February 2014 – Page 5

February 9, 2014

Daily Market Update – February 9, 2014 (Close)

(see all trades this option cycle) Daily Market Update – February 9, 2014 (Close) The Week in Review and the Weekend Update are now posted. Access prior Daily Market Updates by clicking here *OTP Sector Distribution as of February 7, 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
See all Trade Alerts for this monthly option cycle

February 9, 2014

Weekend Update – February 9, 2014

Everything is crystal clear now.
After three straight weeks of losses to end the trading week, including deep losses the past two weeks everyone was scratching their heads to recall the last time a single month had fared so poorly.
What those mounting losses accomplished was to create a clear vision of what awaited investors as the past week was to begin.
Instead, it was nice to finish on an up note to everyone’s confusion.
When you think you are seeing things most clearly is when you should begin having doubts.
Who saw a two day 350 point gain coming, unless they had bothered to realize that this week was featuring an Employment Situation Report? The one saving grace we have is that for the past 18 months you could count on a market rally to greet the employment news, regardless of whether the news met, exceeded or fell short of expectations.
That’s clarity. It’s confusing, but it’s a rare sense of clarity that comes from being so successful in its ability to predict an outcome that itself is based upon human behavior.
As the week began with a 325 point loss in the DJIA voices started bypassing talk of a 10% correction and starting uttering thoughts of a 15-20% correction. 10% was a bygone conclusion. At that point most everyone agreed that it was very clear that we were finally being faced with the “healthy” correction that had been so long overdue.
When in the middle of that correction nothing really feels very healthy about it, but when people have such certainty about things it’s hard to imagine that they might be wrong. With further downside seen by the best and brightest we were about to get healthier than our portfolios might be able to withstand.
It was absolutely amazing how clearly everyone was able to see the future. What made things even more ominous and sustaining their view was the impending Employment Situation Report due at the end of the week. Following last month’s abysmal numbers, ostensibly related to horrid weather across the country, there wasn’t too much reason to expect much in the way of an improvement this time around. Besides, the Nikkei and Russian stock markets had just dipped below the 10% threshold that many define as a market correction and as we’re continually reminded, it’s an inter-connected world these days. It wasn’t really a question of “whether,” it was a matter of “when?”
Then there was all that talk of how high the volatility was getting, even though it had a hard time even getting to October 2013 levels, much less matching historical heights. As everyone knows, volatility comes along with declining markets so the cycle was being put in place for the only outcome possible.
After Monday’s close the future was clear. Crystal clear.
Instead, the week ended with an 0.8% gain in the S&P 500 despite that plunge on Monday and a highly significant drop in volatility. The market responded to a disappointing Employment Situation Report with what logically or even using the “good news is bad news” kind of logic should not have been the case.
Now, with a week that started by confirming the road to correction we were left with a week that supported the idea that the market is resistant to a classic correction. Instead of the near term future of the markets being crystal clear we are left beginning this coming week with more confusion than is normally the case.
If it’s true that the market needs clarity in order to propel forward this shouldn’t be the week to commit yourself. However, the only thing that’s really clear about our notions is that they’re often without basis so the only reasonable advice is to do as in all weeks – look for situational opportunities that can be exploited without regard to what is going on in the rest of the world.
As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum and “PEE” categories this week (see details).
If you’re looking for certainty, or at least a company that has taken steps to diminish uncertainty, Microsoft (MSFT) is the one. With the announcement of the appointment of Satya Nadella, an insider, to be its new CEO, shares did exactly what the experts said it wouldn’t do. Not too long ago the overwhelming consensus was that the appointment of an outsider, such as Alan Mullaly would drive shares forward, while an insider would send shares tumbling into the 20s.
Microsoft simply stayed on its path with the news of an inside candidate taking the reigns. Regardless of its critics, Microsoft’s strategy is more coherent than it gets credit for and this leadership decision was a quantum leap forward, certainly far more important than discussions of screen size. With this level of certainty also comes the certainty of a dividend and attractive option premiums, making Microsoft a perennial favorite in a covered option strategy.
