Category Archives: Daily Market Update

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Daily Market Update – January 7, 2014 (10 AM)

Yesterday was an interesting day in the market.

Trading volume was unusually light for the first Monday of the New Year and the early rally disappeared fairly quickly.

What was interesting was how much the thesis that the cold weather was going to impact on walk-in sales at retailers, including grocery stores, Starbucks and others, carried wright throughout the day.

With no other news, in this case, only opinion, that family of stocks felt their own deep freeze yesterday.

Whether the thesis is true or not, and it certainly does make sense, the impact won’t be reported until the next earnings season, which begins in April. The greatest likelihood is that very few are going to remember that thesis when April earnings rolls around and if true, those stocks are likely to suffer again.

Now, if only I would be able to remember that when the time comes.

In the meantime there’s plenty more to think about.

Yesterday evening Janet Yellen was confirmed as the next Chairman of the Federal Reserve.

This Friday is the first release of an Employment Situation Report for 2014 and for which Yellen can play a role in leading the newl
y configured and hawkish voting membership. Yellen herself doesn’t assume the Chairmanship until February 1, 2014.No doubt that a strong report would bring pressure to increase the size of the taper from its current $10 billion each month. Even though the hawks won’t represent a voting block of sufficient proportion to effect policy, the wording of the FOMC minutes are parsed each month and the market often reacts to sentiment as much as it does to reality.

So we’ll see what Friday brings. With so many positions set to expire on Friday I’m hoping for a non-event or a modest rise higher as it would be nice to get some more cash in hand for greater flexibility going forward.

While waiting there’s still not much reason to go counter to January history.

I’m currently at the lowest cash level in many months and still willing to go down a bit further, perhaps to 20%. That would mean considering an additional two or so new purchases for the week if the opportunities present themselves. But even if not adding many new positions there is still enough upside potential in covered and uncovered positions to take advantage of any modest rally, so I wouldn’t be adverse to that possibility.

It otherwise promises to be a non-event driven week and the low volume may very well continue as even traders get cold when arctic winds blow. The prospects of low volume sometimes introduces opportunism and artificially large moves as big traders in essence are able to manipulate the market, often using the option market as their vehicle.

Those sort of things always seem to correct themselves for the rest of us who may get caught in the vortex as it’s all happening and then just as suddenly see the reversals occurring after the big boys have made their money.

While waiting for a sign to spend more money staying warm sounds like a good strategyright now.

 Access prior Daily Market Updates by clicking here

 OTP Sector Distribution* as of January 6, 2014

 * Assumes equal number of shares in positions

Posting of trades is not a recommendation to execute trades

Monday through Thursday? See “Daily Market Update” with first edition published by 12 Noon and Closing Update published by 4:30 PM

Friday? See Week in Review for summary statistics and performance

Sunday? See Weekend Update for potential stock choices for coming week

Any day? See Performance for open and closed positions

Subscribers may see  ROI statistics  on all new, existing and closed positions on a daily updated basis

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Daily Market Update – January 6, 2014 (Close)

Last night I went to bed hearing that the Nikkei had fallen 2% and was ready to awaken to the same kind of news regarding the S&P 500 futures.

So much for a January Rally.

Normally I turn on the TV and check Bloomberg for the overnight recap before doing anything else, but this morning, in anticipation of some rocky roads ahead, it was time to make the coffee first. I thought there might be a need for some comfort.

But that didn’t turn out to be the case. The US markets were preparing themselves for a sedate open in a week that will likely see the confirmation of Janet Yellen as the next Federal Reserve Chairman and end with the release of the Employment Situation Report.

While it remains hard to really embrace a bullish attitude I’d be inclined to be bullish if January simply slowly and methodically climbs higher, rather than some years past in which it had spectacular returns that just weren’t borne out throughout the year or that didn’t live up to the January promise of things to come.

Both 2012 and 2013 saw 5% gains in January, ending the years up about 13% and 30%, respectively.

Either of those would be good years when all said and done, but by and large 2012 was flat for the remainder of the year, just as was 2011.

While I continue to look at 2013 as an aberration, I’m not entirely certain that 2014 will be any different. Certainly there will be those prepared to say in hindsight that if earnings do improve and there is a faltering market, or one that isn’t very responsive to those brightened earnings, it was simply a case of the market having discounted an improving economy.

I’ve long given up on the idea that the market and those who spend their lives immersed in it are so smart as to be able to look so convincingly into the future and predicate their actions today on events 6 months from today.

While I do understand the concept of “buy on the rumor and sell on the news,” that is a real time strategy, not one based on some finite portion of my life expectancy.

But the economy, by all measures, is improving. They key is that it isn’t getting red hot, as previous recoveries have seen such periods when all guns were firing, leading to spiking interest rates, which in turn lead to bonds being preferred over stocks.

Stocks are the only game in town and that doesn’t really show any sign of changing right now.

A slowly improving economy is like the somewhat perverted scientific experiment of placing a frog into a very slowly warming pot of water that eventually gets to a boil, except that the outcome is good.

A slowly climbing market, especially one that takes the time to smell the roses, is also one that is more likely to lead to a good outcome.

