Category Archives: Daily Market Update

Daily Market Update – July 16, 2014 (9:00 AM)

While today will be Day 2 of Janet Yellen’s testimony, which was fairly tepid in response to very tame questioning, the big news to start the morning is more merger and acquisition news.

It was odd listening to an interview with Gerald Levin, who in 1999-2000 was at the center of the Time Earner – AOL merger, which happened to occur on the precipice of what became known as the “dot com bubble.”

He was now commenting on a proposed buyout of Time Warner by Rupert Murdoch’s Twenty First Century Fox. At this point no one really cares about the eventual outcome of that merger, but rather what that merger represented in the scope of everything going on at that time and era.

It may be hard to draw a parallel to that era as right now there’s really no singularly spectacularly performing sector that could be called a bubble, unless it’s all a bubble. Nearly a generation ago it was obviously technology and the internet that was going wild, but the same just doesn’t exist these days.

While everything is at or near relative high points and everything seems expensive, it’s a far stretch to think that the current market is in bubble territory.

The early speculation is that talk of a buyout will spur others to start looking for their own synergies, so that more of the same can be expected. The same companies that received a boost when the Supreme Court ruled against Aereo could now be expected to more overtly look for those synergies.

The funny thing is that when you do start seeing an increase in merger and acquisition activity it is rarely something done at or near market bottoms.

Imagine the opportunities to pick up companies at fire sale prices back in 2008 and 2009. How many of those happened when it really seemed to make sense?

Instead, that kind of activity, just like IPO activity comes when prices are high.

That’s certainly understandable for the beneficiaries of IPOs, but it doesn’t make too much sense for buyouts and mergers, except when you realize that it’s other people’s money that’s being spent.

There’s rarely reason to be concerned about value when it’s not yours and it’s easy to be incredibly indifferent to getting value. It’s all about the getting and trying to stay ahead at any price, even if that price will turn out to be a noose around your neck.

The news this morning seems to be the catalyss sending the pre-open futures nicely higher. It will be interesting to see whether or not Janet Yellen, who did discuss, in a limited fashion,  stock market valuation yesterday, will be asked questions about merger and IPO activity and whether that represents any cause for concern.

That question and its answer could be as explosive as when Greenspan commented about “froth” and “irrational exuberance.”

While the market looks to open higher this morning my only hope is that some of that move adds to some gains for the week, but it has otherwise been a very, very quiet trading week. In sharp contrast to last week.there have so far been no real activity in generating income from option sales, with the exception of some DOH trades of Holly Frontier.

If the market does generate some more strength this morning any opportunity to sell some more contracts on existing positions will be more likely that looking to add new positions, at this point. Any new positions are likely to look at expiration dates beginning with the August 2014 cycle, which begins next week.

With monthly and weekly contract expiration just 3 days away, the process of looking for rollovers begins today and there may at least be some opportunity to generate some of the weekly income that’s be really missing this week. Hopefully that will be coupled with some assignments so that the August cycle can get off to a good start.

Daily Market Update – July 15, 2014 (Close)

For the next two days Janet Yellen will be providing some testimony in front of congressional banking and finance committees.

Today no one really cared about what she said, it was about what she didn’t say, but had appeared in printed comments regarding her opinion of stock pricing of some”smaller”  bio-technology and social media stocks as being over valued.

Based on her latest two rounds of public statements it has been pretty clear that anyone with money who was inclined to invest would be better off in stocks as their vehicle as opposed to alternatives, such as bonds. However, today’s comments gave some room for pause, at least in two sectors.

For now, though, at least until the first potential real newsworthy words coming from Yellen’s comments, the story is again on the financials, as more good news is awaited the opening bell and did bring the market higher until the comments from Yellen dragged some of the life out of the decent rise.

With JP Morgan and Goldman Sachs reporting earnings this morning that were in line with the previous day’s report from Citigroup, there’s reason to believe that the economy may be heating up. When the financial sector does well it’s not a far stretch to imagine other sectors doing well, although that’s not always a given.

Over the past 4-6 quarters there have been a couple of earnings seasons that started with the financial sector reporting better than expected earnings but with no follow through from other market sectors.

