Category Archives: Daily Market Update

Daily Market Update – October 28, 2014 (8:30 AM)

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.

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 Quantitat
ive 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 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.

Daily Market Update – October 27, 2014 (Close)

There is very little scheduled news this week and not too much anticipated on the unscheduled side, unless the New York City Ebola patient suffers a downturn.

Otherwise the world is pretty quiet as this week starts. Even the Brazilian market’s meltdown in the morning’s future’s trading, dropping about 8% on news of the incumbent winning the presidential election seemingly barely got a notice by the US markets. When trading closed for the day you never would have known that the US cared about anything in Brazil, at all.

The only real story this week and it may be more important than usual, will be Wednesday’s release of the FOMC Statement.

Any alteration in the wording that we’ve become accustomed to that might support Federal Reserve Governor James Bullard’s belief that the Federal Reserve should delay exiting Quantitative Easing will have some kind of an impact

Although it could be coincidental it appears that the market’s sudden bounce higher from its 9% decline was triggered by Bullard’s comments. What’s never known is when those who are typically non-dissenting FOMC voting Governors say something whether it’s their opinion or reflective of what be the majority opinion.

But even if that’s not known the second unknown is how the market would react to news that the FOMC didn’t believe that the economy could withstand a complete exit by the Federal Reserve.

When Bullard made his comments the market embraced the idea and ran with it, but if it becomes reality it could easily be otherwise, as just another example of how the market reacts to rumors and to news. Once that specific reality hits the likely question would become “Seriously, the economy is that bad?” and that kind of forward looking doubt leads to selling.

After two weeks of not having made a single new purchase I was beyond anxious to do something but don’t have the confidence that there will be much reason to stick any necks out until Wednesday or Thursday.

Although there was finally an opportunity to execute a new purchase today, I expect and hope, that the Intel shares, which go ex-dividend next week, get assigned early. At this point I would trade off the dividend for the two weeks worth of premium and the ability to redeploy that cash.

Lately, however, even what may have looked like relatively sure things have been anything but.

For now I’d be content to see a repeat of the past week, even though there were very few trades to show for it and even while watching volatility drop and taking premiums along with it. At least there was some recovery of share prices. Of course, that’s only true if they were something other than energy and metals shares.

Sooner or later those have to jump out of their correction mode.

Today’s drop in energy was the result of a call by a Goldman Sachs analyst for $70 oil. That came from the same analyst who last called for $150 oil.

Never mind.

But other than the call about 9 months ago for falling precious metal prices, Goldman Sachs, as great as it is at everything else, has had a really rough past 10 years when it comes to predicting commodity price trends.

I think today’s call for $70 oil may be a sign of having reached or being very near the bottom.

For the time leading up to Wednesday’s FOMC Statement release there will be plenty of more earnings reports being released, including the always exciting Facebook and Twitter, but the companies that have the greatest likelihood of being able to move whole markets have already reported.

This morning the US futures market was just very mildly lower which lead you to believe that the drop in Brazil is considered to likely be a blip and to have limited consequence. Of course, the slightest suggestion by the incumbent that recognizes the need for some economic reforms would do wonders for their market, but there is precedent for victors believing that they have a mandate even when barely crossing the 50% support vote.

But we still probably don’t care very much, regardless of what direction Brazil takes, especially as their oil reserves and output mean less and less for the United States.

So today was likely to be another day to sit back and see where events would take us in what should have been a quiet day and did turn out to be a quiet day.

Whether tomorrow will do as expected, and also remain quiet is another question as those have been very rare in the past month as triple digit move days have become the new norm for now. Two such days in a row may be asking for too much.

Daily Market Update – October 27, 2014 (8:30 AM)

There is very little scheduled news this week and not too much anticipated on the unscheduled side, unless the New York City Ebola patient suffers a downturn.

Otherwise the world is pretty quiet as this week starts. Even the Brazilian market’s meltdown in the morning’s future’s trading, dropping about 8% on news of the incumbent winning the presidential election is seemingly barely getting a notice by the US markets.

The only real story this week and it may be more important than usual, will be Wednesday’s release of the FOMC Statement.

Any alteration in the wording that we’ve become accustomed to that might support Federal Reserve Governor James Bullard’s belief that the Federal Reserve should delay exiting Quantitative Easing will have some kind of an impact

Although it could be coincidental it appears that the market’s sudden bounce higher from its 9% decline was triggered by Bullard’s comments. What’s never known is when those who are typically non-dissenting FOMC voting Governors say something whether it’s their opinion or reflective of what be the majority opinion.

But even if that’s not known the second unknown is how the market would react to news that the FOMC didn’t believe that the economy could withstand a complete exit by the Federal Reserve.

