Daily Market Update – April 13, 2015 (Close)

 

 

 

Daily Market Update – April 13, 2015  (Close)

 

While there are some economic reports of interest this week they’re not likely to be anywhere near as important as the real beginning of earnings season this week.

It may have started with Alcoa last week, but tomorrow begins the series of reports from the major money center banks.

While they can do well and not bring the rest of the market higher with it, it’s not to common for those banks to report disappointing earnings and then to see the rest of the market thrive. However, that was the case in the final quarter of 2014, when the relatively disappointing earnings reports from the banks didn’t drag markets lower.

So it could happen.

This time around there aren’t really great expectations for the banks and instead most attention is going to be focused on those companies that may have significant currency exposure, such as Intel, which also reports this week.

We’ve been talking and fretting for so long about currency impact that you would have to think that it would have to be much worse than expected for the actual reports to bring stocks down very much. You might also think that companies with lots of cash overseas and earning lots of money overseas are involved in fairly sophisticated currency hedging that would finally start to pay off.

However, coming off a relatively strong 2 weeks to start April after a really disappointing March, there’s room to give up some of those recent gains. On the other hand, though, April is just an historically strong month for markets and our lowered expectations for earnings may be just the environment necessary for the next phase higher.

Each of those is reasonable and we’ll find out soon enough whether there is enough contained in the upcoming earnings reports to push markets higher, as we’re running out of other reasons to see growth.

At this point it looks as if we’re going back to good old fundamentals, which normally would be a good thing, unless some one comes up with the realization that current levels are just artificially so high and to a degree are based on engineering of EPS data through years of buy backs that have probably now seen their peak.

Just look at the performance of GE today, just a day after its 10% gain following announcement of a $50 Billion buyback that will be funded from selling its non-industrial pieces. Never mind that those pieces were now making money.

That GE buyback may truly have been the peak of the corporate strategy that has been soaking up shares and helping to create an illusion of greater comparative earnings.

GE actually reports earnings this week, too. That could be interesting.

With only a single assignment last week I’m not expecting to be very actively looking for new positions this week, just as last week was restrained.

With a number of positions set to expire this Friday as the monthly cycle comes to its end, I’d be very happy to have a repeat of last week. Being able to get rollovers done and execute the sale of some calls on existed uncovered positions would satisfy my need to generate income for the week.

However, as much as I was happy with last week, this week I would like to see some more emphasis on the assignment side of the equation.

At the moment a number of positions are candidates for assignment but it’s not a done deal until the final closing bell rings on Friday and even then it’s not really a done deal until as much as another 90 minutes passes.

So I won’t be making too many plans with all of that money from assignments that still may not ever become reality until they do.

However, with the likelihood of at least some and with the additional likelihood of at least being able to get some rollovers accomplished, any new positions may equally look at expirations this Friday or in some future weeks.

With volatility getting lower and lower and bringing premiums down, as well, there’s not too much attraction for looking at the extended weekly options unless earnings come into play and help to boost up some premiums.

The market appeared to be getting ready to open the week on a flat note, so the early direction could have then gone anywhere, but it ended up getting progressively weaker as the day wore on, in the complete absence of news.

For whatever there was today the week won’t begin for real until tomorrow morning when JP Morgan and Wells Fargo get it all going.

 

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Daily Market Update – April 13 – 16, 2005

 

 

 

Daily Market Update – April 13, 2015  (7:30 AM)

 

While there are some economic reports of interest this week they’re not likely to be anywhere near as important as the real beginning of earnings season this week.

It may have started with Alcoa last week, but tomorrow begins the series of reports from the major money center banks.

While they can do well and not bring the rest of the market higher with it, it’s not to common for those banks to report disappointing earnings and then to see the rest of the market thrive. However, that was the case in the final quarter of 2014, when the relatively disappointing earnings reports from the banks didn’t drag markets lower.

So it could happen.

This time around there aren’t really great expectations for the banks and instead most attention is going to be focused on those companies that may have significant currency exposure, such as Intel, which also reports this week.

We’ve been talking and fretting for so long about currency impact that you would have to think that it would have to be much worse than expected for the actual reports to bring stocks down very much. You might also think that companies with lots of cash overseas and earning lots of money overseas are involved in fairly sophisticated currency hedging that would finally start to pay off.

