Category Archives: Daily Market Update

Daily Market Update – May 29, 2014 (Close)

Hard to believe that the morning wasn’t faced with the challenge of having to add to another previous day’s closing high.

With volatility so low and now even precious metals testing some resistance levels the thought that comes to mind is the inescapable reality that cycles rule everything in economics. It’s just the onset, length and magnitude of those cycles that are hard to divine.

With some occasional brief and shallow interruptions this has been a 5 year cycle that appears to have a slowing acceleration as it continues to move higher.

But don’t tell that to the market which decided to take a mediocre day trading and turn it around in the final minutes.

If you can’t stand the suspense, there was another new high set in the S&P 500 when it was all over for the day.

At the same time all of the fears surrounding the impact of the 10 Year Treasury rates on equities have been unfounded as even the direction of rates has been missed. First the fears focused on the rate approaching 3%, barely a couple of months ago and now the fears have followed the rate from 2.75% to 2.5% and still, nothing. The market just goes higher despite the well reasoned theories on why it should not do so.

For the rest of the week there is plenty of economic news scheduled to be released but none of it likely to move the needle very much as we’re on target to have a second consecutive week of gains.

Even the large revision in the GDP really did little to unsettle the market, whereas in a past era it would have sent it tumbling.

The big difference between setting record after record today versus 5 years ago or in the 1980s is that there isn’t the same kind of complacency. Back then there was often a belief that regardless of the investment it was bound to go higher, if only because it would be carried along with the rest of the market.

By and large that was true for certain times over the past 25 years and the complacency was justified until it wasn’t.

Sometimes the loss of justification came suddenly and caught most everyone by surprise, while at other times that lack of justification came with fair warning that was frequently ignored.

This time around the complacency isn’t there because the market has been very selective. Even while it moves higher and higher not all are taken for the ride and there appears to be much more sector rotation than ever, perhaps accounting for a divergence between the new market highs and the number of stocks in the new daily highs list.

Common sense would tell you that if the market, which is nothing more than the sum of its component parts keeps going higher its component pa
rts must, as well. The fact that the number of stocks on new highs list is decreasing is telling of  the fleeting strength of individual positions, which may in part explain why the vast majority of hedge funds are trailing the market index.

I suppose that those may be concerns for next week.

For this week there aren’t too many positions set to expire, but I’m hoping that there is again a nice mix of assignments and rollovers, much as was the case last week.

The early market indication was for a flat open and if that is sustained through tomorrow’s close that would be just fine and create the right frame of mind to deal with all of those future concerns, even though it paradoxically must bring us closer to an inevitable top.





Daily Market Update – May 29, 2014 (8:30 AM)

Hard to believe that the morning isn’t faced with the challenge of having to add to another previous day’s closing high.

With volatility so low and now even precious metals testing some resistance levels the thought that comes to mind is the inescapable reality that cycles rule everything in economics. It’s just the onset, length and magnitude of those cycles that are hard to divine.

With some occasional brief and shallow interruptions this has been a 5 year cycle that appears to have a slowing acceleration as it continues to move higher.

At the same time all of the fears surrounding the impact of the 10 Year Treasury rates on equities have been unfounded as even the direction of rates has been missed. First the fears focused on the rate approaching 3%, barely a couple of months ago and now the fears have followed the rate from 2.75% to 2.5% and still, nothing. The market just goes higher despite the well reasoned theories on why it should not do so.

For the rest of the week there is plenty of economic news scheduled to be released but none of it likely to move the needle very much as we’re on target to have a second consecutive week of gains.

The big difference between setting record after record today versus 5 years ago or in the 1980s is that there isn’t the same kind of complacency. Back then there was often a belief that regardless of the investment it was bound to go higher, if only because it would be carried along with the rest of the market.

By and large that was true for certain times over the past 25 years and the complacency was justified until it wasn’t.

Sometimes the loss of justification came suddenly and caught most everyone by surprise, while at other times that lack of justification came with fair warning that was frequently ignored.

This time around the complacency isn’t there because the market has been very selective. Even while it moves higher and higher not all are taken for the ride and there appears to be much more sector rotation than ever, perhaps accounting for a divergence between the new market highs and the number of stocks in the new daily highs list.

Common sense would tell you that if the market, which is nothing more than the sum of its component parts keeps going higher its component parts must, as well. The fact that the number of stocks on new highs list is decreasing is telling of  the fleeting strength of individual positions, which may in part explain why the vast majority of hedge funds are trailing the market index.

I suppose that those may be concerns for next week.

For this week there aren’t too many positions set to expire, but I’m hoping that there is again a nice mix of assignments and rollovers, much as was the case last week.

