Category Archives: Daily Market Update

Daily Market Update – October 16, 2014 (8:45 AM)

Yesterday morning began with these words:

“Despite yesterday’s decent closing action and despite somewhat positive results from Intel, the market is back to its recent ways and is headed sharply lower this morning.”

This morning you could say almost the exact same thing:

“Despite yesterday’s decent closing action and despite positive results from Goldman Sachs, the market is back to its recent ways and is headed sharply lower this morning.”

At some point that has to get discouraging, but the discouragement should be delayed until there is reason to believe that this correction will go beyond the 10% that was once a fairly common and not overly frightening phenomenon.

Once you get beyond that 10% level the natural concern becomes where the floor will be. Right now, if looking at a chart of the S&P 500 you would look for support levels, which exist at 1816, 1792 and 1742.

At that 1742 level we would be looking at a 13% decline, while the 1816 level is just about a 10% decline from the S&P 500 high point.

The 7% decline in the S&P 500 heading into this morning is just about near the mid-way point between what we’ve become accustomed to and what we used to be accustomed to. What’s strange is seeing interest rates, oil and gold all so low at the same time, as if there are no viable alternatives for people to invest their money.

Yesterday was a really wild ride and today may be the same as the futures had already shown quite a bit of movement, but paled compared to the movement in the 10 Year Treasury Note yesterday, which actually sank below a 2% level before bouncing about 5% higher by the close of its trading.

There’s really not much to do this morning and perhaps for the rest of the week.

It’s certainly becoming easier to ignore what at first appeared to be bargains as they took on a different appearance with just a little bit of time passage. That has been a consistent theme for nearly 4 weeks.

With only 4 positions set to expire this Friday and at their current pricing, there’s not too much likelihood of rollovers, particula
rly since 3 of those are monthly contracts and are generally too expensive to buy back if denominated in $0.05 increments.

At the moment, there’s even less likelihood of adding any new positions this week, but I continue to hold out hope of being able to sell call contracts on existing positions. There have been a couple of opportunities this week to have put in trade offers but there has been very little call buying activity, as the options market hasn’t been a hotbed of speculation regarding prices moving higher and there has been a much wider than usual gap between bid and ask prices on positions that normally don’t have wide bids.

In those cases that’s a reflection of a seller who is looking at a realistic selling price and a buyer who feels that the realistic is unrealistic and there has been very little effort to bridge their positions.

As a seller I understand the reluctance to give in to the buyer right now particularly since you can easily have a large surge higher at a moment’s notice. Even if that surge is reversed the next trading day, it may be a day too late if your expiration date was the day of the surge.

While “DOH” trades may make sense in an environment of increasing volatility, it may not make sense when there may be reason to suspect that the volatility will move against you.

So this morning it’s right back to that usual pattern of sitting and watching and hoping for some opportunity to sell something on any sign of market strength or individual stock strength, such as with Chesapeake Energy this morning, as it announced the sale of some assets.

That is a good example, though of the surges that can take place, as I had tried to get a weekly DOH trade for Chesapeake earlier in the week at a $19.50 strike when shares were at their weekly high of $18.22 for an $0.11 premium.

As Chesapeake is trading in the pre-open at $19.55, up $1.78 it is testament to how quickly things can move and necessitate offsetting action under a ticking clock, as contracts expire tomorrow.

On the other hand, how much hire will Chesapeake go on the basis of an asset sale? There’s not too much reason to think that the sale would propel it too much more, so there may still be a quick opportunity tehre, but even then, too few, far too few this week.

Daily Market Update – October 15, 2014 (Close)

Despite yesterday’s decent closing action and despite somewhat positive results from Intel, the market is back to its recent ways and is headed sharply lower this morning.

What those futures didn’t foretell is what a wild ride today would turn out to be.

It has probably been 5 years or more that I’ve entered a week and got to a Wednesday not having made any trades. Today didn’t look as if it was going to offer any change from that path as there was still no reason to believe that a floor was being made.

In response to some questions today, this didn’t have the feeling of a capitulation even as we were at the depths approaching a 500 point drop, because it was still fairly orderly and you didn’t see rapidly changing declining numbers.

There were really a fair number of credible attempts to claw back through the day.

While yesterday’s strength looked promising and while the market did at least finish in the positive, it wasn’t the kind of day that offered good news or any opportunities.

Instead, all it did was to not offer any bad news. Today was a bad news day, but it really didn’t offer bad news for tomorrow.

But why is all of this happening now? What caused us to get to about a 9% drop on an intra-day basis?

