Daily Market Update – February 12, 2014




Daily Market Update – February 12, 2014 (9:00 AM)

Depite doing almost nothing meaningful the past couple of days, I did enjoy yesterday.

I got over the frustration of another day of seeing trades not get executed as prices refused to give ground and instead simply watched the bottom line start returning to where it ended 2013, while doing so faster than the market seems to be doing it.

There are different paths to happiness, it seems.

Ultimately, having more is probably more meaningful than simply trading, but if you like to see that stream of income or especially if you rely on that stream, trading is important, as are the flow of dividends.

After yesterday’s initial Humphrey-Hawkins testimony by new Federal Reserve Chairman Janet Yellen in which she failed to deliver any surprises, today seems as if there will be a respite from celebration, as Part 2 still remains.

In the meantime two Federal Reserve Governors gave their opinions yesterday, with one blaming  “feckless” politicians for the current state of the economy and fiscal policy and the other calling for legislation to prevent “too big to fail.”

Neither of those received too much attention, nor has the passing of a clean bill to lift the debt ceiling for another year, although prospects of the latter may have contributed to yesterday’s gain.

I remember watching Alan Greenspan deliver his Humphrey-Hawkings testimony and watch the markets react wildly in response only to reverse the action when he concluded his testimony on the final day. I think he took delight in being able to do such things and I think he ratcheted up his obfuscation when sensing he was in control.

It’s not too likely Yellen will be in that mold and it appears as if she takes the dual mandate of the Federal Reserve into the real world and to heart, seeing the real impact on employment of people with names and faces.

With less than a 1.5% decline from the market’s recent highs there’s every reason to believe that the same pattern exhibited in nearly the past two years will come to play. That is an attempt at a correction and then a quick rebound that overshoots the original high.

With little reason to believe that the Federal Reserve will change its course, despite the likelihood that there will be greater dissension going forward as the composition of voting Governors has changed, there should continue to be accommodation even in the systematic reduction of the Federal Reserve in the Treasury market.

The problem is that when everything seems so rational and everything seems to point in a single direction is when strange things seem to happen and that somehow catch us off guard.

Neither too much optimism nor too much pessimism is really a good thing.

With only a handful of new positions this week and last, it seems like an eternity since the days of 10 new positions in a week. Looking back on a few years of pursuing a covered call strategy the decrease in trading is very definitely a hallmark of decreasing or flat markets and is also very much my favorite time to be owning stocks.

The ideal scenario ends up being fewer stock positions, fewer new positions and more and more rollovers, but for longer time periods.

For just a brief moment last week as the market was heading lower and volatility was headed higher it looked as if we might be heading into that kind of environment that really simplifies trading.

Just like everything else when it all looks to be falling into place is precisely when you should begin to believe that it won’t.

While there are still some potential new positions I might like to add this week I don’t expect to be pursuing them very much over the next few days. Instead, if the market is kind enough to continue moving forward my hope would be to continue getting some coverage, even if only the short term “D’oh” trades. Every cent of premium and every additional retained dividend just adds to performance, especially when the market is flat or just trying to decide what direction to take.

I’m not proud. I’ll take the extra pennies when the market is treading water, as long as I can add them to the premiums and growing stream of dividends.