Category Archives: Daily Market Update

Daily Market Update – August 6, 2014 (8:30 AM)

With another morning getting ready to get off to a negative start, there are some significant events that may be cause for concern today.

The first two are really pretty unusual. Both 21st Century Fox and Sprint have withdrawn their buyout bids for Time Warner and T-Mobile, respectively.

There can certainly be a myriad of reasons for having done so, but it just doesn’t happen that often. Pfizer did so recently, but that was very complex, including a reluctant target, British regulatory factors and potential backlash from its planned tax inversion.

Usually once a company sets its sights on another company there’s a battle ahead if the target expresses reluctance. You don’t often see the suitor just walking away.

In the case of the Time Warner deal it’s entirely possible that Rupert Murdoch isn’t interested in what could have been a prolonged battle. After all, how much longer would it then take for him to even see benefits from such a deal? All the money in the world may not buy you time when “natural causes” is staring at you.

In the case of T-Mobile, Sprint may have realized that while with a merger they would have gotten the talents of John Legere, on the negative side they would have gotten John Legere.

That may have been enough.

Much more ominous would be the realization by both potential suitors that their targets were already fully priced. It can’t be entirely lost on people that Murdoch’s previous large acquisitions have come at precise market tops.

Then there’s the matter of Italy slipping into recession. Although it’s not as if they have had the most dynamically growing economy over the past 25 years,  a recession is good for no one.

Meanwhile, Germany has announced a cancelation of a defense deal with Russia and Russia has blocked sales of some Brown-Forman products, such as “Jack Daniels,” due to “sub-standard quality.”

So that’s the backdrop for this morning, as we come off another large loss that followed what may have been some illusory gains on Monday.

Yesterday’s decline saw some disagreement over the root cause.

There were those that said the decline was due to comments from the Polish Prime Minister regarding the prospects for an imminent Russian invasion of Ukraine.

Others believed that the decline was due to technical factors with the S&P 500 breaching support at 1926 and imme
diately dropping 6 points as algorithms started selling programs.

Of course, no one thought that maybe the interplay of the two was at hand, because that would be giving credence to others and other ideas.

Hopefully today will ignore the early signs that point toward a negative day  and look at the bright side of lower prices as it has done on so many previous occasions over the past 20 months.

Daily Market Update – August 5, 2014 (Close)

This is possibly going to be the slowest news week of the year, at least as far as planned economic news goes.

That may be a nice change from the previous week when along with all of the unscheduled news we hit the peak in earnings reports and had an FOMC statement and Employment Situation Report to round things out.

I’m tired from even typing all of that out.

As the week will come to its close hopefully I’ll be in a position to also say that it was nice, for a change, to have started a week as was done this week. Coming off last Thursday and Friday’s sell-offs it was relatively easy to not be very hesitant in establishing some new positions to begin the week.

It seems like an eternity ago, but that used to be a fairly regular pattern with some weeks having as many as 10 new purchases and often little else for the rest of the week until Thursday or Friday.

Lately, though, the dynamic has been changed as bargains are harder to find. But the dynamic has also been changed by the increasing availability of expanded weekly options. That has meant that while a stock with a weekly option might not look so appealing for purchase and call sale on a Wednesday, the same stock with an expanded weekly option might look good with an expanded option.

Too bad that the forward week premiums have been so low, though.

While part of me would love to see that volatility continue rising, especially since it does so at a multiple to the market, there is also the realization that the generation of increased premium income comes at a cost. That is the fact that the market generally has to be in a decline in order to drive up the volatility.

Today turned out to be another good example of that as the market more than erased yesterday’s bounce back and more than erased the drop in the Volatility Index, as well.

I guess that’s what they mean by “bittersweet,” but if you’re not the kind that frets too much about the illusory bottom line then the reality of the income offsets the illusory decreases that typically work their way back.

Watching this morning’s market deteriorate somewhat from a mildly lower level in the early futures trading I don’t mind seeing some trading days that will help to form some kind of a resting phase for the market, even if that phase is lower. However, today was a bit too much,

With a number of trades already made for the week I wouldn’t have said “no” to any other potential new position opportunities, but would have been happy with those already made, especially if those other income producing trades could be made during the rest of the week. As it would turn out there were more opportunities today, but just as suddenly I wasn’t so happy now about the trades yesterday and the appearance of new opportunities may themselves be illusory as the market isn’t necessarily on firm ground.

