Month: March 2014

Daily Market Update – March 4, 2014 (9:30 AM)

Waking up this morning and seeing the pre-open futures having completely erased yesterday’s 153 point loss had me believing something substantive happened while others were awake.

Actually, that wasn’t really the case. Nothing is really different, yet, although some have hopes for everything returning back to whatever normal happened to have been a few days ago.

While President Putin did say “military force is the last option,” he did say that in Russian, so there may be some vagaries in the translation. Of course, when you say “no use of force at this time” that still leaves some important issues open, like “how about tomorrow?”

For some reason, while under the same breath the right to use force in response to what was described as a “coup” in Ukraine has been discounted

Reportedly Russian troops that are still on the Russian side of the border, having been engaged in “exercises” are retreating. Meanwhile, those in Crimea are showing no signs of doing the same

A rational market would wait for some tangible action before retreating from an initial response that at least was predicated on actions on the ground rather than rumor.

Given how easily the market turns on a dime in response to news, rumors and the interpretation of the spoken word, caution is probably a good idea when it comes to chasing the promise of “normalcy.” As opposed to the weather, which mat impact markets and company performance, at least you have an idea that it will at some point stop being an issue. Events of nature have a way of being self-limiting, even if recurrent. Invariably spring comes along and things get better.

But when man made events come along you just don’t have the same certainty, because the actors don’t even know what they’re going to do next. While you would like to think that there’s a rational basis for actions, maybe only the initial actions are truly rational, as the reactions to those initial actions may utilize a lower state of rational thought, which in turn may evoke even lesser rational responses.

Who knows what a single nervous Ukrainian military recruit could trigger when a adrenaline rushed Russian recruit is polishing his rifle?

While I did see yesterday as offering a cautious opportunity, this morning I think the “cautious” part is likely to require more emphasis.

If indeed this morning’s move higher is the beginning of the return to the move higher from the correction of just 3 weeks ago, then you simply take pleasure in watching the gains and wait for the next opportunity to spend some money.

For a brief moment yesterday volatility had started moving higher and with it came prospects of looking at premiums with some variation in their expiration terms. This morning, however, the volatility is going right back to its perma-low levels. With a large number of positions set for expiration this coming Friday the problem with adding new positions is that if premiums in forward weeks are very low the tendency is to add to positions expiring this week, instead. That adds to the risk of holding too many potentially uncovered positions in the event of a sudden turndown by the end of the week.

On the other hand, that may provide greater rational for waiting until Thursday or Friday when next week’s option contracts will appear for many positions. A few additional days to assess events and essentially getting a weekly premium and an additional day or two, as the more near the term of the option contract the greater the time adjusted premium. In essence, there is little advantage right now to selling a contract for two weeks as opposed to selling a contract for 1 week and 2 days. While Einstein’s Theory of Relativity still holds, in this case time is constant, but is just valued less as it increases in length.

Finally, while this is an Employment Situation Reports week and that usually means a net market gain for the week, extraneous events may trump the recent historical pattern of the report. In the event that international events do cool down heading into that report, then there may truly be reason to be optimistic, at least for a day.

Daily Market Update – March 3, 2014 (Close)

It has been a while since there have been any international events that have influenced the markets.

In the past three years most of those events have centered around the European Union and its banking system.

This time the European Union is only indirectly involved and its banking system or impending default by one of its member nations has nothing to do with events. Instead this weekend had a feeling of the 1950s. Old nemeses are exerting their will in a manner that seems foreign to many.

Except back then the  stand-off between the East and the West was long in the making and we spent our time practicing hiding underneath school desks. It has been a generation since we’ve had the slightest concern about anything going on in that part of the world.

The events between Russia and Ukraine may have been simmering for a while below our vantage point, but seem a sudden conflagration for which we weren’t prepared.

Going back a bit further in history, the pretext by which one nation invades another in order to protect an ethnic population has its counterpart in Sudentenland in the 1930s. It appears, based on the initial success of Russia in taking control in Crimea, without having fired a shot and faced only by worldwide condemnation, the next step is just as was taken more than 75 years ago, realizing that such moves can be done with impunity.

While neither the world nor the markets may like those prospects, they are limited, as was an incursion in Georgia just a few years ago. Whether justified or not, life goes on and becomes the new normal.