The past couple of months have actually been like that as the market has taken some time to rest, consolidate and move forward. While I and so many others talk about how healthy a 5 or 10% correction would be, perhaps the most healthy way of going forward is simply to pace oneself.

With many positions set to expire this and next week and not having replenished the cash reserve very much this week, pacing myself is likely the key to this week.

I’d like to see that slow climb continue and lead to lots of assignments, but with prices not having climbed so high as to make the decision regarding adding new positions so difficult.

Ultimately in a flat market or one that slowly climbs higher or lo slowly drops lower, there would be far less need to add new positions and far more opportunity to make rollover trades. Whatever brings in the income or whatever creates a downside cushion is fine, as long as the process goes on and on.

Although I expected each of
the last two weeks to be slow trading weeks, they turned out very differently. But this week I’m again expecting a slow trading week and would be surprised if it turned out otherwise.

I’d be content to just let the market show the way and follow its lead this week.

 Access prior Daily Market Updates by clicking here

 OTP Sector Distribution* as of January 6, 2014

 * Assumes equal number of shares in positions

Posting of trades is not a recommendation to execute trades

Monday through Thursday? See “Daily Market Update” with first edition published by 12 Noon and Closing Update published by 4:30 PM

Friday? See Week in Review for summary statistics and performance

Sunday? See Weekend Update for potential stock choices for coming week

Any day? See Performance for open and closed positions

Subscribers may see  ROI statistics  on all new, existing and closed positions on a daily updated basis

&nbs
p;

See all Trade Alerts for this monthly option cycle

 

(see all trades this option cycle)

Daily Market Update – January 2, 2014 (Close)

2014 is going to be held to a high standard.

For lots of investors 2013 was one of the best years that they’ll ever see, although there have certainly been better ones.

What there really hasn’t been is such a strong and concerted move that has sent markets up about 150% in less than 5 years.

Can 2014 live up to that standard?

The period from 1995 to 1999, in terms of market performance, may be similar to the current time. Really good years were followed by really good years.

And then the bubble burst.

The comparison may end, though, without including the bursting part, because there really is not dot com craziness pervading the current market. Everything is moving higher and while the market doesn’t seem completely rationale, its mostly because it hasn’t taken a break and not because of frenzied bidding.

For people that trade Momentum stocks, such as Tesla, the idea is to trade and trade until the trade is no longer there. They don’t question the rationality of the price move, they just accept that it’s happening and want to be part of it. They also recognize that at some point the trade will disappear and will usually do so with little warning and in a big way.

At least most recognize that to be the case. The others shouldn’t be investing.

The market may have simply been acting like a Momentum stock for the past 14 months. How much longer it keeps going is anyone’s guess, but it’s hard to not be part of the action, especially if the uniqueness of the product is not what is sending prices higher.

I spent so much of 2013 waiting for a correction I don’t know what it feels like anymore to be an unrepentant bull., bull I am more bullish about 2014 than 2013, simply because of history, despite the fact that this run is getting really long in the tooth.

Interestingly, not that much has been made this year about the historical strength the market sees in January. In the past the years in which everyone seemed to be talking about the guarantee of profits in January the theory just fell apart.

The lack of talk is always a good sign, although the market is getting 2014 off to a lackluster start.

For the covered option buyer the least preferable of all markets is the one that we just finished. While I am more bullish for 2014 than 2013 part of that bullishness is wrapped up in the hope that the market will show more indecision this year and spend more time bobbing up and down.

Those movements create volatility and create many more opportunities to generate income from holdings, while requiring less reliance on discovering new buying opportunities.

With initial weakness to start the morning I plan on watching a bit before considering any more purchases for the week, despite now being more open to adding new positions on Thursdays and Fridays.

As the morning seemed to do nothing but confirm weakness there did appear to be some new opportunities, but caution isn’t a bad idea whenever there is a large move. It’s bad to ever get into a mindset that you’re either going to miss a rally or miss a bargain.

I don’t believe that the selling this morning is reflective of anything other than a little exhaustion and taking profits while deferring tax liability until 2015, so I do expect things to get back on track fairly soon. Anyone of that mindset, looking at a declining market is going to want to lock their profits in before any risk of a slide lower.

While the market never did recover, neither did the selling really grow and the volume was very light, so no real insights were in the making today.

Hopefully tomorrow, with expiration at hand, we’ll have a little bit of a snapback to either get some assignments or at least some rollovers.With plenty of positions already set to expire the next two weeks I may be looking for rollovers using expanded options or even the February monthly contract.

With money in hand and perhaps some relative bargains beginning to appear I’m anxious to get back to work, hoping to make fewer trades, collect more dividends and rollover more positions in 2014.

Oh yeah, and peace on earth, too.

Access prior Daily Market Updates by clicking here

OTP Sector Distribution* as of January 2, 2014

 * Assumes equal number of shares in positions

Posting of trades is not a recommendation to execute trades

Friday? See Week in Review for summary statistics and performance

Sunday? See Weekend Update for potential stock choices for coming week

Any day? See Performance for open and closed positions

Subscribers may see  ROI statistics  on all new, existing and closed positions on a daily updated basis

 

See all Trade Alerts for this monthly option cycle