Category Archives: Daily Market Update

Daily Market Update – November 17, 2014 (8:45 AM)

Lately the FOMC Statement Release has been the market’s friend. That’s been the case even before the Federal Reserve announced its intention to begin tapering of the most recent Quantitative Easing, about this time last year. It definitely hasn’t changed since Janet Yellen assumed leadership.

There aren’t too many things that are predictable, but lately the market’s move higher to close the week of an FOMC statement has been a pretty good bet, although the ferocity of the moves have been getting less and less.

Because of that pattern the occurrence of the end of a monthly option cycle, which tends to be more active than when weekly cycles end, a couple of days after the FOMC Statement haven’t been very unnerving.

That wasn’t always the case, though.

In the past few years I can recall a number of occasions when the smug belief that positions would be assigned or easily rolled over quickly evaporated as the response to the FOMC was decidedly negative and stayed that way to end the week.

Because of those few times I’m always aware of what could happen and frequently think about trying to execute rollovers, where possible, before the Wednesday afternoon meeting, but rarely ever actually get those trades done.

This week will probably be no different.

However, with 11 lots set to expire this week and relatively few in future weeks due to the low premiums, I never like seeing an over-dependence on a single week. That’s just too much risk and too much at stake on the basis of a report that will take about 10 seconds to summarize and immediately evokes responses before thinking can take place.

Other than the FOMC and some relatively inconsequential earnings reports, but from companies that usually make the process interesting, this week has relatively little to cause much movement in either direction.

However, the FOMC is enough news for one week.

As with most weeks when there is an FOMC Statement release, especially not accompanied by a press conference, which tends to further buoy markets, I’m not very excited about adding new positions in advance of the announcement.

If doing so I’d like to look at the possibility of using some forward week expirations, rather than adding to the exposure this week. Of course that introduces
the problem of not getting very much additional premium for the additional time, as the volatility is just so low.

With some additional cash available for investment this week it’s always hard to resist the temptation to pick something up. The morning’s futures trading looks as if it may be continuing some of last week’s listless trading, which nonetheless offered some opportunities for purchases, new call sales and rollovers, so I wouldn’t necessarily mind a repeat of that scenario.

Still, despite the low volatility and the prospect of it moving even lower if the market goes higher, I would prefer some incremental move in that direction this week, if only to be able to secure some additional assignments and add to the cash pile.

For now, as has become the case for a few months, I will sit back and watch how the market is set to begin the week and would be especially happy to put some stragglers to work even if not adding any new positions.

Daily Market Update – November 14, 2014 (8:30 AM)

The Week in Review will be posted by 9 PM and the Weekend Update will be posted by 6 PM on Sunday.

The following trading outcomes are possible today:

Assignments:  EMC, INTC

Rollovers:  none

Expirations: GDX, JOY, TMUS

The following stocks were ex-dividend this week: CLF (11/12 $0.15), RIG (11/13 $0.75)

The following will be ex-dividend next week:  TGT (11/17 $0.51)

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

Daily Market Update – November 13, 2014 (Close)

The news coming in from retail is mixed, as far as investors are concerned.

They always look at the top line and the bottom line.

The top line represents revenues and the bottom line represents profits. Then they add into the mix forward guidance, which is far from an exact science, just as imaginative accounting removes the simple arithmetic behind profit and loss sheets from the realm of being an exact science.

The mixed news is that the trend is that the bottom lines are increased, but the top lines aren’t always so, although Wal-Mart reported this morning higher on both.

The consequence to that is that the bottom line represents sales and expenses, while the top line represents sales. One can be reflective of a company’s efficiencies, while the other can be much more reflective of what is going on in the economy, in addition to the particular popularity of a company at a moment in time.

So while seeing a general trend of increasing profits investors may be happy, especially if also guiding higher, but that may overlook the bigger picture.

On the other hand, if the revenue trend is flat or lower among a group of retailers, there has to be some concern that the consumer isn’t really participating, especially as employment statistics are suggesting that more and more people are at work and increasingly capable of spending their money.

Nothing propels an economy and creates confidence like consumer spending.

While we all love the very low interest rate environment that we have been in for so long, the one thing that we don’t think about too much is that the low interest rates are very much a by-product of the inability to consume. The pressure to drive prices higher by everyone seeking to satisfy personal demand for goods just isn’t there.

Somewhere is q happy medium that allows for some reasonable increase in interest rates as discretionary spending and business expansion is growing.

For the past few years and in particular the past year, there has been lots of concern about the Federal Reserve raising rates and the very idea of them going higher has placed a ceiling on the market’s climb higher, despite all of the advances that have been made.

Barely a year ago, the market was concerned at 10 year rates were approaching 3%. Then it got concerned at rates were beginning to climb to 2.5%. Just a few weeks ago the rate fell to 1.9% and had then taken a very strong bounce higher to its current  2.35%, having reached its bottom and begun its rise concurrent with the stock market in mid-October.

However, unless increasing employment will lead to increasing consumer demand for things big and small and not just European trips to take advantage of the strong dollar, the
re isn’t going to be anything to really drive those top lines and there is only so much that can be done by companies to increase their profits without those top line increases.

But those are all issues for another day, or at least until Target reports its earnings next week.

For now, it’s all about how to end up the week with some assignments, rollovers and call sales in preparation for the final week of the November cycle.

This morning looked like it will begin as yet another quiet day in a week that was expected to be that way. The day tutned out to have a little more character than the preceding 3 days, but was still fairly listless.

Who knows, maybe something will create a further spark, hopefully higher, but for now there’s nothing really in sight as the clock ticks to tomorrow’s close.