The early market indication is for a flat open and even if that is sustained through tomorrow’s close that would be just fine and create the right frame of mind to deal with all of those future concerns.





Daily Market Update – May 28, 2014 (Close)

Another new high.

Of course, that was in reference to yesterday. Today it was almost more of the same, but for the bulls out there, you can add the qualifier “barely missed.”

It’s said that the title to the movie “Annie Hall” was derived from “anhedonia,” which refers to the inability to experience pleasure.

While I don’t mind seeing all of these new highs as long as it translates into something equally good at home the amount of exhiliration is nothing close to what you would expect.

I’m not jumping up and down and certainly the market isn’t expressing any great optimism. The fact that you don’t see people pounding their chests and  raving about their successes is telling. Most people aren’t shy about letting the world know how great they’re doing.

This week, in addition to being a shortened trading week, also has almost no economic news of great importance.

That makes it one of those weeks with the potential to act as if in a vacuum. You could just as easily see large moves higher as you could see them go lower. You could also just as easily see very little happening as people will keep re-evaluating the old “Sell in May and go away” aphorism.

Today turned out to be a day of antipathy and give and take with neither bulls nor bears really wanting to take charge of things.

This morning saw a little reversal of the mildly positive pre-open trading by the time the morning bell rang but that means very little. In today’s case, though, that mild reversal of a mild gain was an encapulation of the trading day to come.

As with many days in the past couple of months the morning’s pre-open action warranted just sitting and watching during the first 30-60 minutes just to see how things would unfold, but there really was no over-riding theme in the markets at the moment trading started and none throughout the rest of the day, either.

While I continue to believe that there just has to be some kind of market retreat and an end to this historically low volatility, it just doesn’t happen. It continues to fascinate me that the market is able to continually go higher and higher. If not going higher and higher, at least it seems to stay in the same neighborhood.

While on the one hand you don’t want to miss out on the party, you also don’t necessarily be the last one to leave or come to a late realization that the party is over.

Sitting mid-week with plenty of cash to party it’s hard to resist joining in, but despite recent h
istory indicating a really resilient market, the  simple question becomes one of a consideration of “the margins.”

“The margins” means looking at each incremental unit of change. At the market’s current level what is the likelihood of continued upside movement as compared to the potential for downside? Not only the likelihood, but in terms of the number of units of movement in both directions. Does the market have as much realistic potential to move to the upside by an amount that is greater than the potential to move to the downside?

I think that the downside risk and the amount of risk is now greater than the upside reward, even though the theoretical upside reward is much greater than the theoretical downside risk.

Most people have their own notion of what constitutes an acceptable risk to reward ratio. While there may continue to be upside reward, after all the market hasn’t exactly been rational in moving higher, it’s hard to discount the gap between the current level and where support exists below that level.

For some the small semi-corrections seen over the past two years means that there are ia number of intermediate support levels that could take the market down just a little at a time or if you’re really an optimist serve as a springboard to go even higher.

To the cynic those aren’t really support levels, rather just resting spots to get the market to finally have a meaningful correction.

The reality is that we just don’t know, because the historical precedence isn’t very strong and that is it’s own vacuum.

Like so many other times over the past few years sometimes it helps to sit back and wait for some indication of a macro move, whether based on market dynamics, external world events or anything else, before making too large of an additional commitment.

Hopefully the rest of this week will offer some additional opportunities to sell new cover and maybe a new purchase here or there, but for the moment, I want some sign before digging too deeply into my pockets for the entry fee to get into this party.

Reprinted from yesterday’s Close 

PS: For those with the Feb 18, 2014 Transocean lot, sorry about the late rollover trade. I was really on the fence with this one because I wasn’t certain that the June 21, 2014 $42 calls would be assigned early to capture tomorrow’s $0.75 dividend, despite closing at $43.35.

Despite being $1.35 in the money, I’m still not certain that shares have a high probability of early assignment to capture the dividend, but I really wanted to keep this dividend and believe that Transocean has more room to climb.

Ultimately, doing the “what-if” scenarios convinced me that taking a net debit on the rollover, which actually is still a net credit thanks to the premium received for the $42 sale last week, was worthwhile.

If shares were to have been assigned early at the $42 strike the ROI would have been 8% compared to 4% for the S&P 500 over the same period.

If shares wouldn’t be assigned early and the dividend was received the ROI, if assigned at the end of the June 2014 cycle would have been 9.7%. However, given that shares closed about $0.60 over the threshold level of $42.75 there was some chance of early assignment, even though nearly 4 weeks remain on the contract.