When Bullard made his comments the market embraced the idea and ran with it, but if it becomes reality it could easily be otherwise, as just another example of how the market reacts to rumors and to news. Once that specific reality hits the likely question would become “Seriously, the economy is that bad?” and that kind of forward looking doubt leads to selling.

After two weeks of not having made a single new purchase I’m beyond anxious to do something but don’t have the confidence that there will be much reason to stick any necks out until Wednesday or Thursday.

I’d be content to see a repeat of the past week, even though there were very few trades to show for it and even while watching volatility drop and taking premiums along with it. At least there was some recovery of share prices.

For the time leading up to Wednesday’s FOMC Statement release there will be plenty of more earnings reports being released, including the always exciting Facebook and Twitter, but the companies that have the greatest likelihood of being able to move whole markets have already reported.

This morning the US futures market is just very mildly lower which leads you to believe that the drop in Brazil is considered to likely be a blip and to have limited consequence. Of course, the slightest suggestion by the incumbent that recognizes the need for some economic reforms would do wonders for their market, but there is precedent for victors believing that they have
a mandate even when barely crossing the 50% support vote.

But we still probably don’t care very much, regardless of what direction Brazil takes, especially as their oil reserves and output mean less and less for the United States.

So today is likely to be another day to sit back and see where events take us in what should be a quiet day.

Whether it will be so is another question as those have been very rare in the past month as triple digit move days have become the new norm for now.

Daily Market Update – October 24, 2014 (8:30 AM)

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

The following outcomes are possible today:

Assignments:  none

Rollovers:  CHK

Expirations:  ANF, EBAY, GDX, JOY, LVS

In general, DOH Trades are preferred to expire, with the least preferable outcome being assignment. This past week had 3 DOH Trades and 2 early in the week rollovers, all trades that were made as volatility was somewhat higher than during the latter half of the week.

The past week’s ex-dividend positions were Fastenal (10/22 $0.25) and Blackstone (10/23 $0.44)

There are no ex-dividend positions next week.

Trades, if any, will be attempted to be made prior to 3:30 PM EDT

Daily Market Update – October 23, 2014 (Close)

Since we always look for answers to everything, it’s most likely that the events in Canada influenced the market’s unexpected downturn yesterday, but it’s also not likely that was the case.

While it was unusually slow in being reported and events developed slowly, the market really didn’t have too much of a reaction until early in the afternoon.That reaction may have also been influenced by the continuing slide in oil prices.

This morning the futures are acting as if yesterday was an aberration.

On the other hand it may be possible that once again earnings are taking center stage as a number of good earnings were reported this morning, with the industrial side of things continuing to look good.

One of those companies reporting this morning, Caterpillar, may be a little like the kind of market leader that IBM used to be. These days when Caterpillar does well, it’s also taken as an indicator that China is doing well and increasingly China is where so much of our focus needs to be.

Those earnings, as well as for 3M, are as good of a reason as you can find to explain why today offset all of yesterday’s loss and then some, bringing this week, so far to a 3.4% gain.

Yesterday was a disappointing one as I was hoping for some chance to sell covered calls in a rising price environment. .

That didn’t happen, but with today’s early indication, perhaps today could have been that kind of day, although the volatility that had continued to fall as the market shoots higher served to make it less appealing to either take DOH related risks or less appealing to look at extended weekly trades.

Today wasn’t much better, at least in that regard.

The morning began with the S&P 500 about 4% below it’s September highs and while it was nice seeing the early morning indication higher, it did remove some of the inclination that I found myself with as yesterday’s market was coming to a close. I now felt less inclined to add positions as the increase just added another layer of uncertainty.

While the net result of the week thus far has been decidedly positive, the ease of the reversal lower, as seen yesterday is a reminder that the climb back from 9% lower may have some unsteadiness in it.

Although I certainly don’t mind watching net asset value increase as the market moves higher it’s really not the same if you’re not deriving some real and tangible benefit from the market’s actions.

So far this week there have been scant few trades and so there has been scant little income derived. While I would love to see that change during the remainder of the week, I just
don’t know if that will be the case and with little to no assignments for the week the coming week may be one that continues the recent trend of little to no activity, especially on the new position purchase end of things.

That puts more reliance on the ability to rollover and sell new option positions.

Sooner or later we’ll get some more clear idea of what is really going on right now.

Are we climbing back from a 9% correction or is this just a trap?

Other than in hindsight there is just no way to know. Other than looking at data points from the past that strongly suggest that very large moves higher are illusory, there’s little to give an indication of what days like today mean. Certainly the previous 200 and 300 point gains over the past few weeks haven’t had the kind of short term impact that we would have expected or liked.

But maybe today was different? Tomorrow may give some clue to that question.

.