Since my hope had been for some chance to make some opening call position trades that would have required some market stability or strength, or at least strength in individual positions going against the market grain. So in addition to the bittersweet feeling, there was also a hope for conflicting outcomes and that certainly wasn’t the case today.

Or you could just take it one trade at a time and let the other stuff work itself out.

I think that’s what I’ll be doing this week and take a break from trying to over-think that which can’t even really be understood in hindsight.

Daily Market Update – August 5, 2014 (8:30 AM)

This is possibly going to be the slowest news week of the year, at least as far as planned economic news goes.

That may be a nice change from the previous week when along with all of the unscheduled news we hit the peak in earnings reports and had an FOMC statement and Employment Situation Report to round things out.

I’m tired from even typing all of that out.

AS the week will come to its close hopefully I’ll be in a position to also say that it was nice, for a change, to have started a week as was done this week. Coming off last Thursday and Friday’s sell-offs it was relatively easy to not be very hesitant in establishing some new positions to begin the week.

It seems like an eternity ago, but that used to be a fairly regular pattern with some weeks having as many as 10 new purchases and often little else for the rest of the week until Thursday or Friday.

Lately, though, the dynamic has been changed as bargains are harder to find. But the dynamic has also been changed by the increasing availability of expanded weekly options. That has meant that while a stock with a weekly option might not look so appealing for purchase and call sale on a Wednesday, the same stock with an expanded weekly option might look good with an expanded option.

Too bad that the forward week premiums have been so low, though.

While part of me would love to see that volatility continue rising, especially since it does so at a multiple to the market, there is also the realization that the generation of increased premium income comes at a cost. That is the fact that the market generally has to be in a decline in order to drive up the volatility.

I guess that’s what they mean by “bittersweet,” but if you’re not the kind that frets too much about the illusory bottom line then the reality of the income offsets the illusory decreases that typically work their way back.

Watching this morning’s market deteriorate somewhat from a mildly lower level in the early futures trading I don’t mind seeing some trading days that will help to form some kind of a resting phase for the market, even if that phase is lower.

With a number of trades already made for the week I wouldn’t say “no” to any other potential new position opportunities, but would be happy with those already made, especially if those other income producing trades could be made during the rest of the week.

Of course, that requires some market stability or strength, or at least strength in individual positions going against the market grain. So in addition to the bittersweet feeling, there is also a hope for conflicting outcomes.

Or you could just take it one trade at a time.

I think that’s what I’ll be doing this week and take a break from trying to over-think that which can’t even really be understood in hindsight.

Daily Market Update – August 4, 2014 (Close)

Wow. What a nice surprise to start the week.

It was nice that there was essentially no news over the weekend other than what may have been reasonably expected. Maybe a calm weekend was all that was needed, at least for a day or so worth of aftermath.

Maybe that lack of news meant that there was little reason to have more downward pressure to get this week off to its start after the heavy selling on Thursday and the failed comeback on Friday, but the truth is no one can remotely be confident of what created some market confidence.

As the morning and the week looked to get started there were some mild gains showing up that I was hoping would find themselves persisting as trading opened. I would have been happy if they stayed in the mild range, even if they reverted to mild losses. But even better for a little while it nearly looked as if it might be a triple digit gain.

The week began with some available cash and a few positions set for weekly expiration and approximately an equal number set to expire with next week’s conclusion to the August 2014 cycle.

With some stability I wasn’t adverse to adding some new positions, especially after some of the individual stock declines of last week, although it also wasn’t too likely that I’d get carried away, as I would like to maintain adequate cash for any other surprises.

As it turned out I may ahve spent more today than I anticipated, but I’m still willing to do some more this week.

What will be the interesting thing to see this week is whether there is any strength seen in premiums, especially for forward weeks. That’s really the only benefit of having increased volatility, especially since it stems from market weakness. Today’s market strength, though, caused a substantial drop in volatility, so we may have to wait another day to pass some judgment in that regard.

After the decline of late last week the S&P 500 found itself back to levels not seen since June 3, 2014.

That’s wasn’t very long ago, so in context, either the decline was pretty mild or the climb since June has been pretty torrid and the decline was matching in scope.

Torrid isn’t really an apt description of the last two months, although there certainly have been lots and lots of new record highs, only they came a little bit at a time. So again, going back to context, the drop of the past two trading sessions was really very mild by any standard and so far, gives no indication of being the start of some kind of slippery slope.