Daily Market Update – November 13, 2014 (8:30 AM)

The news coming in from retail is mixed, as far as investors are concerned.

They always look at the top line and the bottom line.

The top line represents revenues and the bottom line represents profits. Then they add into the mix forward guidance, which is far from an exact science, just as imaginative accounting removes the simple arithmetic behind profit and loss sheets from the realm of being an exact science.

The mixed news is that the trend is that the bottom lines are increased, but the top lines aren’t always so, although Wal-Mart reported this morning higher on both.

The consequence to that is that the bottom line represents sales and expenses, while the top line represents sales. One can be reflective of a company’s efficiencies, while the other can be much more reflective of what is going on int he economy, in addition to the particular popularity of a company at a moment in time.

So while seeing a general trend of increasing profits investors may be happy, especially if also guiding higher, but that may overlook the bigger picture.

On the other hand, if the revenue trend is flat or lower among a group of retailers, there has to be some concern that the consumer isn’t really participating, especially as employment statistics are suggesting that more and more people are at work and increasingly capable of spending their money.

Nothing propels an economy and creates confidence like consumer spending.

While we all love the very low interest rate environment that we have been in for so long, the one thing that we don’t think about too much is that the low interest rates are very much a by-product of the inability to consume. The pressure to drive prices higher by everyone seeking to satisfy personal demand for goods just isn’t there.

Somewhere is q happy medium that allows for some reasonable increase in interest rates as discretionary spending and business expansion is growing.

For the past few years and in particular the past year, there has been lots of concern about the Federal Reserve raising rates and the very idea of them going higher has placed a ceiling on the market’s climb higher, despite all of the advances that have been made.

Barely a year ago, the market was concerned at 10 year rates were approaching 3%. Then it got concerned at rates were beginning to climb to 2.5%. Just a few weeks ago the rate fell to 1.9% and had then taken a very strong bounce higher to its current  2.35%, having reached its bottom and begun its rise concurrent with the stock market in mid-October.

However, unless increasing employment will lead to increasing consumer demand for things big and small and not just European trips to take advantage of the strong dollar, t
here isn’t going to be anything to really drive those top lines and there is only so much that can be done by companies to increase their profits without those top line increases.

But those are all issues for another day, or at least until Target reports its earnings next week.

For now, it’s all about how to end up the week with some assignments, rollovers and call sales in preparation for the final week of the November cycle.

This morning looks like it will begin as yet another quiet day in a week that was expected to be that way.

Who know, maybe something will create a spark, hopefully higher, but for now there’s nothing really in sight as the clock ticks to tomorrow’s clsoe.

Daily Market Update – November 12, 2014 (Close)

Today was Wednesday, generally the quietest day of the week, right in the middle of what was expected to be a quiet week.

With Singles Day and Veterans Day now over, the most interesting thing this week may turn out to be today’s planned space landing on a moving comet which went from “planned” to “successful landing.”

How that figures into anything is debatable, but at least it’s interesting and really the stuff of science fiction.

While that’s going on the market seemed as if it was prepared to open weaker than the past two days, but still not with very much conviction.

While there are still some earnings reports to go, for the most part that has now been removed as an overall market catalyst, although individual stocks can obviously still have their significant ups and downs, although the prevalent significant movement, when it occurs, has been lower.

Those whose every breath is fully invested in the market know very well that November and December tend to be good months, regardless of how the holiday retailing season stacks up. While patterns tend to break down as they become more widely recognized, especially when everyone talks about it, such as with the “January Effect,” the November – December effect isn’t one that’s too widely discussed and there’s still plenty of reason to believe that there’s hedge fund fuel to keep that pattern alive for another year.

One thing that could definitely help the overall market to move higher would be some good numbers coming from the retailers that are just now gearing up to report their earnings. More importantly, their forward guidance can really be the catalyst that seems to be missing right now.

Those good numbers and good forward prospects have to come from more than the higher end retailers, though. That segment of society has noticeably increased discretionary spending, but in the really big picture they represent a very small portion of what really matters. Even Macys isn’t entirely reflective of an improving retail picture if it reports good earnings. The improved results really have to be seen from the bottom up, including dollar stores, Wal-Mart, specialty retailers and big box stores throughout the spectrum.

I hope that turns out to be the case, as it also will get the albatross around our necks to be released. That is the fear of when interest rate increases will finally happen. A heating up economy, especially in those phases that necessitate an increase in interest rates tends to be good for everyone and would finally get us over the fear of those hikes, just as the eventual announcement of a taper finally got us over the anticipation of that announcement.

Macys, which did report its earnings before the market’s open fared very well, despite offering lowered guidance and lower revenues, but despite it rising about 5% it did nothing to nudge the market higher

For the next few days I doubt that I’ll be adding any new positions. With a couple of DOH Trades
set to expire this week,  I would like to see them either expire or will have a need to roll them over, hopefully into a marketplace that has more willing sellers than has recently been the case.

That lack of a willing market of sellers may continue to add to the difficulty of executing rollover trades at fair prices, but I expect that when hedge funds get back into the practice of hedging that will no longer be the case.

Today that reluctance to participate was still obvious as attempted rollovers in International Paper, Lorillard and T-Mobile went nowhere.

A convoluted trade to roll International Paper from a $50 strike to a $53 in the hope of seeing it assigned early in order to have the dividend taken tomorrow, was just too much risk even for the nice dividend.

The lesson, I think, is that if market participants are acting in an irrational fashion, it’s probably best not to try to meet them, even half way.