Sooner or later, though, the rest of the market has to catch up to good fortunes in the banking world.

Goldman Sachs, for example, actually reported revenues that were a $1 billion  more than expected. Additionally, both JP Morgan and Goldman Sachs seem to have indicated that their own fortunes significantly improved during the latter part of the past quarter. For its part, Johnson and Johnson also reported this morning and their revenues came in $600 million higher than expected.

Yesterday’s strong gain was fueled by Citigroup’s results. This morning the impact of the early reports weren’t as obvious, although they did turn the pre-open around from mildly negative to mildly positive.

Yesterday’s triple digit gain came close to setting another record on the DJIA, although the broader market didn’t perform quite as well. It was good enough fo
r most people, however.

Today we were again close to setting another new high, but also again, the broader market trailed the DJIA by a considerable margin.

Yesterday I tried to get some trades in Bed Bath and Beyond, Cypress Semiconductor and even Riverbed Technology. However, while there was a fair amount of volatility with share pricing yesterday, representing give and take between buyers and sellers, despite the fact that the actual indexes were virtually unchanged during the day, there was very little such give and take in the option markets.

What that meant was that even as share prices changed the option prices didn’t follow along, making it a challenge to get trades done, as the “Net Debit” prices couldn’t be realized. In all likelihood that meant that those in the option markets weren’t convinced by yesterday’s trading. Buyers and sellers just couldn’t come to agreement.

That was fairly frustrating.

Generally I don’t mind being the one to give in on pricing because I’m motivated to get the trade done.

However, when volatility is so low and the premiums are, as well, that kind of giving in makes it harder to justify the trade on an ROI basis, especially as the market is sitting at such heights.

When looking at charts of so many potential positions it certainly looks as if there’s more room to drop than there is to climb, even though the potential climb is unlimited. With the small premiums, if using them for downside price protection they don’t offer very much to counter the risk. However, if using the premiums for income, then it’s a little easier to justify the transaction, but still not as easy as even a few months ago.

Today will be yet another day with cash available to spend and a willing, but not reckless spender, looking for an opportunity.

I was hoping that the two sides of the transaction equation could come together better today than they did yesterday, but there really wasn’t too much reason to test the market’s desire to transact on much of anything, today.

The one new position trade in Lorillard oddly disintegrated as the day went on.

Prior to conformation of the buyout of Lorillard by Reynolds American the market seemed to price the transaction at $65.

Today it expressed disappointment that the deal was priced at about $68, based on the details of the deal which included about 0.29 shares of Reynolds stock.

I still don’t understand how Lorillard shares plummeted and then fell even further. None of the issues being discussed later in the day as potential negatives were newly discovered, yet suddenly they have become issues.

I don’t understand, but I wouldn’t mind holding shares, as Reynolds believes that the deal will be completed sometime in the first half of 2015 and they have already committed to the cash portion of the deal, as well as maintaining the dividend at its current rate.

Unless something wild and crazy pops up over the course of the next day, like the world discovering that smoking is bad for you, this is one large drop that I expect to correct itself fairly quickly.

For now we’ll just wait and see what Janet Yellen will say tomorrow that will get tongues wagging.

Daily Market Update – July 15, 2014 (8:30 AM)

For the next two days Janet Yellen will be providing some testimony in front of congressional banking and finance committees.

Based on her latest two rounds of public statements it has been pretty clear that anyone with money who was inclined to invest would be better off in stocks as their vehicle as opposed to alternatives, such as bonds.

For now, though, at least until the first potential newsworthy words coming from Yellen’s comments, the story is again on the financials, as more good news is awaiting the opening bell.

With JP Morgan and Goldman Sachs reporting earnings this morning that were in line with the previous day’s report from Citigroup, there’s reason to believe that the economy may be heating up. When the financial sector does well it’s not a far stretch to imagine other sectors doing well, although that’s not always a given.

Over the past 4-6 quarters there have been a couple of earnings seasons that started with the financial sector reporting better than expected earnings but with no follow through from other market sectors.

Sooner or later, though, the rest of the market has to catch up to good fortunes in the banking world.