With the rollover up to a $43 strike in exchange for going to a July 2014 expiration the likelihood of early assignment is virtually non-existent and if eventually assigned the ROI would be 11.5%

The final part of the equation was the question of what else could have been done with the money if assigned early. Given the recent low volatility the monthly ROI is at the low end of the range that I’ve been accustomed to achieving. In essence the question became could I achieve a 3.5% ROI over the 8 week period? While I like to believe that the answer is “yes” the belief that Transocean doesn’t have much in the way of near term downside ultimately made the decision relatively straightforward. I looked at the rollover as providing a relatively low maintenance return with greater safety than alternatives.



Daily Market Update – May 28, 2014 (9:45 AM)

Another new high.

It’s said that the title to the movie “Annie Hall” was derived from “anhedonia,” which refers to the inability to experience pleasure.

While I don’t mind seeing all of these new highs as long as it translates into something equally good at home the amount of exhiliration is nothing close to what you would expect.

I’m not jumping up and down and certainly the market isn’t expressing any great optimism. The fact that you don’t see people pounding their chests and  raving about their successes is telling. Most people aren’t shy about letting the world know how great they’re doing.

This week, in addition to being a shortened trading week, also has almost no economic news of great importance.

That makes it one of those weeks with the potential to act as if in a vacuum. You could just as easily see large moves higher as you could see them go lower. You could also just as easily see very little happening as people will keep re-evaluating the old “Sell in May and go away” aphorism.

This morning saw a little reversal of the mildly positive pre-open trading by the time the morning bell rang but that means very little.

As with many days in the past couple of months it warrants just sitting and watching during the first 30-60 minutes just to see how things unfold, but there really is no over-riding theme in the markets at the moment.

While I continue to believe that there just has to be some kind of market retreat and an end to this historically low volatility, it just doesn’t happen. It continues to fascinate me that the market is able to continually go higher and higher.

While on the one hand you don’t want to miss out on the party, you also don’t necessarily be the last one to leave or come to a late realization that the party is over.

Sitting mid-week with plenty of cash to party it’s hard to resist joining in, but despite recent history indicating a really resilient market, the  simple question becomes one of a consideration of “the margins.”

“The margins” means looking at each incremental unit of change. At the market’s current level what is the likelihood of continued upside movement as compared to the potential for downside? Not only the likelihood, but in terms of the number of units of movement in both directions. Does the market have as much realistic potential to move to the upside by an amount that is greater than the potential to move to the downside?

I think that the downside risk and the amount of risk is now greater than the upside reward.

Most people have their own notion of what constitutes an acceptable risk to reward ratio. While there may continue to be upside reward, after all the market hasn’t exactly been rational in moving higher, it’s hard to discount the gap between the current level and where support exists below that level.

For some the small semi-corrections means that there are intermediate support levels that could take the market down just a little at a time.

To the cynic those aren’t really support levels, rather just resting spots to get the market to finally have a meaningful correction.

The reality is that we just don’t know, because the historical precedence isn’t very strong and that is it’s own vacuum.

Like so many other times over the past few years sometimes it helps to sit back and wait for some indication of a macro move, whether based on market dynamics, external world events or anything else, before making too large of an additional commitment.

Hopefully the rest of this week will offer some additional opportunities to sell new cover and maybe a new purchase here or there, but for the moment, I want some sign before digging too deeply

PS: For those with the Feb 18, 2014 Transocean lot, sorry about the late rollover trade. I was really on the fence with this one because I wasn’t certain that the June 21, 2014 $42 calls would be assigned early to capture tomorrow’s $0.75 dividend, despite closing at $43.35.

Despite being $1.35 in the money, I’m still not certain that shares have a high probability of early assignment to capture the dividend, but I really wanted to keep this dividend and believe that Transocean has more room to climb.

Ultimately, doing the “what-if” scenarios convinced me that taking a net debit on the rollover, which actually is still a net credit thanks to the premium received for the $42 sale last week, was worthwhile.

If shares were to have been assigned early at the $42 strike the ROI would have been 8% compared to 4% for the S&P 500 over the same period.

If shares wouldn’t be assigned early and the dividend was received the ROI, if assigned at the end of the June 2014 cycle would have been 9.7%. However, given that shares closed about $0.60 over the threshold level of $42.75 there was some chance of early assignment, even though nearly 4 weeks remain on the contract.

With the rollover up to a $43 strike in exchange for going to a July 2014 expiration the likelihood of early assignment is virtually non-existent and if eventually assigned the ROI would be 11.5%

The final part of the equation was the question of what else could have been done with the money if assigned early. Given the recent low volatility the monthly ROI is at the low end of the range that I’ve been accustomed to achieving. In essence the question became could I achieve a 3.5% ROI over the 8 week period? WHile I like to believe that the answer is “yes” the belief that Transocean doesn’t have much in the way of near term downside ultimately made the decision relatively straightforward. I looked at the rollover as providing a relatively low maintenance return with greater safety that alternatiuves.



