Category Archives: Daily Market Update

Daily Market Update – October 30, 2014 (Closed)

I really did expect some kind of a big move yesterday to come in the aftermath of the FOMC meeting. Sometimes that big move is simply a knee-jerk, sometimes it is a sustained move to finish the day.

Sometimes it is the next day, but frequently that next day is in the opposite direction.

Thanks to Visa, which contributed about 150 points to the DJIA gain of 221 points. The rest of the market eventually turned positive, but looked like it had to be pulled kicking and screaming. Then, it looked like it enjoyed what Visa was having.

For the past year, every FOMC Statement release has been met in a positive manner, especially those alternate months when Janet Yellen held her post-FOMC press conference.

This time around the reaction was pretty muted, but it was negative and in the early morning the indication was of some continuing negative tone. Excluding Visa that tone continued for the first two hours of trading.

The surprise of not having seen a large movement yesterday came because for the first time in about a year or more, there was reason to believe that there’s a movement to the hawkish side on the Federal Reserve, which now may mean that interest rate hikes will come sooner rather than later.

Even though every one knows that hikes are coming sooner or later the stock market doesn’t like that sort of thing and at the first whiff of it occurring the market will react with shock, as if it was the first time anyone had heard of such a  thing.

Just days ago there were those saying that the original thought that those increases would come somewhere around the middle of 2015, would now be moved to early 2016. That was bullish for stocks.

Suddenly, however, there is talk that it will be early 2015.

The fact that the two previous dissenters, both hawks, were now in support of the statement and a dove was now a dissenter says something that should have caused market bulls to question how much longer the party would continue..

The FOMC Statement also clearly was not in alignment with the comments made by James Bullard, which many attributed to the sudden market recovery from a 9% drop.

So, putting it all together, the anticipated reaction should have been strongly negative.

But it wasn’t. Far from it, in
fact, even without Visa in the mix.

For now, I just want to end the week with some assignments. Those haven’t been very frequent lately and they could come in handy to either re-invest or store for some time in the future.

I started this morning still hopeful that the last two days of this week would offer some opportunity to generate income, but those opportunities have been somewhat more difficult lately, but for an unexpected reason.

There have been just too few call options buyers to be found with so many positions not even having a single bid. In such cases you can’t really close a bid – ask gap through compromising on price. You need to have an able body on the other end to compromise with to make the sale. Fortunately, there were some of those able bodies around for Las Vegas Sands and T-Mobile today, but they weren’t there for those, either, earlier in the week.

That seems like an odd situation as the market is recovering from that 9% drop and did so in very convincing and rapid fashion. Past history would have suggested plenty of people betting on further market moves through their options market activity. Options buyers usually go on hunches or follow momentum. Either they have no hunches or don’t believe the momentum.

Overall, the Put/Call ratio over the past 2 weeks is higher than in the last 8 years, so it looks as if the the skew may be toward expecting declines, but that skew is probably enhanced by the increased used in portfolio protection, especially at low pricing.

If you really want to see the imbalance of put action, look no further than Intel, which had absolutely incredible put volume today both for this week’s expiring option and November 14th. In this case the complete absence of news pointed solely to speculative action in markets with great expectations for even more abrupt drops ahead, although the weekly put trade today was an in the money variety at $33.50. The week of November 14th expiry puts, however, were focused on the $31.50 and $32 strike and came at various times during the trading session, but also in very large quantity.

Since the option market usually gets it wrong, my hope is that the paucity in call activity and the skew toward puts is a sign of some further market advance.

Again, I don’t mind going along for the ride right now and will take gains in any way they may come.

Daily Market Update – October 30, 2014 (9:00 AM)

I really did expect some kind of a big move yesterday to come in the aftermath of the FOMC meeting. Sometimes that big move is simply a knee-jerk, sometimes it is a sustained move to finish the day.

Sometimes it is the next day, but frequently that next day is in the opposite direction.

For the past year, every FOMC Statement release has been met in a positive manner, especially those alternate months when Janet Yellen held her post-FOMC press conference.

This time around the reaction was pretty muted, but it was negative and so far this morning the early indication is of some continuing negative tone.