However, coming off a relatively strong 2 weeks to start April after a really disappointing March, there’s room to give up some of those recent gains. On the other hand, though, April is just an historically strong month for markets and our lowered expectations for earnings may be just the environment necessary for the next phase higher.

Each of those is reasonable and we’ll find out soon enough whether there is enough contained in the upcoming earnings reports to push markets higher, as we’re running out of other reasons to see growth.

At this point it looks as if we’re going back to good old fundamentals, which normally would be a good thing, unless some one comes up with the realization that current levels are just artificially so high and to a degree are based on engineering of EPS data through years of buy backs that have probably now seen their peak.

With only a single assignment last week I’m not expecting to be very actively looking for new positions this week, just as last week was restrained.

With a number of positions set to expire this Friday as the monthly cycle comes to its end, I’d be very happy to have a repeat of last week. Being able to get rollovers done and execute the sale of some calls on existed uncovered positions would satisfy my need to generate income for the week.

However, as much as I was happy with last week, this week I would like to see some more emphasis onthe assignment side of the equation.

At the moment a number of positions are candidates for assignment but it’s not a done deal until the fiunal closing bell rings on Friday and even then it’s not really a done deal until as much as another 90 minutes passes.

So I won’t be making too many plans with all
of that money from assignments that still may not ever become reality until they do.

However, with the likelihood of at least some and with the additional likelihood of at least being able to get some rollovers accomplished, any new positions may equally look at expirations this Friday or in some future weeks.

With volatility getting lower and lower and bringing premiums down, as well, there’s not too much attraction for looking at the extended weekly options unless earnings come into play and help to boost up some premiums.

For now, the market appears to be getting ready to open the week on a flat note, so the early direction can be anywhere, as can the opportunities, but the week may not begin for real until tomorrow morning when JP Morgan and Wlls Fargo get it all going.

 

 

 

 

 

 

 

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Dashboard – April 13 – 16, 2015

 

 

 

 

 

SELECTIONS

MONDAY:   Retail Sales and Industrial Production reports this week may give some information regarding the strength of the economy, but most eyes will be focused on earnings, especially from major banks and also Intel, to get an idea of what kind of currency impacts can be forthcoming

TUESDAY:    Earnings start for real this morning and both JP Morgan and Wells Fargo are in line, with at least no news to spook markets. Johnson and Johnson, with more on line in terms of currency exchange can make the same claim

WEDNESDAY: Lots more earnings to come and lots of Federal Reserve Governor speches, too. Markets look as if their bias is continuing to the upside as, so far, diminished expectations may be paying off

THURSDAY:  More good numbers from banks and Goldman Sachs, but it doesn’t look like it’s enough to prevent some early profit taking following yesterday’s session. Unfortunately, Netflix isn’t the kind of company that leads markets

FRIDAY: Get ready  to strap on as the monthly cycle comes to an end and futures following Europe sharply lower. Why? Does there really have to be a reason?

 

 

 


 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

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Weekend Update – April 12, 2015

This was one of those rare weeks where there wasn’t really any kind of theme to guide or move markets.

The week started with some nervousness about where the opening would take us after the previous Friday’s very disappointing Employment Situation Report statistics. On that day some were obliged to even suggest that it was a conspiracy that the report was released on Good Friday, as the markets were conveniently closed for what was supposedly known in advance to be a report that would have otherwise sent markets tumbling.

How convenient. Talk about a fairy tale.

That was as rational an outlook as was the response of the futures and bond markets trading, as they remained opened for holiday abbreviated sessions. Futures did go tumbling and interest rates plunged, leaving a gap for markets to deal with 3 days later.

But by then, after the mandatory initial response to those S&P 500 levels as the market opened, rational thought returned and the market had a very impressive turnaround beginning within minutes of the open.

Some brave souls may have remembered the market’s out-sized response to the previous month’s extraordinarily strong Employment Situation Report data that took the market down for the month to follow, only to see revisions to the data a month later. The 3 days off may have given them enough presence of mind to wonder whether the same outlandish response was really justified again.

One thing that the initial futures response did show us is that the market may be poised to be at risk regardless of what news is coming our way. One month the market views too many jobs as being extremely negative and the next month it views too few jobs as being just as negative.

