expectations, ex-auto, are for a nice increase in sales. Hopefully that will be the case as the morning’s tiny advance in the pre-ope
ning futures could really use a boost, as there is no reflex bounce from yesterday’s 1.6% decline in the works, otherwise.

With a couple of rollovers yesterday, there is a little less pressure as the week comes to its close, but there is still some opportunity for some more rollovers and assignments as we head into next week’s close to the monthly cycle.

I would certainly like to see 2015 get off to a good start and a robust Retail Sales report could help to offset the prevalent weakness that oil has spawned

Daily Market Update – December 10, 2014 (Close)

Yesterday was an impressive kind of day.

Today was not, although it followed the same early path.

The market deterioration yesterday started fairly suddenly in the pre-opening futures about an hour before the open of trading, but came to a relatively abrupt halt in the early afternoon as the market had fallen more than 200 points.

Today that halt was missing.

There wasn’t very much reason for the fall, as the news that had been blamed was already many hours old and pointed toward China. Neither was there much reason for the turnaround. Not even technicians could come up with a reason to explain the move, even if they squinted really, really hard at their charts.

The JOLT Survey, which everyone was now believing had newfound importance, was a non-event and so no fingers could be pointed at it for moving the market as it had done in the previous month.

Oil actually showed some stability yesterday and maybe that played some role in re-introducing some strength into the market, if you’re the kind of person that really needs an explanation for why things happened, even if that explanation isn’t necessarily correct or accurate.

Today, however, that theory of the role of oil was put to a test as the Petroleum Status Report was released.

For me, that mid-morning Wednesday report is usually a yawner, but it may take on some new significance as inventory builds or draws may have greater impact on the overall market as long as oil continues being an area of focus.

As it would turn out, it’s hard to say whether today’s inventory news sparked broad weakness, as by the time the figures were released there was already some weakness and it didn’t really accelerate until about 3 hours later.

It was just a bad day with energy being the worst among a lot of very bad sectors.

This morning, before the market’s open, everything other than oil was just treading water. Stocks, precious metals and interest rates all seemed to either be taking a breather from yesterday or waiting to see where oil prices may be heading after the Petroleum Status Report release.

With a surprise trade that added shares of Dow Chemical yesterday, when the morning was set to begin, I didn’t believe that I’d be adding any more this week. That was an under-statement. With today’s real drag on oil and the further drag on anything remotely oil related, Dow Chemical went along for the ride, as well. and what seemed like a bargain yesterday is now even more of a bargain, but with fewer takers.

For those that follow volatility, yesterday was a day that saw some nice bounces in it, reflecting what the market itself was doing. From an incredibly low level, volatility is up nearly 30%
in less than a week, but still far below where it had been just 2 months ago. In fact, it would have to climb another 100% to get to those levels which were also fairly low, but at least at acceptable levels for trading.

It did, however, climb more than 25% more today, so we’re getting there.

What would be a nice impact of maybe even marginally increasing volatility would be some return of volume to the option market. That sparse volume has made it very challenging to get trades done, especially since it has also created a greater schism between motivated buyers and sellers, creating bigger bid and ask spreads than I recall ever seeing.

With the volatility rising today it was somewhat easier to get some rollovers executed.

For today, I expected that like most Wednesdays it would be a quiet day, however, it was nice to get the opportunity to execute some rollovers early, especially as it would turn out that prices really deteriorated as the afternoon wore on and on.

Tomorrow will be interesting as no one can stop looking at oil and still debating what kind of an impact lower prices will have on the economy and the stock market. Sooner or later supply and demand dynamics will begin to stabilize prices and when that happens you can be reasonably assured that there will be an over-reaction on the buying side of the equation that has so far taken the energy sector down about 40%