Daily Market Update – May 27, 2014 (Close)

While I don’t like the smaller premiums that are generated on these 4 day trading weeks, I no longer dislike Monday holidays.

There was a time that I harbored some resentment for the market being closed on those Mondays. That was back in the days when such a holiday coincided with a day off for me and could have been used to hone some skills back when I couldn’t spend as much time as I wanted glued to the screen and ticker.

These days I can and suddenly, maybe not so surprisingly I like those shortened weeks and actually, on a day like Memorial Day, get a chance to understand and appreciate the reason for the holiday.

So now it’s Tuesday and inexplicably the market starts at another new high. What seems so unusual is that you really don’t see or hear a chorus of people gloating about their returns. The other day it was mentioned that some 70-80% of hedge funds were trailing the S&P 500. While that’s easy to understand if the market is going straight higher, it’s not easy to understand when the market is going lower or bouncing around.

My guess is that lots of hedge funds, after trailing the market in 2013 stopped hedging in anticipation of the need for protection and instead doubled up on the bullish end of things.

Bad timing if that’s the case and it is likely accurate to some degree. It’s not much different from the individual investor who waits until the start of the new year to get into last year’s hottest mutual fund.

While normally there would be some degree of euphoria here’s something that should be cause for concern:

That is that while the S&P 500 is going higher the number of new highs is going lower.

That’s just not the way things are supposed to work.

What that indicates is that the advance is really pretty narrow and there just isn’t a lot of participation.

Normally in a market making new highs over and over again everyone is happy because just about everything is moving higher getting swept by a rising tide.

Now, there’s a tide but it’s not doing too much sweeping and only taking a lucky few along for the ride.

I start this week with replenished cash from a decent number of assignments and having sold more new cover last week than in recent memory. On a personal note that leaves me happy, but I’m not overly anxious to plow even the full amount of the regenerated cash back into the market this week.

One of the reasons is tha
t the reward is reduced as there are only 4 days worth of premiums this week. However, beyond that is that after 2 previous weeks of not seeing much in the way of assignments and some decidedly negative trading, I’m not entirely convinced that least week’s positive trading patterns are here to stay.

My initial sense is that the optimism that may be borne of last week’s trading may be for fools.

Of course, like most everything, I’m not fully willing to base everything on that belief that may end up being wrong. So I anticipate making some trades this week in an effort to open some new positions, but I would still prefer to see uncovered positions find coverage and make my weekly income in that manner rather than having to spend very much to generate that income.

As always, we’ll see.

We’ll see if the pre-open futures have any predictive capability for the rest of the day and whether any bargains may pop up to cause me to rethink the thriftiness I have planned for the week.

But the day did keep all of the pre-open gains and set another new closing record.

Unbelievable.

PS: For those with the Feb 18, 2014 Transocean lot, sorry about the late rollover trade. I was really on the fence with this one because I wasn’t certain that the June 21, 2014 $42 calls would be assigned early to capture tomorrow’s $0.75 dividend, despite closing at $43.35.

Despite being $1.35 in the money, I’m still not certain that shares have a high probability of early assignment to capture the dividend, but I really wanted to keep this dividend and believe that Transocean has more room to climb.

Ultimately, doing the “what-if” scenarios convinced me that taking a net debit on the rollover, which actually is still a net credit thanks to the premium received for the $42 sale last week, was worthwhile.

If shares were to have been assigned early at the $42 strike the ROI would have been 8% compared to 4% for the S&P 500 over the same period.

If shares wouldn’t be assigned early and the dividend was received the ROI, if assigned at the end of the June 2014 cycle would have been 9.7%. However, given that shares closed about $0.60 over the threshold level of $42.75 there was some chance of early assignment, even though nearly 4 weeks remain on the contract.

With the rollover up to a $43 strike in exchange for going to a July 2014 expiration the likelihood of early assignment is virtually non-existent and if eventually assigned the ROI would be 11.5%

The final part of the equation was the question of what else could have been done with the money if assigned early. Given the recent low volatility the monthly ROI is at the low end of the range that I’ve been accustomed to achieving. In essence the question became could I achieve a 3.5% ROI over the 8 week period? WHile I like to believe that the answer is “yes” the belief that Transocean doesn’t have much in the way of near term downside ultimately made the decision relatively straightforward. I looked at the rollover as providing a relatively low maintenance return with greater safety that alternatiuves.