Somewhere right in the middle may be the real sweet spot that represents the “No News is Good News” sentiment that may be the only safe place to be.

That is the true essence of a Goldilocks stock market, no matter what the accepted definition may be. It is a market where only the mediocre may be without risk. However, the question of whether mediocrity will be enough to continue to propel markets to new heights is usually easily answered.

It isn’t.

After a while warm porridge loses its appeal and something is needed to spice things up to keep Goldilocks returning. U.S. traded stocks have plenty of asset class competition in the event that they become mediocre or unpredictable.

The coming week may be just the thing to make or break the current malaise, that despite having the S&P 500 within about 0.7% of its all time high from just a month ago, is only 2.1% higher for 2015.

Granted that on an annualized basis that would bill respectable, but if the 2015 pattern of alternating monthly advances and declines continues we would end the year far from that annualized rate.

The catalyst could be this new earnings season which begins in earnest next week as the big banks report and then in the weeks to follow. Where the catalyst may arise is from our lowered expectations encountering a better reality than anticipated, as we’ve come to be prepared for some degree of lowered earnings due to currency considerations.

The real wild card will be the balance between currency losses and lower input costs from declining energy prices, as well as the impact, if any from currency hedges that may have been created. Much like the hedging of oil that some airlines were able to successfully implement before it became apparent how prescient that strategy would be, there may be some real currency winners, at least in relative terms.

I actually don’t really remember how the story of Goldilocks ended, but I think there were lots of variations to the story,depending on whether parents wanted to soothe or scare.

The real lesson is that you have to be prepared for either possibility.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

WIth General Electric (NYSE:GE) getting most everyone’s attention this past Friday morning with plans to divest itself of most of its non-industrial assets, that may leave us with one fewer “systemically important” financial institution.

Too bad, for MetLife (NYSE:MET), which might find it would be less miserable with that proposed assignment if it had more company. It’s easy to understand why financial institutions would want to rid themselves of the yoke they perceive, however, it may be difficult to imagine how MetLife’s desire to avoid that designation can become reality. That is unless the battle goes a very long distance, which in turn could jeopardize a good deal of whatever confidence exists over the restraints that are intended to prevent another financial meltdown.

I believe that the eventuality of those restraints and capital requirements impacting MetLife’s assets is already factored into its share price. If so, MetLife is simply just a proxy for the direction of interest rates, which continue to be volatile as there is still uncertainty over when the eventual interest rate increases will be coming from the FOMC.

While waiting for that to happen MetLife has been trading in a fairly tight range and offering an attractive option premium and dividend. I’ve already owned shares on 3 occasions in 2015 and look forward to more opportunities while waiting to figure out if the economy is too hot or not hot enough or just right.

With the coming week being dominated by bank earnings, one that isn’t reporting until the following week is Morgan Stanley (NYSE:MS). Thus far 2015 hasn’t been especially kind to the money center banks, but it has held Morgan Stanley in particular low regard.

With its well respected CFO heading to warmer pastures it still has a fairly young CEO and lots of depth, with key people continually being exposed to different parts of the company, thereby lessening dependence on any one individual.

With earnings from other banks coming this week the option premiums on Morgan Stanley are a little higher than usual. However, since they report their own earnings before the market opens on Monday of the following week, it would be a good idea to attempt to rollover weekly contracts if not likely to be assigned or to simply sell extended weekly contracts to encompass the additionally enhanced premiums for both this week and the next

Bed Bath and Beyond (NASDAQ:BBBY) is no stranger to significant earnings related price drops. It did so again last week and the options market correctly created the price range in which the stock price varied.

While Bed Bath and Beyond is no stranger to those kind of drops, it does tend to have another common characteristic in that it frequently recovers from those price drops fairly quickly. That’s one reason that when suggesting that consideration be given to selling puts on it last week prior to earnings, I suggested that if threatened with assignment I would rather accept that than to try and rollover the put contracts.

Now that the damage has been done I think it’s safe to come back and consider another look at its shares. If recent history holds true then a purchase could be considered with the idea of seeking some capital gains from shares in addition to the option premiums received for the call sales.

SanDisk (NASDAQ:SNDK) reports earnings this week and has been on quite a wild ride of late. It has the rare distinction of scaring off investors on two occasions in advance of this week’s upcoming earnings. Despite an 11% price climb over the past week, it is still down nearly 20% in the past 2 weeks.

