Month: February 2014

Daily Market Update – February 12, 2014 (Close)

Despite 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, although late in the day it was announced that due to weather concerns the final stage of testimony was being postponed.

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.

There are still more such appearances scheduled this week, weather pending.

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 tryin
g 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.

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.

Daily Market Update – February 11, 2014 (Close)

As frustrating as it is not making very made trades, especially during the first two days of the week, which tend to be the busiest for opening new positions, I guess I didn’t really mind too much watching the markets run with reinforcement of what most everyone already knew.

Yesterday was a very subdued day as the conventional wisdom held that most everyone was awaiting to hear Janet Yellen’s congressional testimony.

It’s wasn’t too likely that there would be any surprises coming from the prepared text which was distributed prior to the planned testimony. It also seemed unlikely that anyone would be surprised by the lack of surprise, but you can never really predict human behavior, which includes the buying or selling response to news or even the lack of news.

Today the response was unbridled buying and even the sounds of people yelling “risk on,” again.

It’s was also equally unlikely that the ensuing questions from elected officials would elicit much in the way of deviation from the planned course, of which Yellen was an active architect. Whether she says anything that may be over-interpreted is a different manner, but like her predecessor, she seems to value the meaning of every word ands speaks slowly enough that she’s not trying to slip anything through.

What is somewhat interesting and different is that a response panel has been invited to also present and be questioned by the congressional panels after Yellen’s testimony, similar to how the opposition gets to respond to the State of the Union Message. While that may have happened in the past, I just can’t remember that to be the case. But as most would agree, what’s really missing is more politicization of the Federal Reserve.

I think that the upcoming testimony may have played a role in Monday’s quiet trading, but not to be overlooked is the roller coaster of the week before and the lack of indication of which end of the week was the one that foretells where we are headed next.

While Charles Dickens just had his 202nd birthday celebrated, it might be appropriate to think that last week was “the best of times and the worst of times.” Dickens didn’t really focus on an analysis of the net result of the times, but last week the net result was a positive one, especially when you consider the growing negative sentiment that had come from the background and into the foreground.

So far this morning the futures also seem to be muted, just as they were to open the week. They did, however, improve as the opening bell rang and the initial comments had their embargo lifted.

Again, probably not a surprise, but given the previous couple of weeks and the nervousness that pervaded the trading floors, it’s also not surprising that there’s still caution abounding.

With only a single new position it was the quietest Monday in over 2 years and I thought that low level of activity was likely to continue today, although my focus was on a couple of positions that go ex-dividend tomorrow, looking for an opportunity to justify their purchase. Other than those I didn’t see many prospects unless something breaks in either direction.

In the meantime I didn’t mind watching prices move higher and getting closer to the point that they can get cover. Granted, while they do so it’s just a paper exercise, but getting cover is tangible and justifies sitting around all day.

The market  at the beginning of the day was less than 3% below its current peak having recovered about half of the loss that sent even brave traders quivering into retreat. It’s precisely that kind of ambivalence, straddling that mid-point that makes it difficult to establish positions that commit assets.

With the equally sudden retreat of volatility the reward for taking the risk has also fallen and without reward the mattress begins to look appealing, but we all know, that’s never the right way to go.

As the market exploded higher the drop from the peak was cut in another half.

Whether warranted or not, unless stocks are already deep in the money, these kinds of moves are always welcome, so I thank Janet Yellen. Despite not having done or said anything differently, those in a position to create market moods saw her calming voice as just the tonic for getting back to where 2013 had left off.

Maybe even the GOP leadership is due some thanks for possibly putting forward a
debt ceiling expansion bill without any strings attached.

PS: Of you purchased Microsoft today, it goes ex-dividend on Tuesday, February 18th. However, because Monday is a stock market holiday, if it is to be assigned early, it will happen after Friday’s close.

Daily Market Update – February 10, 2014 (Close)

After least week’s bookend, but opposite triple digit moves to open and close the week we’re left feeling a bit more optimistic than just a week ago.

It just didn’t rally show today, although you can spin today’s flat performance with the perspective of a bull or a bear, as you like.

Whether or not that optimism was justified is hard to say, but we’re now slowly moving away from the real market movers reporting their earnings and may once again fall prey to speculating about what every little nuance or event means.

This week, for example, Janet Yellen will give Congressional testimony on Tuesday and five other Federal Reserve Governors will be giving addresses. Any of those can slip in a phrase, make a joke or simply use a single word with perceived emphasis that will send traders into fits and take the market with them.

No doubt everyone will want to know how Janet Yellen feels about the past two months of employment statistics, particularly since she seems interested in pursuing a lower unemployment threshold than previously was the case. For traders it also means having to decide whether her intent means that the course of the tapering to Quantitative Easing will be altered.

While we don’t know what she will say when faced with questions we do know that there is always some layer of obfuscation in the answers. With Yellen, we just don’t know how much there will be. Maybe she’ll continue the example set by her predecessor and be more decipherable than was his predecessor.