The surprise of not having seen a large movement comes in because for the first time in about a year or more, there is reason to believe that there’s a movement to the hawkish side on the Federal Reserve, which now may mean that interest rate hikes will come sooner rather than later.

Even though every one knows that hikes are coming sooner or later the stock market doesn’t like that sort of thing and at the first whiff of it occurring the market will react with shock, as if it was the first time anyone had heard of such a  thing.

Just days ago there were those saying that the original thought that those increases would come somewhere around the middle of 2015, would now be moved to early 2016. That was bullish for stocks.

Suddenly, however, there is talk that it will be early 2015.

The fact that the two previous dissenters, both hawks, were now in support of the statement and a dove was now a dissenter says something that should have caused market bulls to question how much longer the party would continue..

The FOMC Statement also clearly was not in alignment with the comments made by James Bullard, which many attributed to the sudden market recovery from a 9% drop.

So, putting it all together, the anticipated reaction should have been strongly negative.

But it wasn’t.

FOr now, I just want to end the week with some assignments. Those haven’t been very frequent lately and they could come in handy to either re-invest or store for some time in the future.

I’m still hopeful that the last two days of this week will offer some opportunity to generate some income, but those opportunities have been somewhat more difficult lately, but for an unexpected reason.

There have been just too few call options buyers to be found with so many positions not even having a single bid. In such cases you can’t really close a bid – ask gap through compromising on price. You need to have an able body on the other end to compromise with to make the sale.

That seems like an odd situation as the market is recovering from that 9% drop and did so in very convincing and rapid fashion. Past history would have suggested plenty of people betting on further market moves through their options market activity. Options buyers usually go on hunches or follow momentum. Either they have no hunches or don’t believe the momentum.

Overall, the Put/Call ratio over the past 2 weeks is higher than in the last 8 years, so it looks as if the the skew may be toward expecting declines, but that skew is probably enhanced by the increased used in portfolio protection, especially at low pricing.

Since the option market usually gets it wrong, my hope is that the paucity in call activity and the skew toward puts is a sign of some further market advance.

Again, I don’t mind going along for the ride right now and will take gains in any way they may come.

Daily Market Update – October 29, 2014 (Close)

Other than the fact that recent months have seen rallies on the day before an FOMC Statement release, there really wasn’t any reason to have expected yesterday’s nearly 200 point climb.

Although there was a gap higher to start the day, a larger move higher started at about 1 PM, with no real news to account for that optimism.

It really is very confusing to understand what is going on, particularly if you believe that the recent abrupt bounce higher of the nearly past two weeks has been due to the suggestion that the Federal Reserve wouldn’t be exiting its Quantitative Easing policies this month, as scheduled.

It would seem then that it is a binary bet that is on the table. Either QE ends or it doesn’t and that was a fairly big bet being made yesterday.

Of course, there were those who believed that yesterday’s market was an expression of confidence that the market could continue to thrive without QE continuing and then there were those who believed that the 200 points tacked on was an expression of the FOMC’s decision to continue some form of QE.

At least we would finally get to have some idea this afternoon, but I don’t think anything was really cleared up, despite the fact that we now know that QE has come to its end.

If the past few months have been any indication, in fact, if Janet Yellen’s tenure as the Federal Reserve Chairman is any indication, the market would interpret whatever is contained in the statement as another reason to move higher. But that wasn’t what happened today as there were some really mixed signals that left you wondering whether the FOMC was beginning to take on a more hawkish posture.

While the recent strength has essentially eroded all of the gains in volatility, at this point I wouldn’t have minded seeing the gains continue, as I would like to see some assignments getting made and the opportunity to replenish my cash reserves, which are at a 5 year or more low point.

Today’s market never really offered that opportunity and got moderately weaker after the FOMC release, before recovering somewhat.

Yesterday’s really unexpected rally was simply a good opportunity to take a break and let the momentum carry you along, but in the right direction. Today did nothing other than to create a need to beware of tomorrow as people have a chance to digest what things mean and to position themselves, accordingly.

I would think that for those that were encouraged by James Bullard there has to be a sense of becoming deflated.

