Daily Market Update – February 19, 2014 (Close)




Daily Market Update – February 19, 2014 (Close)

Well, that was quite a turnaround.

The final 50 minutes of the day saw a completely different day unfold and no one was really certain what was the root cause.

What it wasn’t was the Federal Reserve.

Today marked the release of the first FOMC meeting presided over by the new Chairman of the Federal Reserve, Janet Yellen.

Given that the path seems well set there doesn’t seem to be much discussion, much less any excitement about how the market might react to its release.

For the most part the previous three releases have held no surprises, yet somehow traders found a way or reason to react to the lack of news. In hindsight, someday people may realize that Bernanke’s program of Quantitative Easing created significant wealth at a time that it was greatly needed and his strategy to taper the Federal Reserve’s infusion of cash into the Treasury markets in an orderly fashion was the key to breaking the market’s addiction.

If all goes as planned the Federal Reserve will likely have completed its Treasury purchase program by summertime and we’ll just keep going merrily on our way, almost like learning to ride a two wheeler.

This morning the pre-open market was weak, but probably for no reason other than lack of any spark. The release of minutes may provide that spark even if devoid of surprises. There’s never any way to predict how the reactions will line up once all the words are parsed and the nuances are interpreted.

The real surprise, which should also probably not be a surprise is that the market is sitting just 0.6% below its high and now with the majority of earnings season behind it. Additionally, with each passing day the weather is becoming less likely to be a factor in company earnings and future guidance.

I like the current market condition and am glad to have some cash reserves to take advantage of some upward movement, but am likely to parse it out rather than going all in.

I’m optimistic, but not that optimistic.

With that optimism, however, still comes a desire to seek dividends, where possible and avoid overly volatile positions

If the market will be going higher that will also mean that volatility will stay low or even go lower, taking premiums down for the ride. That would confirm the  strategy to stay with positions that will support themselves, but with a lesser risk profile.

It was probably a good idea to not get used to the higher volatility that we had for a couple of weeks as the market headed lower, but you can’t blame someone for wishing and hoping.


PS: For those with shares of L Brands that were purchased yesterday and then had contracts rolled over to the March 22, 2014 $55 contract, your contract has now been re-set to $54 to reflect yesterday’s $1 Special Dividend, in addition to
the regular $0.34 dividend.

The CBOE regulations require that the strike price be adjusted whenever the special dividend is greater than $0.125 per share. Because of the re-setting, there is no option strategy that can take advantage of the Special Dividend. However, the reason many investors like Special Dividends is that the stocks that do offer them very frequently recover the special dividend in their share price.