With oil going sharply lower, there are concerns that it may be demand driven, just as much as from increasing supply. Everything we thought to be true is sudden;y not the case. Interest rates aren’t going higher and lower oil prices are not fueling anything that would otherwise grow an economy.

With continuing uncertainty in the world, now fueled by Ebola, rather than geo-political concerns, there are worries of a SARS like impact on global economies and stock markets that have to be quelled before markets can return to business as usual.

With the market down about 6.8% from its high as it was getting ready to start this morning looked as if it would take it that much closer to the 10% figure that represents the correction that we’ve been waiting for and have done so for more than 2 years, so the ensuing trading didn’t really disappoint in that regard.

It’s just not clear where anything stops or what causes it to stop.

But just as the 200 dma may have been a catalysts for some program selling at the 1905 level, so too may technical factors play a role in any buying as support points always get people’s attention.

The next level of support seems to be at about 1816 on the S&P 500 and we definitely showed an ability to bounce as we started approaching that level, which coincidentally is 10% below the rec
ord high.

I imagined that today would just be a continuation of the beginning of the week, as there was little anticipation of doing anything other than to watch and wait for an end to uncertainty and for some brave souls to make a statement that prices have just gotten too low.

Unfortunately, today was the third successive day in being unable to even get DOH trades made, although I didn’t put in any new ones today, having failed at attempts to get trades on CHK, HAL,JOY, LVS and TMUS done on Monday and Tuesday during the market’s uptrend periods.

For the remainder of the week there’s still lots of earnings news that could conceivably lead the way, but the Intel news was already unable to do so, although its results do suggest that certain key components of the economy are better than we may have believed.

For now, it’s just a battle between uncertainty and the fear it creates and the confidence that economic growth is occurring as we wait for calmer heads to prevail.

MONDAY:  A generally quiet week, but lately words have been mopre meaningful than actual data. Strong earnings reports starting this week with banks could be the thing the markets need.

TUESDAY:     A very disappointing market day yesterday and, as a result, not a single trade to show for the effort. The effort to move higher lasted about 20 minutes and quickly gave way to uncertainty, before completely falling apart in the final hour. This morning seems tentative, at best.

WEDNESDAY: Despite yesterday’s decent finish to trading and Intel’s decent earning’s report, the market looks to be back to the path it had established nearly 4 weeks ago and is headed toward another triple digit down day, based on the opening futures.

THURSDAY:

FRIDAY: 







Daily Market Update – October 14, 2014 (Close)

Yesterday was a very disappointing day from start to finish.

It started with an attempt to bounce back from Friday’s late day sell-off that lasted all of about 20 minutes.

It ended with another sell off in the final hour, most of which actually came during an acceleration phase in the final 30 minutes, that resulted in another 200 point loss.

As opposed to the triple digit moves that started three weeks ago on an alternating basis between qains and losses, the predominant flavor now is losses.

Yesterday would have been a perfect day to have seen a strong bounce, even if there was no sincerity behind it. As it was the way stocks went back and forth yesterday between mild gains and losses, before finally seeing everyone decide to sell, there was really no opportunity to execute any trades that made sense in order to establish covered positions from existing stocks.

It was an extremely rare kind of Monday that ended with me not having made any trades, at all. I’m not certain how much that will change for the rest of the week, as there are relatively few positions set to expire this week and a continuing desire to conserve cash.

Yesterday was also a good lesson, though, on how such appealing looking prices could be illusory, as those prices got even cheaper across the board by the time the final bell rang. Lately that has been a theme in development, but it has over-extended its welcome.

Today almost looked as if it might be a repeat. The initial rally died after after about 30 minutes, but then came back and the market actually ha d a triple digit gain for a while.

Despite the fact that much of that gain was lost in the final hour and eventually closing negative, at least on the DJIA, it was a better day, as judged by the broader market and as judged by some of the price rebounds in individual names.

The S&P 500 is still down about 6.8% from its peak back in September, but so many stocks are in their own correction phase already, many of which haven’t really had any news to warrant the sharp moves lower, particularly in cases where there moves higher were of a gradual nature, rather than gap ups higher, which are much more prone to sharp drops down in the event of either bad news or a deteriorating market.

Many will point to the S&P 500 having fallen below its 200 day moving average as the catalyst for the sell off, but that barrier had actually been breached several times during the trading day before the serious selling started in the final hour of trading. None of those earlier breaches that didn’t result in selling will ever be remembered, only the one that did, making it much more easy to point to the successful ability of that particular indicator as a valid one.

While I would love to see a continued strong move higher, that would only be for purposes of selling new covered positions, because that kind of move is also just an illusory one. Past markets indicate that such moves are usually related to downtrends and not typically parts of sustained reversals or bull trends. Instead, I would much rather see a sustained move higher or, perhaps even better, simply treading in place right now.