The antithesis of certainty may be found in the smallest of the sectors. With the tumult in pricing and contracts being promulgated by T-Mobile (TMUS) and its rebel CEO John Legere, there’s no doubt that the margins of all wireless providers is being threatened. Verizon (VZ) has already seen its share price make an initial response to those threats and has shown resilience even in the face of a declining market, as well. Although the next ex-dividend date is still relatively far away, there is a reason this is a favorite among buy and hold investors. As long as it continues to trade in a defined range, this is a position that I wouldn’t mind holding for a while and collecting option premiums and the occasional dividend.
Lowes (LOW) is always considered an also ran in the home improvement business and some recent disappointing home sales news has trickled down to Lowes’ shares. While it does report earnings during the first week of the March 2014 option cycle, I think there is some near term opportunity at it’s current lower price to see some share appreciation in addition to collecting premiums. However, I wouldn’t mind being out of my current shares prior to its scheduled earnings report.
Among those going ex-dividend this week are Conoco Phillips (COP), International Paper (IP) and Eli Lilly (LLY). In the past month I’ve owned all three concurrently and would be willing to do so again. While International Paper has outperformed the S&P 500 since the most recent market decline two weeks ago, it has also traded fairly rangebound over the past year and is now at the mid-point of that range. That makes it at a reasonable entry point.
Conoco Phillips appears to be at a good entry point simply by virtue of a nearly 12% decline from its recent high point which includes a 5% drop since the market’s own decline. With earnings out of the way, particularly as they have been somewhat disappointing for big oil and with an end in sight for the weather that has interfered with operations, shares are poised for recovery. The premiums and dividend make it easier to wait.
Eli Lilly is down about 5% from its recent high and I believe is the next due for its turn at a little run higher as the major pharmaceutical companies often alternate with one another. With Pfizer (PFE) and Merck (MRK) having recently taken those honors, it’s time for Eli Lilly to get back in the short term lead, as it is for recent also ran Bristol Myers Squibb (BMY) that was lost to assignment this past week and needs a replacement, preferably one offering a dividend.
Zillow (Z) reports earnings this week. In its short history as a publicly traded company it has had the ability to consistently beat analyst’s estimates and then usually see shares fall as earnings were released. That kind of doubled barrel consistency warrants some consideration this week as the option market is implying an 11% move this week. While that is possible, there is still an opportunity to generate a 1% ROI for the week if the share price falls by anything less than 16%.
While I’m not entirely comfortable looking for volatility among potential new positions two that do have some appeal are Coach (COH) and Morgan Stanley (MS).
Coach is a frequent candidate for consideration and I generally like it more when it’s being maligned. After last week’s blow-out earnings report by Michael Kors (KORS) the obvious next thought becomes how their earnings are coming at the expense of Coach. While there may be truth to that and has been the conventional wisdom for nearly 2 years, Coach has been able to find a very comfortable trading range and has been able to significantly increase its dividend in each of the past 4 years in time for the second quarter distribution. It’s combination of premiums, dividends and price stability, despite occasional swings, makes it worthy of consistent consideration.
I’ve been waiting for a while for another opportunity to add shares of Morgan Stanley. Down nearly 12% in the past 3 weeks may be the right opportunity, particularly as some European stability may be at hand following the European Central Bank’s decision to continue accommodation and provide some stimulus to the continent, where Morgan Stanley has interests, particularly being subject to “net counterparty exposure.” It’s ride higher has been sustained and for those looking at such things, it’s lows have been consistently higher and higher, making it a technician’s delight. I don’t really know about such things and charts certainly aren’t known for their clarity being validated, but its option premiums do compel me as do thoughts of a dividend increase that it i increasingly in position to institute.
Finally, if you’re looking for certainty you don’t have to look any further than at Chesapeake Energy (CHK) which announced a significant decrease in upcoming capital expenditures, which sent shares tumbling on the announcement. Presumably, it takes money to make money in the gas drilling business so the news wasn’t taken very well by investors. A very significant increase in option premiums early in the week suggested that some significant news was expected and it certainly came, with some residual uncertainty remaining in this week’s premiums. For those with some daring this may represent the first challenge since the days of Aubrey McClendon and may also represent an opportunity for shareholder Carl Icahn to enter the equation in a more activist manner.
Traditional Stocks: Lowes, Microsoft, Verizon
Momentum Stocks: Chesapeake Energy, Coach, Morgan Stanley,
Double Dip Dividend: Conoco Phillips (ex-div 2/13), International Paper (ex-div 2/12), Eli Lilly (ex-div 2/12)
Premiums Enhanced by Earnings: Zillow (2/12 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.