Of course, if there is even the slightest suggestion that the path may be altered that then brings the question as to whether altering that path is good or bad as regards the economy and then whether what’s good or bad for the economy is bad or good for the stock market.

For individual traders it makes absolutely no sense trying to understand that which can’t be understood. Trying to apply logical processes to understand the unpredictable or the illogical is itself illogical.

Given their performance last week, it’s only logical that in hindsight I wish that I had opened more new positions. I don’t think, however, I’m going to be interested in over-compensating this week. While for now it appears that the market is fairly resistant to anything more than a 5% decline in the S&P, the previous pattern has been to erase that loss and go even further on the upside. I think that I will look for a little more evidence that we’ll be on that path rather than assuming we already are on our way.

I would rather miss a percent on the upside than be first on line to capture a few percent on the downside.

With cash at about 34% to start the week but only 6 positions set to expire this week I’m likely to be conservative with cash and will also likely look at weekly options or those that may be able to bypass the February 22, 2014 monthly expiration.

With a number of potentially good dividend plays this week I may also preferentially look in their direction, particularly as volatility has again died down and the premiums are reflecting that to be the case.

In previous weeks the first hour, if the market was moving higher, turned out to be very unreliable in predicting direction for the rest of the day as many investors took the opportunity to secure some profits whenever they could in anticipation of further market declines.

For that reason I will probably be an observer early in the sessions this week and see where this week’s sentiment takes us.

Watching the pre-open market it appears that no one has an idea of where we’re going to start the week. When there’s that little resolve it’s often easier to have an event get blown out of proportion and trigger a mood. Other than potentially being prompted by this week’s scheduled events or something unexpected on the international front, the mood would do well to just stay flat.

And that’s exactly what it did today as it was very hard to justify doing much of anything as the market seems to be in a state of suspended animation awaiting the beginning of the congressional testimony.

It’s not very likely that much news will be made tomorrow, but that alone may lead to a relief rally, as that has been a pattern in the past. Since the testimony will be released before the hearing we’ll already have the early tone set, but anything goes once questioning starts.

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(see all trades this option cycle)

Daily Market Update – February 10, 2014 (9:30 AM)

After least week’s bookend, but opposite triple digit moves to open and close the week we’re left feeling a bit more optimistic than just a week ago.

Whether or not that’s justified is hard to say, but we’re now slowly moving away from the real market movers reporting their earnings and may once again fall prey to speculating about what every little nuance or event means.

This week, for example, Janet Yellen will give Congressional testimony on Tuesday and five other Federal Reserve Governors will be giving addresses. Any of those can slip in a phrase, make a joke or simply use a single word with perceived emphasis that will send traders into fits and take the market with them.

No doubt everyone will want to know how Janet Yellen feels about the past two months of employment statistics, particularly since she seems interested in pursuing a lower unemployment threshold than previously was the case. For traders it also means having to decide whether her intent means that the course of the tapering to Quantitative Easing will be altered.

While we don’t know what she will say when faced with questions we do know that there is alwys some layer of obfuscation in the answers. With Yellen, we just don’t know how much there will be. Maybe she’ll continue the example set by her predecessor and be more decipherable than was his predecessor.

Of course, if there is even the slightest suggestion that the path may be altered that then brings the question as to whether altering that path is good or bad as regards the economy and then whether what’s good or bad for the economy is bad or good for the stock market.

For individual traders it makes absolutely no sense trying to understand that which can’t be understood. Trying to apply logical processes to understand the unpredictable or the illogical is itself illogical.

Given their performance last week, it’s only logical that in hindsight I wish that I had opened more new positions. I don’t think, however, I’m going to be interested in over-compensating this week. While for now it appears that the market is fairly resistant to anything more than a 5% decline in the S&P, the previous pattern has been to erase that loss and go even further on the upside. I think that I will look for a little more evidence that we’ll be on that path rather than assuming we already are on our way.

I would rather miss a percent on the upside than be first on line to capture a few percent on the downside.

With cash at about 34% to start the week but only 6 positions set to expire this week I’m likely to be conservative with cash and will also likely look at weekly options or those that may be able to bypass the February 22, 2014 monthly expiration.

With a number of potentially good dividend plays this week I may also preferentially look in their direction, particularly as volatility has again died down and the premiums are reflecting that to be the case.

In previous weeks the first hour, if the market was moving higher, turned out to be very unreliable in predicting direction for the rest of the day as many investors took the opportunity to secure some profits whenever they could in anticipation of further market declines.

For that reason I will probably be an observer early in the sessions this week and see where this week’s sentiment takes us.

Watching the pre-open market it appears that no one has an idea of where we’re going to start the week. When there’s that little resolve it’s often easier to have an event get blown out of proportion and trigger a mood. Other than potentially being prompted by this week’s scheduled events or something unexpected on the international front, the mood would do well to just stay flat.