The option market is implying a relatively small 6.8% move in the coming week which is on the low side, perhaps in the belief that there can’t possibly be another shoe to be dropped.

Normally, when considering the sale of puts in advance of earnings I like to look for a strike price that’s outside of the range defined by the options market that will return at least a 1% ROI for the week. However, that strike level is only 7.1% lower, which doesn’t provide too much of a safety cushion.

However, I would be very interested in the possibility of selling puts on SanDisk shares after earnings in the event of a sharp drop or prior to earnings in the event of significant price erosion before the event.

Fastenal (NASDAQ:FAST) also reports earnings this coming week and didn’t change its guidance or offer earnings warnings as it occasionally does in the weeks in advance of the release.

It actually had a nice report last quarter and initially went higher, although a few weeks later, without any tangible news, it nose-dived, along with some of its competitors.

What makes Fastenal interesting is that it is almost entirely US based and so will have very little currency risk. The risk, however, is that it is currently trading near its 2 year lows, so if considering an earnings related trade, I’m thinking of a buy/write and using a May 2015 expiration, to both provide some time to recover from any further decline and to also have a chance at collecting the dividend at the end of April.

With a much more expensive lot of shares of Abercrombie and Fitch (NYSE:ANF) long awaiting an opportunity to sell some calls upon, I’m finally ready to consider adding more shares. The primary goal is to start whittling down some of the losses on those shares and Abercrombie is finally showing some signs of making a floor, at least until the next earnings report at the end of May.

With its dysfunction hopefully all behind it now with the departure of its past CEO it still has a long way to go to reclaim lost ground ceded to others in the fickle adolescent retail market. The reasonable price stability of the past month offers some reason to believe that the time to add shares or open a new position may have finally arrived. Alternatively, however, put sales may be considered, especially if shares open on a lower note to begin the week.

Finally, I don’t know why I keep buying The Gap (NYSE:GPS), except that it never really seems to go anywhere. It does have a decent dividend, but it’s premiums are nothing really spectacular.

What appeals to me about The Gap, however, is that it’s one of those few stocks that is continually under the microscope as it reports monthly sales statistics and as a result it regularly has some enhanced premiums and it tends to alternate rapidly between disappointing and upbeat same store sales.

All in all, that makes it a really good stock to consider for a covered option strategy. It’s especially nice to see a stock that does trade in a fairly tight range, even while it may have occasional hiccoughs that are fairly predictable as to when they will occur, just as their direction isn’t at all predictable.

The Gap reported those same store sales last week and this time they disappointed. That actually marked the second consecutive month of disappointment, which is somewhat unusual, but in having done so, it still hasn’t violated that comfortable range.

I already own some shares and in expectation of a better than expected report for the following month, my inclination is to add shares, but rather than write contracts expiring this week will look at those expiring on either May 8 or May 15, 2015, taking advantage of the added uncertainty coming along with the next scheduled same store sales report. In doing so I would likely think about using an out of the money strike, rather than a near the money strike in anticipation of finally getting some good news and getting back on track at The Gap.

Traditional Stocks: Bed Bath and Beyond, MetLife, Morgan Stanley, The Gap

Momentum Stocks: Abercrombie and Fitch

Double Dip Dividend: none

Premiums Enhanced by Earnings: Fastenal (4/14 AM), SanDisk (4/15 PM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

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Week in Review – April 6 – 10, 2015

 

 

Option to Profit Week in
Review –  April 6 –  10,  2015
 
NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
1 / 1 3 5 1  /  0 0 / 0 0

    

Weekly Up to Date Performance

April 6 – 10,   2015

This was a surprising week, to a degree, as the market dug out of the hole created for it last Friday when it had no opportunity to respond to the Employment Situation Report as the futures and bond markets reacted as if it was something akin to the end of the world.

This week there was just a single new position opened and it trailed the both adjusted and unadjusted S&P 500 by a large 1.5%, as the market had a stealth rally and has now finally strung some consecutive days higher together. 

The new position gained 0.1% while the unadjusted and adjusted S&P 500 each gained 1.6% for the week.

Existing positions broke their streak of out-performance and trailed the S&P 500 for the week by 0.2%.