February 7, 2014

Daily Market Update – February 7, 2014 (Close)

(see all trades this option cycle) Daily Market Update – February 7, 2014 (Close) The Week in Review is now posted by 6 PM and the Weekend Update will be posted by Sunday 12 Noon. The following outcomes may be possible today: Access prior Daily Market Updates by clicking here *OTP Sector Distribution as of February 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
See all Trade Alerts for this monthly option cycle

February 7, 2014

Week in Review – February 3 – 7, 2014

Option to Profit Week in ReviewFebruary 3 – 7, 2014

NEW POSITIONS/STO	NEW STO	ROLLOVERS	CALLS ASSIGNED/PUTS EXPIRED	CALLS EXPIRED/PUTS ASSIGNED	CLOSED
3 / 3	6	6	3 / 0	3 / 0	0

Weekly Up to Date Performance
February 3 – 6, 2014
New purchases beat the time adjusted S&P 500 this week by 0.6% and also surpassed the unadjusted index by 0.6% during a week that saw lots of big moves, reminiscent of 2011.
The market showed an adjusted gain for the week of 0.8% and unadjusted gain of 0.8% for the week, while new positions gained  1.4%., reflecting higher premiums early in the week as volatility was temporarily elevated on most positions. For the first time in a month we closed the week on a higher note and we actually put two nice gains together back to back.
For the 28 positions positions closed in 2014, performance exceeded that of the S&P 500 by 1.4%. They were up 3.2% out-performing the market by 80.9%. Again, at some point that will be reduced to a more reasonable level at some point, as I don’t expect position out-performance to be that much higher as the year goes on.
All in all, this was a much better week than I was expecting, but I’m totally focused on one thing and that’s “The Gap.”
For those that know their trivia and are Woody Allen fans, they may know that the title name, “Annie Hall” was said to be derived from Allen’s anhedonia, or inability to experience pleasure.
I don’t really suffer from that, but a good week should have been better. Of course it could have been much better if I hadn’t been so conservative about adding new positions.
I don’t usually get upset when a stock’s price moves against me, but my wife heard me yell out an expletive when The Gap announced revenues, sales and increased guidance after yesterday’s close. That’s not something I do.
Ever.
What surprised me was that earnings are scheduled to be announced after the end of the February 2014 option cycle on February 27, 2014.
I understand that companies occasionally do that. Zynga, for example surprised everyone by reporting earnings last week instead of this week as scheduled. Companies also occasionally catch you off guard by releasing revised guidance and certainly there’s a long history of monthly sales data being released, although that is going the way of the dinosaur.
What bothered me about The Gap, besides the fact that I sold those D’oh options on them the day before at a paltry premium, was that someone knew this was coming, although I couldn’t find any mention anywhere. What I did see was that the entire’s day worth of option volume on the $39.50 option expiring today took place in the first few minutes of trading and in heavier than usual volume.
Additionally, the premium went up much more than you would have expected, to the point that the time value portion of the premium represented more than a 2% ROI for an option expiring the next day. The previous day, the time value was miniscule, by comparison.
What that suggests is that the news wasn’t available on Wednesday, at least not while the option market was open, but was available on some basis as soon as Thursday options started trading. Since the significant enhancement of the premium didn’t extend into the next week it was clear that it was a time limited event.
And that time was yesterday after the close.

