Month: July 2014

Daily Market Update – July 15, 2014 (8:30 AM)

For the next two days Janet Yellen will be providing some testimony in front of congressional banking and finance committees.

Based on her latest two rounds of public statements it has been pretty clear that anyone with money who was inclined to invest would be better off in stocks as their vehicle as opposed to alternatives, such as bonds.

For now, though, at least until the first potential newsworthy words coming from Yellen’s comments, the story is again on the financials, as more good news is awaiting the opening bell.

With JP Morgan and Goldman Sachs reporting earnings this morning that were in line with the previous day’s report from Citigroup, there’s reason to believe that the economy may be heating up. When the financial sector does well it’s not a far stretch to imagine other sectors doing well, although that’s not always a given.

Over the past 4-6 quarters there have been a couple of earnings seasons that started with the financial sector reporting better than expected earnings but with no follow through from other market sectors.

Sooner or later, though, the rest of the market has to catch up to good fortunes in the banking world.

Goldman Sachs, for example, actually reported revenues that were a $1 billion  more than expected. Additionally, both JP Morgan and Goldman Sachs seem to have indicated that their own fortunes significantly improved during the latter part of the past quarter. For its part, Johnson and Johnson also reported this morning and their revenues came in $600 million higher than expected.

Yesterday’s strong gain was fueled by Citigroup’s results. This morning the impact of the early reports weren’t as obvious, although they did turn the pre-open around from mildly negative to mildly positive.

Yesterday’s triple digit gain came close to setting another record on the DJIA, although the broader market didn’t perform quite as well. It was good enough for most people, however.

I tried to get some trades in yesterday in Bed Bath and Beyond, Cypress Semiconductor and even Riverbed Technology. However, while there was a fair amount of volatility with share pricing yesterday, representing give and take between buyers and sellers, despite the fact that the actual indexes were virtually unchanged during the day, there was very little such give and take in the option markets.

What that meant was that even as share prices changed the option prices didn’t follow along, making it a challenge to get trades done, as the “Net Debit” prices couldn’t be realized. In all likelihood that meant that those in the option markets weren’t convinced by yesterday’s trading. Buyers and sellers just couldn’t come to agreement.

That was fairly frustrating.

Generally I don’t mind being the one to give in on pricing because I’m motivated to get the trade done.

However, when volatility is so low and the premiums are, as well, that kind of giving in makes it harder to justify the trade on an ROI basis, especially as the market is sitting at such heights.

When looking at charts of so many potential positions it certainly looks as if there’s more room to drop than there is to climb, even though the potential climb is unlimited. With the small premiums, if using them for downside price protection they don’t offer very much to counter the risk. However, if using the premiums for income, then it’s a little easier to justify the transaction, but still not as easy as even a few months ago.

Today will be yet another day with cash available to spend and a willing, but not reckless spender, looking for an opportunity.

Hopefully the two sides of the transaction equation can come together better today than they did yesterday.

Daily Market Update – Jul 14 ,2014 (Close)

While there’s not too much economic news scheduled this week it will be a busy one for earnings and possibly international events.

For the most part, however, with the exception of the very initial military advance into Crimea, international events, other than in banking, have been almost completely ignored, even in precious metals markets.

Unless something truly unexpected and horrific happens overseas as everyone seems to have bigger and more destructive weapons and appear to have lost any reluctance in using them, those normal war-like events should be non-events for traders.

So it’s likely that most focus will be on earnings this week and we may live and die by those.

The week gets its start with a surprising earnings boost from Citigroup, which hasn’t found the way to deliver good news in a while and even failed the paint by numbers test necessary for regulators to allow it to initiate a stock buyback or raise the dividend.

A strong Citigroup would be the sort of thing to inspire some market confidence, especially if future strength is projected to be on the revenue side rather than through expense control.

It’s often said that the markets are lead out of their doldrums by the financial sector, although it’s hard to characterize current levels as anything but “near highs,” rather than “doldrums.” However, reports from JP Morgan, Morgan Stanley and Goldman Sachs this week could be just the thing to get the indexes back on track to surpass previous records and maybe take everyone along for the ride and not just select sectors.

When the final closing bell sounded the market, probably spurred on by Citigroup, traded in a remarkably narrow range, although individual stocks seemed to vary quite a bit through the day, possibly reflecting lots of rotation. It was a nice day, but the DJIA had its performance enhanced compared to the broad indexes due to the performance of some of its higher priced componetns, such as Visa, IBM and Goldman Sachs. Those higher priced Dow components have a disproportionate impact on the index.