Yesterday,
the trade in Ford, in order to capture the dividend, was one of those that also got taken along for the ride. I really didn’t expect it to breech the $14.12 level, which would have made it susceptible for early assignment. After having gotten to about $14.15 it reversed course and fell to about $14.07 with a bit more than an hour to go in trading. But that final hour carried everything along and Ford shares went back up to $14.16 so it was time to do that rollover, although the one day return wouldn’t have been too bad, particularly if enough shares were held, but the potential 2 week return was even better.

As it would turn out, no one reported having had their unrolled shares assigned early, anyway. Although it was questionable whether those shares would be assigned early, because the closing price was only a few pennies above that $14.12 threshold and there were still 3 days left on the contract, I look at the lack of assignments as a sign of bearishness, at least in shares of Ford, if not in the market in general.

Today was going to be a “wait and see” kind of day anyway. from the onset, but with the exception of a single DOH trade in Abercrombie and Fitch, that’s how it remained. Since Wednesday’s are usually the slowest trading day of my week, even when trading frequently, as has been the case up until the past couple of weeks, there was plenty of reason to sit and wait until the 2 PM release, but as it turned out no reason to do anything otherwise after 2 PM.

While I would have liked the opportunity to take advantage of any pop up in the market before that FOMC release  to sell some options, it never came, just as the futures trading predicted would have been the likely case. I would have  jumped at that opportunity.

Unfortunately, neither yesterday nor today were there many buyers of options and very large bid – ask spreads existed couldn’t really be bridged, as I tried to get option sales made in a number of positions yesterday, but without much luck, other than for Kellogg and Ford. Today I didn’t really even try very much, as there were so many stocks with absolutely no bids to buy at all.

That difficulty indicated to me a less optimistic option market, at least on the call side of the equation. Few are betting on a continued climb.

Another strong move higher today could have changed that and might have brought more call buyers back into the market. For today the FOMC offered nothing to entice people into becoming optimistic ready to drive prices even higher.

But there’s always tomorrow.

Daily Market Update – October 29, 2014 (9:00 AM)

Other than the fact that recent months have seen rallies on the day before an FOMC Statement release, there really wasn’t any reason to have expected yesterday’s nearly 200 point climb.

Although there was a gap higher to start the day, a larger move higher started at about 1 PM, with no real news to account for that optimism.

It really is very confusing to understand what is going on, particularly if you believe that the recent abrupt bounce higher of the nearly past two weeks has been due to the suggestion that the Federal Reserve wouldn’t be exiting its Quantitative Easing policies this month, as scheduled.

It would seem then that it is a binary bet that is on the table. Either QE ends or it doesn’t and that was a fairly big bet being made yesterday.

Of course, there were those who believed that yesterday’s market was an expression of confidence that the market could continue to thrive without QE continuing and then there were those who believed that the 200 points tacked on was an expression of the FOMC’s decision to continue some form of QE.

At least we’ll have some idea this afternoon.

If the past few months have been any indication, in fact, if Janet Yellen’s tenure as the Federal Reserve Chairman is any indication, the market will interpret whatever is contained in the statement as another reason to move higher.

While the recent strength has essentially eroded all of the gains in volatility, at this point I wouldn’t mind seeing the gains continue, as I would like to see some assignments getting made and the opportunity to replenish my cash reserves, which are at a 5 year or more low point.

Yesterday’s really unexpected rally was simply a good opportunity to take a break and let the momentum carry you along, but in the right direction.

The trade in Ford, in order to capture the dividend, was one of those that also got taken along for the ride. I really didn’t expect it to breech the $14.12 level, which would have made it susceptible for early assignment. After having gotten to about $14.15 it reversed course and fell to about $14.07 with a bit more than an hour to go in trading. But that final hour carried everything along and Ford shares went back up to $14.16 so it was time to do that rollover, although the one day return wouldn’t have been too bad, particularly if enough shares were held, but the potential 2 week return was even better.

Today will probably be a “wait and see” kind of day. SInce Wednesday’s are usually the slowest trading day of my week, even when trading frequently, as has been the case up until the past couple of weeks, there’s even better reason to sit and wait until 2 PM.

Of course, if any strength pops up in the market before that FOMC release and the opportunity presents to sell some options, I would jump at that opportunity. Unfortunately, yesterday there were very few buyers of options and very large bid – ask spreads that couldn’t really be bridged, as I tried to get option sales made in a number of positions, but without much luck, other than for Kellogg and Ford.