Although the use of the D’oh Strategy entails some risk of generating a loss if there’s a sudden price increase, usually its done using a strike level that would represent a healthy price rise in order to be assigned. While that certainly can happen, the expectation is that it won’t or if it does the new price would still be in a reasonable neighborhood so that the contract could be rolled over and done so with a Net Credit in hand.
That’s not going to be the case when there’s a large jump in share price.
While Walgreen did the same, I hurled no expletives on that one. It simply went higher because for now people look at it as an alternative place to go get cigarettes, now that CVS has decided to stop selling death and health in the same store. That unexpected announcement was fair game and Walgreen’s shares went higher as people believed that Walgreen would not follow the CVS lead, regardless of the likelihood that it will do so.
When it was all said and done, though, it was a good week for new and existing positions, despite The Gap and Walgreen. Hopefully their rollovers to higher strikes will work out and just serve to enhance the return in the weeks ahead.
For next week with a few positions assigned, some rollovers and some newly covered positions I do feel a bit more optimistic as the week starts, but will still be mindful of opening new positions with cash reserves.
If anything this week indicates that no one really knows what they’re talking about as the week began with people beginning to suggest a 15-20% correction, with an assured 10% coming sooner rather than later.
So far, that’s now how its working out, as for the third time in about year the market has battled back from a 5% drop. Again, the volatility appears to be as good of a predictor or measure as anything else of a market that’s oversold. The volatility index just can’t get above 22, which isn’t really very high, at all.
For that short time late last week and this week that volatility was high and moving higher, I was beginning to salivate. Now, instead I just hurl expletives.
And that’s on a good week



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:  BMY, EBAY, MET
Puts Closed in order to take profits: none
Calls Rolled over, taking profits, into the next weekly cycle: AIG, ANF, TXN
Calls Rolled over, taking profits, into extended weekly cycle: WAG (2/28)
CallsRolled over, taking profits, into the monthly cycle: CSCO, GPS
Calls Rolled Over, taking profits, into a future monthly cycle:  none
Calls Rolled Up, taking net profits into same cycle: none
New STO:  CLF, GPS, HAL, MOS, WAG, WFM
Put contracts sold and still open: none
Put contracts expired: none
Put contract rolled over: none
Long term call contracts sold:  none
Calls Assigned:  BMY, EBAY, MET
Calls Expired: CHK, HFC, TXN
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:  INTC (2/5 $0.225), MET (2/5 $0.28)

.

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, APC, C, CHK, CLF, DRI, FCX, HFC,INTC, LB, JCP, LOW, LULU, MCP, MOS, MRO, NEM, PBR, PM, RIG, TGT, TXN, 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.

February 7, 2014

Daily Market Update – February 7, 2014

(see all trades this option cycle) Daily Market Update – February 7, 2014 (9:00 AM) The Week in Review will be posted by 6 PM and the Weekend Update will be posted by Sunday 12 Noon. The following outcomes may be possible today: Assignment: EBAY, GPS, MET Rollover:* BMY, TXN, WAG Expiration: AIG, ANF, CHK, CLF, HFC, * GPS unexpectedly announced sales, revenues and improved guidance after yesterday’s close, sending stock higher in the after-hours. The decision and announcement to do so was likely made yesterday or after Wednesday’s trading close, as there was a tremendous increase in the remaining time value of the 2/7/14 option on Thursday morning. Additionally, there was a tremendous spike in option volume at about 9:45 AM, accounting for nearly the entire day’s volume, suggesting something substantive occurred between Wednesday’s close and Thursday’s open. The same spike in option premium did not extend into the next week, suggesting that there would be some event occurring prior to the close of the week’s trading. Access prior Daily Market Updates by clicking here *OTP Sector Distribution as of February 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
See all Trade Alerts for this monthly option cycle

February 6, 2014

Daily Market Update – February 6, 2014 (Close)