That’s really where the best opportunity will come. While treading in place everyone is in a state of uncertainty, regardless of whether they wear bull or bear stripes and that uncertainty shows up where it really counts.

Today’s market was actually a good one for the possibility of building some kind of a base. Despite the pullback the market didn’t succumb to the kind of selling that has been the norm of late. I was a little disappointed not to have sold any calls today, but am hopeful that some of the same strength may be evident tomorrow and we start a pattern of 3 steps forward for every 2 or so steps back.

In the meantime the volatility was already moving higher yesterday before the late afternoon sell off as the market was going back and forth between gains and losses. Even with little to no net movement in value that kind of movement is the essence of volatility. The last hour’s sell-off yesterday added to the volatility, as it continued the reversal from the sustained moves higher that had characterized the markets for the past two years.

Today the volatility fell all through the day, but there are still some potential opportunities to capitalize on that volatility.

Hopefully some of that sustained move higher will emerge again tomorrow morning and offer some opportunity to sell calls, maybe being fueled by Intel’s earnings report after today’s close, much like Citigroup helped today’s market move higher..

Interestingly, despite some less optimistic numbers from JP Morgan and Wells Fargo, which usually, at least in the past two years, have out-performed the market, as a whole in earnings quality, the market didn’t seem to care. The fact that the market has at a positive bias this morning and stayed that way for most of the day gives some reason for optimism, if only for a short while.

But that’s all I ask for this week. Maybe tomorrow will be the day to finally get some trades in the books

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

Yesterday was a very disappointing day from start to finish.

It started with an attempt to bounce back from Friday’s late day sell-off that lasted all of about 20 minutes.

It ended with another sell off in the final hour, most of which actually came during an acceleration phase in the final 30 minutes, that resulted in another 200 point loss.

As opposed to the triple digit moves that started three weeks ago on an alternating basis between qains and losses, the predominant flavor now is losses.

Yesterday would have been a perfect day to have seen a strong bounce, even if there was no sincerity behind it. As it was the way stocks went back and forth yesterday between mild gains and losses, before finally seeing everyone decide to sell, there was really no opportunity to execute any trades that made sense in order to establish covered positions from existing stocks.

It was an extremely rare kind of Monday that ended with me not having made any trades, at all. I’m not certain how much that will change for the rest of the week, as there are relatively few positions set to expire this week and a continuing desire to conserve cash.

Yesterday was also a good lesson, though, on how such appealing looking prices could be illusory, as those prices got even cheaper across the board by the time the final bell rang. Lately that has been a theme in development, but it has over-extended its welcome.

The S&P 500 is now down about 6.8% from its peak back in September, but so many stocks are in their own correction phase already, many of which haven’t really had any news to warrant the sharp moves lower, particularly in cases where there moves higher were of a gradual nature, rather than gap ups higher, which are much more prone to sharp drops down in the event of either bad news or a deteriorating market.

Many will point to the S&P 500 having fallen below its 200 day moving average as the catalyst for the sell off, but that barrier had actually been breached several times during the trading day before the serious selling started in the final hour of trading. None of those earlier breaches that didn’t result in selling will ever be remembered, only the one that did, making it much more easy to point to the successful ability of that particular indicator as a valid one.

While I would love to see a strong move higher, that would only be for purposes of selling new covered positions, because that kind of move is also just an illusory one. Past markets indicate that such moves are usually related to downtrends and not typically parts of sustained reversals or bull trends. Instead, I would much rather see a sustained move higher or, perhaps even better, simply treading in place right now.

That’s really where the best opportunity will come. While treading in place everyone is in a state of uncertainty, regardless of whether they wear bull or bear stripes and that uncertainty shows up where it really counts.

In the meantime the volatility was already moving higher yesterday before the late afternoon sell off as the market was going back and forth between gains and losses. Even with little to no net movement in value that kind of movement is the essence of volatility. The last hour’s sell-off added to the volatility, as it continued the reversal from the sustained moves higher that had characterized the markets for the past two years.

Hopefully some of that sustained move higher will emerge this morning and offer some opportunity to sell calls, but the pre-open futures aren’t particularly strong, but at least they are positive, with some mildly good news from the big three banks; JP Morgan, Citigroup and Wells Fargo.

Those usually, at least in the past two years, have out-performed the market, as a whole in earnings quality, but were a little under-whelming this morning. Still, the fact that the market has at least a positive bias this morning gives some reason for optimism, if only for a short while.

But that’s all I ask for the week.