That difficulty indicated to me a less optimistic option market, at least on the call side of the equation.

Another strong move higher today could change that and might bring more call buyers back into the market, so I hope that whatever the FOMC offers today there will be fewer disappointed people than there will be optimistic people ready to drive prices even higher.

Daily Market Update – October 28, 2014 (Close)

For those that actually look at the “Economic Calendar” there’s so little on it this week other than the FOMC Statement release on Wednesday.

If this wasn’t a busy week for earnings releases it would truly be like the last week of summer all over again.

Lately, even with a few moments of Ebola related fear, and despite all of the unresolved stories around the world, it has been very quiet. That may explain some of the market’s recent volatility. It’s like leaving a child alone, but with no source of stimulation, so they have to create their own inside of the vacuum they’re in.

Instead of focusing on the varying bits of economic information that is usually released in any given week, this week the mind is free to wander and speculate about so many things. Just like leaving a child with any structure or guidance, that kind of vacuum facing investors can be a dangerous thing.

Maybe that’s what explains today’s odd 187 point higher. There was no other reason that I could see, although the past few days before an FOMC Statement release have also been inexplicably positive, so maybe that’s the simple explanation.

For the moment all is quiet in and around Russia, Hong Kong seems to have abated, the ECB is gaining irrelevance, ISIS may be stalling and Ebola still remains other people’s problem for the most part.

In the meantime oil is at a low point that could scarcely have been imagined not too long ago and corporate earnings have, for the most part been pretty good. With the exception of energy companies those low prices have got to be good news for economic growth and corporate profits in quarters ahead.

By most measures that should mean a soaring market and maybe that constellation of factors is what helped create such a rapid reversal of the 9% decline from just a few weeks ago.

Whether those are enough to continue that climb may get some answer tomorrow as the FOMC chimes in and may give some insight on whether James Bullard’s opinions are more than just opinions and may in fact be upcoming policy.

That might be a short term tonic, but may raise more questions and uncertainty as the need for Federal Reserve intervention takes on the appearance of a medication for a chronic ailment.

Lately there has been some talk that interest rates, originally thought to be poised for a rise sometime in the first half of 2015, may now not occur until 2016. In the meantime, however, interest rates on the 10 Year Treasury Note increased by about 15%, although still far below where so many smart people thought it would be just 6 months ago.

So the question
“What comes next?” is a fair one, as there are so many mixed signals at the moment and fairly few inputs to help paint any kind of picture.

This morning I heard one analysts say that the morning’s higher futures meant that it was an indication of investors saying that the world would not end if Quantitative Easing came to an end.

I suppose that one could equally be correct to say that the morning’s rise in futures was an indication that the world was embracing the idea of a continuation of Quantitative Easing.

The strength that the market showed all throughout the day was certainly an indication of something and for some reason.

The more you follow things the more you realize that the diversity of opinion is really the only thing that allows markets to function. This morning, for example, Twitter was upgraded from “sell” to :”hold” at one firm and downgraded to “sell” from “hold” at another. No matter how those ratings may be nuanced a few weeks from now in an effort to protect reputations, there’s not too much debate over the diametric differences coming from two esteemed sources, presumably with access to all of the same input information.

Imagine if it is so difficult to come to an agreement over a single company how difficult it must be to understand where markets and world economies are heading, especially when the inputs aren’t necessarily the most accurate or the books may be cooked, as may occasionally be the case in China.

So at the moment I continue to be in a “watch and wait” mode. If the market does move higher I’m more than happy to be a beneficiary of that move, but I’m not terribly enthused about betting on those prospects for now.

Based on the trades that I tried to execute today, selling new calls on shares of Chesapeake Energy, Holly Frontier, T-Mobile and Joy Global, despite their strength, all of which well out-performed the S&P 500 on the day, there was no such enthusiasm among buyers in the option market.

They weren’t biting.

I don’t know what that means.

If you’re a contrarian it means that those stocks, or maybe the market as a whole, is going higher.

If you look at things on the basis of their superficial appearances, that just means that those particular investors don’t see further upside, but as they say, that’s what makes a market.