(see all trades this option cycle) Daily Market Update – February 6, 2014 (Close) Today’s big stories were likely to be inconsequential as far as anything will ever go. Twitter and Green Mountain Coffee Roasters were grabbing all of the headlines in the morning, which wasn’t necessarily a bad thing, as we awaited tomorrow’s Employment Situation Report. Why anyone was surprised over the market’s response to Twitter’s earnings report is amazing. No one had any right to expect anything other than some sort of a surprise, unless the market had fully already understood Twitter and had fully discounted all possibilities. Considering that Twitter was a black box even after its IPO and considering the absence of support levels due to its rapid rise in share price, anything could have been possible as earnings were released. What is surprising is that user engagement is already decreasing. To me it’s also surprising that they have any revenue to report at all, as many have already figured out how to get their commercial Tweets spread through the system through viral campaigns, like the supposed drunken JC Penney Tweeter during the Super Bowl. Green Mountain is a different story. It has a long history of making large earnings related moves and it also has a history of either delaying scheduled earnings or releasing some big news that deflects from attention to earnings related detail. Not to mention allegations of accounting irregularities and some questionable activities by its founder and past Chairman and CEO. In this case, I think there’s a second overlay, as well, as Brian Kelly, the new and untarnished CEO of Green Mountain struck a deal with Coca Cola, his alma mater. He had been a rising star there, named as President and CEO of Coca Cola Refreshments. No small feat. I wonder if this deal was one of Coca Cola emulating Microsoft when it made its Nokia deal in an effort to secure a potential CEO successor and bringing Stephen Elop, the Nokia CEO and a Microsoft alumnus, back home. In that case there was also an element of Microsoft sending a lifesaver in Nokia’s direction and given Green Mountain’s core business growth Coca Cola may have done the same. Today, I’d rather see the market’s engaged in discussing and analyzing these issues than over analyzing what tomorrow’s data may be or trying to guess what direction the market may go in response to the data. Also, hopefully the European Central Bank’s policy statement this morning will either be a non-event for us or a net positive, as late in the week adverse news is hard to overcome when contracts expire the very next day. In the recent past the ECB has usually sent our markets higher as they’ve followed an accommodative policy, as had our own Federal Reserve. Interestingly, as our markets have reached that 5% pullback level and we’re nearing the end of earnings season more attention is being placed on government and other economic reports. The response to Monday’s ISM is an example of a response that has otherwise been really muted for the past year. For the most part the only items the market has cared about during the bull run higher have been the FOMC minutes and the Employment Report. That may be changing as we become used to the idea of a continued taper and as some political dysfunction shows sign of abating and leaving us with fewer manufactured crises. If we can get a decent employment number tomorrow, and the ADP data yesterday gives some hope for that, suddenly there appears to be less reason to expect a further drop in markets and I’m beginning to feel some optimism going forward. Based on the way today’s market went, optimism was the call of the day. That optimism would really take hold if we could also see volatility maintained at this level or even higher. Instead volatility for the broad market decreased, while for some individual stocks and sectors it remains at its recent highs, in fact, even higher than just yesterday. A good example of that is in the retail sector where suddenly good results from L Brands and Kohls have sent this week’s premiums rocketing higher compared to yesterday. Today, as yesterday, I was looking for possible DOH Trades as well as any early rollovers, as I wasn’t expecting much exciting to happen and certainly wasn’t expecting an unbridled march higher. As would happen nothing exciting did happen except that was enough to send the market nearly 200 points higher. The speculation is that today’s rise was in expectation of tomorrow’s employment numbers which are thought to be spectacular, perhaps in the 300,000 range or more and that the unemployment rate is going to come in at 6.5%. For those keeping track, 6.5% was one of the thresholds that we were told the FOMC had set when deciding whether to initiate the taper program. Reportedly Janet Yellen prefers a 6% level, so in some wild scenario it could be conceivable that the next FOMC would have announcement of a slowing or postponement of the taper. If the market believes that may be the case today’s gain could vanish. The speculation about the fun never ends. Access prior Daily Market Updates by clicking here *OTP Sector Distribution as of February 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
See all Trade Alerts for this monthly option cycle