Positions closed in 2015 continue to out-perform the market. They are an average of 5.3% higher, while the comparable time adjusted S&P 500 average performance has been 1.5% higher. That 3.8% difference represents a 257.6% performance differential. That remains unusually high and is associated with the longer period of holding of those closed positions than is more typically the case. I would much rather see that differential be smaller but be based on far more assignments resulting in closed positions. This week saw only one new position added to the list of those closed on 2015.

 

For just a few minutes this week as trading opened, did it look as if this might be yet another in a series of weeks with a significant downward bias that began at the end of February.

Instead, after those few minutes were up and traders realized that the futures market’s reaction to the Employment Situation Report the previous Friday was really unwarranted, it simply did the right thing.

Someone came to the realization that the previous month’s decision to greet the news of a terrible Employment Situation Report with dumping stocks didn’t make too much sense when the same dumping was done the previous month because the numbers were too good.

Unless of course we’re at that point that bad news is bad news and good news is bad news.

As irrational as the market sometimes seems, it doesn’t get to that point very often.

While there really wasn’t too much news this week to move the market in either direction and certainly not in any perceptible size, it did just that.

What made the week pretty impressive is that not only did it not allow the previous Friday’s futures trading a chance to really take hold, but it also recovered from 2 days of late sell-offs that dashed decent rallies, as the week came to an end on a very positive note.

In fact the week came to its close at the highs, leaving the S&P 500 less than 0.5% away from it’s all time high.and volatility once again near its 52 week low and easily in range to  drop below that level with only a single day’s rally necessary to do so.

That positive note is made even more impressive by virtue of it coming right before the financials begin to report their earnings and before the season really gets underway in earnest the following week.

Instead of being cautious or tentative traders went in buying instead of selling, even though you would have been very hard pressed to have found anyone of merit suggesting that there were good times ahead for the market.

The week was a good one, even with some under-performance. The ability to generate income from a nice combination of new options sales and rollovers was welcome and for now I do like the way next week’s expiring positions are set up.

Although I would have liked to have seen more assignments this week the principal goal of generating income was satisfied and next week’s expiring positions are still in reasonable striking range of being assigned or being rolled over.

With a fair number of positions set to expire next week as the monthly cycle comes to an end each of the 4 weeks in the May 2015 cycle already have some positions populating them. It’s been a while since there has been that kind of time diversification.

With the number of positions for next week already sufficient, as long as there continue to look as if there may be some in line to be assigned, my goal for next week would be to be able to rollover whatever is possible in order to generate the week’s income.

With only a single assignment I would like to preserve cash, particularly since there’s not too much to preserve at the moment and I would like to see that reserve grow.

New purchases for next week, if any, would likely equally look at a weekly expiration as it might at an expanded weekly. However, with volatility going even lower it does get more difficult to consider going out too many weeks into the future.

The exception may be for those positions that will have earnings entering into the equation, as the banks really get things going next week and the next few weeks may be fairly hectic as earnings pour in.

 



This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):



New Positions Opened:   WFM

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:  none

Calls Rolled over, taking profits, into extended weekly cycle:  KO (5/1), UAL (5/1), WFM (4/24)

Calls Rolled over, taking profits, into the monthly cycle: none

Calls Rolled Over, taking profits, into a future monthly cycleGDX (5/15), GPS (5/15)

Calls Rolled Up, taking net profits into same cyclenone

New STO:  BAC (5/15), CHK (5/15), LVS (5/8)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: HAL

Calls Expired:  none

Puts Assigned:  none

Stock positions Closed to take profits:  none

Stock positions Closed to take losses: none

Calls Closed to Take Profits: none

Ex-dividend Positions: GPS (4/6 $0.23), WFM (4/8 $0.13)

Ex-dividend Positions Next WeekABBV (4/13 $0.51), CHK (4/13 $0.09), FCX (4/13 $0.05)

 

 

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, BAC, CHK, CLF, COH, DOW, FAST, FCX, GDX, HAL, HFC, .INTC, JCP, JOY, LVS, MAT, MCP, MOS,  NEM, RIG, WFM, WLT (See “Weekly Performance” spreadsheet or PDF file)



* If you don’t have a program to read or modify spreadsheets, you can download the OpenOffice Suite at no cost.



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