Goldman Sachs, for example, actually reported revenues that were a $1 billion  more than expected. Additionally, both JP Morgan and Goldman Sachs seem to have indicated that their own fortunes significantly improved during the latter part of the past quarter. For its part, Johnson and Johnson also reported this morning and their revenues came in $600 million higher than expected.

Yesterday’s strong gain was fueled by Citigroup’s results. This morning the impact of the early reports weren’t as obvious, although they did turn the pre-open around from mildly negative to mildly positive.

Yesterday’s triple digit gain came close to setting another record on the DJIA, although the broader market didn’t perform quite as well. It was good enough for most people, however.

I tried to get some trades in yesterday in Bed Bath and Beyond, Cypress Semiconductor and even Riverbed Technology. However, while there was a fair amount of volatility with share pricing yesterday, representing give and take between buyers and sellers, despite the fact that the actual indexes were virtually unchanged during the day, there was very little such give and take in the option markets.

What that meant was that even as share prices changed the option prices didn’t follow along, making it a challenge to get trades done, as the “Net Debit” prices couldn’t be realized. In all likelihood that meant that those in the option markets weren’t convinced by yesterday’s trading. Buyers and sellers just couldn’t come to agreement.

That was fairly frustrating.

Generally I don’t mind being the one to give in on pricing because I’m motivated to get the trade done.

However, when volatility is so low and the premiums are, as well, that kind of giving in makes it harder to justify the trade on an ROI basis, especially as the market is sitting at such heights.

When looking at charts of so many potential positions it certainly looks as if there’s more room to drop than there is to climb, even though the potential climb is unlimited. With the small premiums, if using them for downside price protection they don’t offer very much to counter the risk. However, if using the premiums for income, then it’s a little easier to justify the transaction, but still not as easy as even a few months ago.

Today will be yet another day with cash available to spend and a willing, but not reckless spender, looking for an opportunity.

Hopefully the two sides of the transaction equation can come together better today than they did yesterday.

Daily Market Update – Jul 14 ,2014 (Close)

While there’s not too much economic news scheduled this week it will be a busy one for earnings and possibly international events.

For the most part, however, with the exception of the very initial military advance into Crimea, international events, other than in banking, have been almost completely ignored, even in precious metals markets.

Unless something truly unexpected and horrific happens overseas as everyone seems to have bigger and more destructive weapons and appear to have lost any reluctance in using them, those normal war-like events should be non-events for traders.

So it’s likely that most focus will be on earnings this week and we may live and die by those.

The week gets its start with a surprising earnings boost from Citigroup, which hasn’t found the way to deliver good news in a while and even failed the paint by numbers test necessary for regulators to allow it to initiate a stock buyback or raise the dividend.

A strong Citigroup would be the sort of thing to inspire some market confidence, especially if future strength is projected to be on the revenue side rather than through expense control.

It’s often said that the markets are lead out of their doldrums by the financial sector, although it’s hard to characterize current levels as anything but “near highs,” rather than “doldrums.” However, reports from JP Morgan, Morgan Stanley and Goldman Sachs this week could be just the thing to get the indexes back on track to surpass previous records and maybe take everyone along for the ride and not just select sectors.

When the final closing bell sounded the market, probably spurred on by Citigroup, traded in a remarkably narrow range, although individual stocks seemed to vary quite a bit through the day, possibly reflecting lots of rotation. It was a nice day, but the DJIA had its performance enhanced compared to the broad indexes due to the performance of some of its higher priced componetns, such as Visa, IBM and Goldman Sachs. Those higher priced Dow components have a disproportionate impact on the index.

This week will likely be very different from last week’s trading approach.

With no big event planned for the week there’s not too much reason to consider early rollovers where possible and instead there’s a greater need to create new positions if weekly income creation is a goal. Any broad market strength could create some opportunity to sell options on uncovered positions, but new positions  are likely to be a primary strategy this week.

With some money to spend thanks to some assignments last week, I’m willing to take cash down to about the 16% level, which could be as many as 6 new positions. As with previous weeks, however, the challenge is trying to find opportunities that aren’t so close to their peak prices or that could conceivably withstand broad market weakness better than the rest of the market. Today that was really challenging, especially with the latter criterion in mind.