February 6, 2014

(see all trades this option cycle) Daily Market Update – February 6, 2014 (9:00 AM) Today’s big stories are likely to be inconsequential as far as anything will ever go. Twitter and Green Mountain Coffee Roasters are grabbing all of the headlines this morning, which isn’t necessarily a bad thing, as we await tomorrow’s Employment Situation Report. Why anyone was surprised over the market’s response to Twitter’s earnings report is amazing. No one had any right to expect anything other than some sort of a surprise, unless the market had fully already understood Twitter and had fully discounted all possibilities. Considering that Twitter was a black box even after its IPO and considering the absence of support levels due to its rapid rise in share price, anything could have been possible as earnings were released. What is surprising is that user engagement is already decreasing. To me it’s also surprising that they have any revenue to report at all, as many have already figured out how to get their commercial Tweets spread through the system through viral campaigns, like the supposed drunken JC Penney Tweeter during the Super Bowl. Green Mountain is a different story. It has a long history of making large earnings related moves and it also has a history of either delaying scheduled earnings or releasing some big news that deflects from attention to earnings related detail. Not to mention allegations of accounting irregularities and some questionable activities by its founder and past Chairman and CEO. In this case, I think there’s a second overlay, as well, as Brian Kelly, the new and untarnished CEO of Green Mountain struck a deal with Coca Cola, his alma mater. He had been a rising star there, named as President and CEO of Coca Cola Refreshments. No small feat. I wonder if this deal was one of Coca Cola emulating Microsoft when it made its Nokia deal in an effort to secure a potential CEO successor and bringing Stephen Elop, the Nokia CEO and a Microsoft alumnus, back home. In that case there was also an element of Microsoft sending a lifesaver in Nokia’s direction and given Green Mountain’s core business growth Coca Cola may have done the same. Today, I’d rather see the market’s engaged in discussing and analyzing these issues than over analyzing what tomorrow’s data may be or trying to guess what direction the market may go in response to the data. Also, hopefully the European Central Bank’s policy statement this morning will either be a non-event for us or a net positive, as late in the week adverse news is hard to overcome when contracts expire the very next day. In the recent past the ECB has usually sent our markets higher as they’ve followed an accommodative policy, as had our own Federal Reserve. Interestingly, as our markets have reached that 5% pullback level and we’re nearing the end of earnings season more attention is being placed on government and other economic reports. The response to Monday’s ISM is an example of a response that has otherwise been really muted for the past year. For the most part the only items the market has cared about during the bull run higher have been the FOMC minutes and the Employment Report. That may be changing as we become used to the idea of a continued taper and as some political dysfunction shows sign of abating and leaving us with fewer manufactured crises. If we can get a decent employment number tomorrow, and the ADP data yesterday gives some hope for that, suddenly there appears to be less reason to expect a further drop in markets and I’m beginning to feel some optimism going forward. That optimism would really take hold if we could also see volatility maintained at this level or even higher. Today, as yesterday, I’ll look for possible DOH Trades as well as any early rollovers, but am not expecting much exciting to happen. Access prior Daily Market Updates by clicking here *OTP Sector Distribution as of February 5, 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
See all Trade Alerts for this monthly option cycle

February 5, 2014

Daily Market Update – February 5, 2014 (Close)