What I always like to do when we hit one of these near term lows is to check to see where my portfolio stood on that earlier date as compared to where it stands at the moment.

The expectation should be that your personal fortunes withstood the decline better than the overall market,
particularly if your portfolio isn’t highly concentrated in any particular area or stock, although that kind of concentration could also result in significant out-performance if good luck is on your side.

Generally, the more options you sold, particularly near or in the money options, the greater your advantage should have been during a period of market decline.

So as we started this week I was pretty pleased, although I definitely still am displeased about having so many uncovered positions and disappointed that i couldn’t reduce their numbers today.

I don’t mind shares going down in value, but what I do mind is if their not contributing to the accumulation of income or in offsetting their cost basis, however you may prefer.

While I won’t be against adding some more new positions at these levels, my real goal would be to add more covered positions to the list, as has been a goal for quite a while, but has proved to be a very difficult one, especially as the volatility has been so low.

While increasing volatility tends to be seen in a declining market for those that don’t really care too much about paper losses or values that increasing volatility can open up many more opportunities to sell options, especially the out of the money variety.

While most people really don’t want to see a market decline it isn’t necessarily that bad of a prospect as long as it doesn’t become a way of life.

However, since you can never really know what the next day brings, so often the best approach is to straddle all worlds.

For me that means new purchases, perhaps at a lesser level than last week and selling whatever options that can be sold. Even if your stocks can’t appreciate in value during any particular time period there should at least be some incremental income that they can produce while a cold spell is in place.

And if it warms up?

Such a terrible problem to have. At least today can ease our way back into dealing with market gains.

Daily Market Update – August 4, 2014 (8:00 AM)

It was nice that there was essentially no news over the weekend other than what may have been reasonably expected.

That means that there was little reason to have more downward pressure to get this week off to its start after the heavy selling on Thursday and the failed comeback on Friday.

As the morning and the week look to get started there are some mild gains showing up that will hopefully find themselves persisting as trading opens, but I would be happy if they stayed in the mild range, even if they reverted to mild losses.

The week begins with some available cash and a few positions set for weekly expiration and approximately an equal number set to expire with next week’s conclusion to the August 2014 cycle.

With some stability I wouldn’t be adverse to adding some new positions, especially after some of the individual stock declines of last week, although it’s not too likely that I’ll get carried away, as I would like to maintain adequate cash for any other surprises.

What will be the interesting thing to see this week is whether there is any strength seen in premiums, especially for forward weeks. That’s really the only benefit of having increased volatility, especially since it stems from market weakness.

After the decline of late last week the S&P 500 finds itself back to levels not seen since June 3, 2014.

That’s not very long ago, so in context, either the decline was pretty mild or the climb since June has been pretty torrid and the decline was matching in scope.

Torrid isn’t really an apt description of the last two months, although there certainly have been lots and lots of new record highs, only they came a little bit at a time. So again, going back to context, the drop of the past two trading sessions was really very mild by any standard and so far, gives no indication of being the start of some kind of slippery slope.

What I always like to do when we hit one of these near term lows is to check to see where my portfolio stood on that earlier date as compared to where it stands at the moment.

The expectation should be that your personal fortunes withstood the decline better than the overall market, particularly if your portfolio isn’t highly concentrated in any particular area or stock, although that kind of concentration could also result in significant out-performance if good luck is on your side.

Generally, the more options you sold, particularly near or in the money options, the greater your advantage should have been during a period of market decline.

So as we start this week I’m pretty pleased, although I definitely still am displeased about having so many uncovered positions.

I don’t mind shares going do
wn in value, but what I do mind is if their not contributing to the accumulation of income or in offsetting their cost basis, however you may prefer.

While I won’t be against adding some new positions at these levels, my real goal would be to add more covered positions to the list, as has been a goal for quite a while, but has proved to be a very difficult one, especially as the volatility has been so low.

While increasing volatility tends to be seen in a declining market for those that don’t really care too much about paper losses or values that increasing volatility can open up many more opportunities to sell options, especially the out of the money variety.

While most people really don’t want to see a market decline it isn’t necessarily that bad of a prospect as long as it doesn’t become a way of life.

However, since you can never really know what the next day brings, so often the best approach is to straddle all worlds.

For me that will mean new purchases, perhaps at a lesser level than last week and selling whatever options that can be sold. Even if your stocks can’t appreciate in value during any particular time period there should at least be some incremental income that they can produce while a cold spell is in place.

And if it warms up?

Such a terrible problem to have.