With the market’s rise having come sector by sector, rather than as a broad wave of advances, it would be wonderful to be able to predict the next sector poised to move higher, but that is likely to be as successful of a venture than attempts to predict anything else, so it’s still better to look for individual positions and where possible, to diversify the selections.

Last week was a counter-example to that simple tenet, as all three new positions were energy related and two of the positions were the same – Chesapeake Energy.

While last week  was a good week to not have invested much capital, especially early in the week, and it is difficult establishing diversity if you don’t commit much funds, that lack of diversity isn’t something that I’d want to do on a regular basis.

Hopefully the opportunities this week will be a little more far flung and I would especially like to add some technology, industrials, healthcare and maybe even finance, despite the morning’s likely boost across that sector from the Citigroup news. The one trade of the day, in the industrial sector, didn’t come close to keeping up wiuth the market, as the entire industrial sector was weak throughout the day and never did catch up.

With a nearly triple digit advance in the pre-open market I didn’t think that I’d be rushing in if the market actually opened in the same manner, but unlike other sessions where there were false starts, today wasn’t one of those days. That was consistent with those kind of rallies that are fueled by financials. Knowing that, or at least believing that, however, and the willingness to do a little bit of chasing, still didn’t result in any great opportunity to find worthy new positions..

While I wanted to part of any party and was willing, uncharacteristically, to pay up for the privilege, today just wasn’t the day.

Daily Market Update – Jul 14 ,2014 (9:00 AM)

While there’s not too much economic news scheduled this week it will be a busy one for earnings and possibly international events.

For the most part, however, with the exception of the very initial military advance into Crimea, international events, other than in banking, have been almost completely ignored, even in precious metals markets.

Unless something truly unexpected and horrific happens overseas as everyone seems to have bigger and more destructive weapons and appear to have lost any reluctance in using them, those normal war-like events should be non-events for traders.

So it’s likely that most focus will be on earnings this week and we may live and die by those.

The week gets its start with a surprising earnings boost from Citigroup, which hasn’t found the way to deliver good news in a while and even failed the paint by numbers test necessary for regulators to allow it to initiate a stock buyback or raise the dividend.

A strong Citigroup would be the sort of thing to inspire some market confidence, especially if future strength is projected to be on the revenue side rather than through expense control.

It’s often said that the markets are lead out of their doldrums by the financial sector, although it’s hard to characterize current levels as anything but “near highs,” rather than “doldrums.” However, reports from JP Morgan, Morgan Stanley and Goldman Sachs this week could be just the thing to get the indexes back on track to surpass previous records and maybe take everyone along for the ride and not just select sectors.

This week will likely be very different from last week’s trading approach.

With no big event planned for the week there’s not too much reason to consider early rollovers where possible and instead there’s a greater need to create new positions if weekly income creation is a goal. Any broad market strength could create some opportunirty to sell options on uncovered positions, but new positions  are likely to be a primary strategy this week.

With some money to spend thanks to some assignments last week, I’m willing to take cash down to about the 16% level, which could be as many as 6 new positions. As with previous weeks, however, the challenge is trying to find opportunities that aren’t so close to their peak prices or that could conceivably withstand broad market weakness better than the rest of the market.

With the market’s rise having come sector
by sector, rather than as a broad wave of advances, it would be wonderful to be able to predict the next sector poised to move higher, but that is likely to be as successful of a venture than attempts to predict anything else, so it’s still better to look for individual positions and where possible, to diversify the selections.

Last week was a counter-example to that simple tenet, as all three new positions were energy related and two of the positions were the same – Chesapeake Energy.

While last week  was a good week to not have invested much capital, especially early in the week, and it is difficult establishing diversity if you don’t commit much funds, that lack of diversity isn’t something that I’d want to do on a regular basis.

Hopefully the opportunities this week will be a little more far flung and I would especiually like to add some technology, industrials, healthcare and maybe even finance, despite the morning’s likely boost across that sector from the Citigroup news.

With a nearly triple digit advance in the pre-open market I don’t think that I’ll be rushing in if that is how the opening goes, but unlike other false starts sometimes coming from the pre-open, one that is fueled by the financials may be one that has greater legs, so I may be a little less likely to wait for a fallback from higher levels.

If there will be a party going on I want to be part of it.