(see all trades this option cycle) Daily Market Update – February 5, 2014 (Close) This morning the ADP Employment numbers were released. Ever since they started doing so there’s been lots of disagreement over how accurately ADP’s numbers parallel the government’s Non-farm Payroll statistics that come out two days later. Regardless of the validity of the ADP Report it still has the capability of moving markets. After last month’s disappointing official numbers the ADP number was pretty much on target for expectations but the market showed some mild disappointment in the pre-open trading, however, it got over that disappointment very quickly. At this point we’ll have to wait until Friday to have it settled and to see how the market reacts. About 2 weeks ago I collected some data looking at the relationship, if any, between the Employment Situation Report and market performance. Watching the release of that most recent report and seeing the market react to very disappointing numbers by pushing the market higher got me thinking that it seemed as if the market always went higher with the announcement of those official numbers. Who knew that in the comfort of my retirement I would actually once again find myself running t-tests? Looking at 3 years of statistics there was no association between the reporting of data, regardless of its content and how the market did, neither in the week leading up to the report nor the week following. Neither did the day before the report release have any predictive value. That is unless you looked at the past 18 months. During that time period there was a statistically significant likelihood that on the week preceding the report and the day preceding the report that the market would move higher. For those interested in such things the chance that the market went randomly higher on the day of the Employment Situation Report release was less than 4% and less than 2% when considering the prior week. While that seemed compelling, as with all statistics it helps to look beyond the numbers and try to have an understanding of possible confounders or environmental factors that may have played a role. Perhaps coincidentally the past 18 months reflected the beginning of the third and final phase of Quantitative Easing. Because of that possibility I wasn’t terribly excited about being further long the market in anticipation of an additional Employment Situation Report fueled run higher, considering that there appears to also be an association between the announcement of the taper and the market’s fortunes. In hindsight, starting the week with a 325 point loss seemed to indicate that playing the market for Friday’s report wouldn’t have been a very good idea. However, about half of the weekly gains seen in Employment Situation Weeks came on the day of the report, suggesting that there might be some advantage to adding long positions prior to Thursday’s close. While I generally don’t consider index ETF trading, I may look at the possibility of purchasing some SPDR S&P 500 Trust shares with the anticipation of closing the position at the end of Friday’s trading by selling slightly out of the money call options on the position, as premiums are beginning to reflect increasing volatility. Otherwise, I’m expecting little activity for the remainder of the week, while remaining hopeful that the market shows some stability and even strength as the week comes to a close, as it would be nice to get back to seeing assignments and rollovers just like the old days. Today was just that kind of day as the market traded in a tight range, something that it had done for most of 2013, but very little of 2014, thus far. A little telling is that even with today’s very muted action the short term volatility continues to rise and is nearing the October high, which itself was a low high as far as highs go. So the market is still nervous and waiting for any kind of meaningful and sustained move, regardless of direction. For my part, I hope that this Friday’s performance breaks that recent pattern of downward moving weekly closes and I wouldn’t mind seeing the market take a little r est at this level, particularly if volatility can stay here or even move a little higher. There’s nothing wrong with wishing for the best of all worlds. We’ve had it before, why not again? Access prior Daily Market Updates by clicking here *OTP Sector Distribution as of February 4, 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
See all Trade Alerts for this monthly option cycle

February 5, 2014

Lies, Damned Lies, Statistics and the Employment Situation Report

(A version of this article appeared in TheStreet)

On Wednesday morning the monthly Automatic Data Processing (ADP) Employment Report was released.

Ever since they started doing so there’s been lots of disagreement over how accurately ADP’s numbers parallel or will reflect the government’s Non-farm Payroll statistics that are contained in the Employment Situation Report that comes out two days later. Regardless of the validity of the ADP Report it still has the capability of moving markets.

After last month’s disappointing official numbers the ADP number was pretty much on target for expectations but the market showed some mild disappointment in the pre-open trading, however, it got over that disappointment very quickly.

At this point we’ll have to wait until Friday to see whether there is concordance between the two reports and to see how the market reacts to the official numbers and revisions.

I recently collected some historical data looking at the relationship, if any, between the Employment Situation Report and market performance. Watching the release of that most recent government report and seeing the market react to very disappointing numbers by pushing the market higher had me realizing that it seemed as if the market always went higher with the announcement of those official numbers.

Who knew that in the comfort of my retirement I would actually once again find myself dusting off a statistics program and running t-tests? That is the sort of thing that nightmares are made of, rather than dreams.

Contrary to my supposed realization, beginning with January 2011 there were no associations between the reporting of data, regardless of its content and how the market did, neither in the week leading up to the report nor the week following. Neither did the day before the report release have any predictive value.

That is unless you looked at the past 18 months.

During that time period there was a statistically significant likelihood that on the week preceding the report and the day preceding the report that the market would move higher. The following week simply performed no differently whether preceded by an Employment Situation Report or not.

For those interested in such things, the random chance that the market went higher on the day of the Employment Situation Report release was less than 4% and less than 2% when considering the prior week.

While that seemed compelling, as with all statistics it helps to look beyond the numbers and try to have an understanding of possible confounders or environmental factors that may have played a role.

Perhaps coincidentally the past 18 months reflected the beginning of the third and final phase of Quantitative Easing.