This morning’s market was looking for a negative opening to the week, although not as badly as one could have reasonably expected. Although there was always a chance that may have changed once the opening bell would ring, I wasn‘t likely to be rushing into any quick decisions with the cash on hand. I surprised myself, however, ultimately opening a few new positions as it was hard to imagine any kind of physical confrontation that would pull in anyone other than the direct parties. It seemed that markets would only be impacted by financial and trade considerations, including the flow and availability of oil and gas.

But if that is the case there shouldn’t be large and lasting adverse impact on US markets, so why not dip a toe in and test the waters?

Watching the morning ticker the moves in individual stocks was fairly pronounced even for the more traditional and safe positions, yet they seemed to be a better place to consider short term parking than anything else for the moment. While some Momentum positions had some potential appeal as last week ended, they suddenly have lost that appeal for now, except perhaps for the most adventurous of traders.

With cash available and suddenly more appealing prices getting ready to appear the question was simply whether what we’re seeing this morning is self-limited.

It seems that we were going through this same process just a few weeks ago as the market came upon a 7% or so loss in very quick order. As with the previous drops the most recent one was simply an opportunity to buy stocks as the time frame for the declines had consistently been so short lived.

However, as with other recent price drops the reasonable thing to do is to not rush in, at least not in a big way and instead wait for some price stability both in events and prices. There is no requirement to spend cash reserves just because they exist.

The next few days promise to be full of news, perhaps rapidly alternating between offering optimism and pessimism. The markets may reflect that kind of atmosphere,as it did in the final hour of Friday’s trading.

What may look like a great decision to enter a position may then look like an exercise in terrible timing, or the decision to wait may end up appearing as having squandered an opportunity.

While all weeks are interesting, or at least start with that potential, this one may be more than the usual.

Daily Market Update – March 3, 2014 (9:30 AM)

It has been a while since there have been any international events that have influenced the markets.

In the past three years most of those events have centered around the European Union and its banking system.

This time the European Union is only indirectly involved and its banking system or impending default by one of its member nations has nothing to do with events. Instead this weekend had a feeling of the 1950s. Old nemeses are exerting their will in a manner that seems foreign to many.

Except back then the  stand-off between the East and the West was long in the making and we spent our time practicing hiding underneath school desks. It has been a generation since we’ve had the slightest concern about anything going on in that part of the world.

The events between Russia and Ukraine may have been simmering for a while below our vantage point, but seem a sudden conflagration for which we weren’t prepared.

Going back a bit further in history, the pretext by which one nation invades another in order to protect an ethnic population has its counterpart in Sudentenland in the 1930s. It appears, based on the initial success of Russia in taking control in Crimea, without having fired a shot and faced only by worldwide condemnation, the next step is just as was taken more than 75 years ago, realizing that such moves can be done with impunity.

While neither the world nor the markets may like those prospects, they are limited, as was an incursion in Georgia just a few years ago. Whether justified or not, life goes on and becomes the new normal.

This morning’s market is looking for a negative opening to the week, although not as badly as one could have reasonably expected. That may change once the opening bell rings so I’m not likely to be rushing into any quick decisions with the cash on hand. Since it’s hard to imagine any kind of physical confrontation that would pull in anyone other than the direct parties, it seems that markets would only be impacted by financial and trade considerations, including the flow and availability of oil and gas.

But if that is the case there shouldn’t be large and lasting adverse impact on US markets.

Watching the morning ticker the moves in individual stocks is fairly pronounced even for the more traditional and safe positions, yet they seem to be a better place to consider short term parking than anything else for the moment. While some Momentum positions had some potential appeal as last week ended, they suddenly have lost that appeal for now.

With cash available and suddenly more appealing prices getting ready to appear the question is simply whether what we’re seeing this morning is self-limited.

It seems that we were going through this same process just a few weeks ago as the market came upon a 7% or so loss in very quick order. As with the previous drops the most recent one was simply an opportunity to buy stocks as the time frame for the declines had consistently been so short lived.

However, as with other recent price drops the reasonable thing to do is to not rush in, so I’ll be looking for some price sta
bility this morning once the market does open understanding that there is no requirement to spend cash reserves just because they exist.

The next few days promise to be full of news, perhaps rapidly alternating between offering optimism and pessimism. The markets may reflect that kind of atmosphere,as it did in the final hour of Friday’s trading.

What may look like a great decision to enter a position may then look like an exercise in terrible timing, or the decision to wait may end up appearing as having squandered an opportunity.

While all weeks are interesting, or at least start with that potential, this one may be more than the usual.