Because of that possibility I wasn’t terribly excited about being further long the market in anticipation of an additional Employment Situation Report fueled run higher, considering that there appears to also be an association between the announcement of the taper and the market’s fortunes. Certainly the past month causes one to rethink a bullish thesis and the environment may now be substantively different with the taper in place.

Additionally, In hindsight, starting the week with a 325 point loss seemed to indicate that playing the market for a weekly advance in anticipation of Friday’s report wouldn’t have been a very good idea.

However, about half of the weekly gains seen in Employment Situation Weeks came on the day of the report, suggesting that there might be some advantage to adding long positions prior to Thursday’s close, even in the face of a market teetring and looking for direction and even in the face of losses earlier in the week.

Based upon the pattern of the past 18 months, while I generally don’t consider index ETF trading, I may look at the possibility of purchasing some SPDR S&P 500 Trust (SPY) shares with the anticipation of closing the position at the end of Friday’s trading by selling slightly out of the money call options on the position, as premiums are beginning to reflect increasing volatility and could enhance any report related advance in the index.

While statistics may have a wonderful ability to confirm whatever thesis one wishes to expound the relative benign reaction to a benign ADP report gives me reason to suspect that optimism may be warranted from 3:59 PM Thursday until 4 PM on Friday.

February 5, 2014

Daily Market Update – February 5, 2014

(see all trades this option cycle) Daily Market Update – February 5, 2014 (9:30 AM) This morning the ADP Employment numbers were released. Ever since they started doing so there’s been lots of disagreement over how accurately ADP’s numbers parallel the government’s Non-farm Payroll statistics that come out two days later. Regardless of the validity of the ADP Report it still has the capability of moving markets. After last month’s disappointing official numbers the ADP number was pretty much on target for expectations but the market showed some mild disappointment in the pre-open trading, however, it got over that disappointment very quickly. At this point we’ll have to wait until Friday to have it settled and to see how the market reacts. About 2 weeks ago I collected some data looking at the relationship, if any, between the Employment Situation Report and market performance. Watching the release of that most recent report and seeing the market react to very disappointing numbers by pushing the market higher got me thinking that it seemed as if the market always went higher with the announcement of those official numbers. Who knew that in the comfort of my retirement I would actually once again find myself running t-tests? Looking at 3 years of statistics there was no association between the reporting of data, regardless of its content and how the market did, neither in the week leading up to the report nor the week following. Neither did the day before the report release have any predictive value. That is unless you looked at the past 18 months. During that time period there was a statistically significant likelihood that on the week preceding the report and the day preceding the report that the market would move higher. For those interested in such things the chance that the market went randomly higher on the day of the Employment Situation Report release was less than 4% and less than 2% when considering the prior week. While that seemed compelling, as with all statistics it helps to look beyond the numbers and try to have an understanding of possible confounders or environmental factors that may have played a role. Perhaps coincidentally the past 18 months reflected the beginning of the third and final phase of Quantitative Easing. Because of that possibility I wasn’t terribly excited about being further long the market in anticipation of an additional Employment Situation Report fueled run higher, considering that there appears to also be an association between the announcement of the taper and the market’s fortunes. In hindsight, starting the week with a 325 point loss seemed to indicate that playing the market for Friday’s report wouldn’t have been a very good idea. However, about half of the weekly gains seen in Employment Situation Weeks came on the day of the report, suggesting that there might be some advantage to adding long positions prior to Thursday’s close. While I generally don’t consider index ETF trading, I may look at the possibility of purchasing some SPDR S&P 500 Trust shares with the anticipation of closing the position at the end of Friday’s trading by selling slightly out of the money call options on the position, as premiums are beginning to reflect increasing volatility. Otherwise, I’m expecting little activity for the remainder of the week, while remaining hopeful that the market shows some stability and even strength as the week comes to a close, as it would be nice to get back to seeing assignments and rollovers just like the old days. Access prior Daily Market Updates by clicking here *OTP Sector Distribution as of February 4, 2014** * Assumes equal number of shares in positions Posting of trades is not a recommendation to execute trades
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