This week will likely be very different from last week’s trading approach.

With no big event planned for the week there’s not too much reason to consider early rollovers where possible and instead there’s a greater need to create new positions if weekly income creation is a goal. Any broad market strength could create some opportunity to sell options on uncovered positions, but new positions  are likely to be a primary strategy this week.

With some money to spend thanks to some assignments last week, I’m willing to take cash down to about the 16% level, which could be as many as 6 new positions. As with previous weeks, however, the challenge is trying to find opportunities that aren’t so close to their peak prices or that could conceivably withstand broad market weakness better than the rest of the market. Today that was really challenging, especially with the latter criterion in mind.

With the market’s rise having come sector by sector, rather than as a broad wave of advances, it would be wonderful to be able to predict the next sector poised to move higher, but that is likely to be as successful of a venture than attempts to predict anything else, so it’s still better to look for individual positions and where possible, to diversify the selections.

Last week was a counter-example to that simple tenet, as all three new positions were energy related and two of the positions were the same – Chesapeake Energy.

While last week  was a good week to not have invested much capital, especially early in the week, and it is difficult establishing diversity if you don’t commit much funds, that lack of diversity isn’t something that I’d want to do on a regular basis.

Hopefully the opportunities this week will be a little more far flung and I would especially like to add some technology, industrials, healthcare and maybe even finance, despite the morning’s likely boost across that sector from the Citigroup news. The one trade of the day, in the industrial sector, didn’t come close to keeping up wiuth the market, as the entire industrial sector was weak throughout the day and never did catch up.

With a nearly triple digit advance in the pre-open market I didn’t think that I’d be rushing in if the market actually opened in the same manner, but unlike other sessions where there were false starts, today wasn’t one of those days. That was consistent with those kind of rallies that are fueled by financials. Knowing that, or at least believing that, however, and the willingness to do a little bit of chasing, still didn’t result in any great opportunity to find worthy new positions..

While I wanted to part of any party and was willing, uncharacteristically, to pay up for the privilege, today just wasn’t the day.

Daily Market Update – Jul 14 ,2014 (9:00 AM)

While there’s not too much economic news scheduled this week it will be a busy one for earnings and possibly international events.

For the most part, however, with the exception of the very initial military advance into Crimea, international events, other than in banking, have been almost completely ignored, even in precious metals markets.

Unless something truly unexpected and horrific happens overseas as everyone seems to have bigger and more destructive weapons and appear to have lost any reluctance in using them, those normal war-like events should be non-events for traders.

So it’s likely that most focus will be on earnings this week and we may live and die by those.

The week gets its start with a surprising earnings boost from Citigroup, which hasn’t found the way to deliver good news in a while and even failed the paint by numbers test necessary for regulators to allow it to initiate a stock buyback or raise the dividend.

A strong Citigroup would be the sort of thing to inspire some market confidence, especially if future strength is projected to be on the revenue side rather than through expense control.

It’s often said that the markets are lead out of their doldrums by the financial sector, although it’s hard to characterize current levels as anything but “near highs,” rather than “doldrums.” However, reports from JP Morgan, Morgan Stanley and Goldman Sachs this week could be just the thing to get the indexes back on track to surpass previous records and maybe take everyone along for the ride and not just select sectors.

This week will likely be very different from last week’s trading approach.

With no big event planned for the week there’s not too much reason to consider early rollovers where possible and instead there’s a greater need to create new positions if weekly income creation is a goal. Any broad market strength could create some opportunirty to sell options on uncovered positions, but new positions  are likely to be a primary strategy this week.

With some money to spend thanks to some assignments last week, I’m willing to take cash down to about the 16% level, which could be as many as 6 new positions. As with previous weeks, however, the challenge is trying to find opportunities that aren’t so close to their peak prices or that could conceivably withstand broad market weakness better than the rest of the market.

With the market’s rise having come sector
by sector, rather than as a broad wave of advances, it would be wonderful to be able to predict the next sector poised to move higher, but that is likely to be as successful of a venture than attempts to predict anything else, so it’s still better to look for individual positions and where possible, to diversify the selections.

Last week was a counter-example to that simple tenet, as all three new positions were energy related and two of the positions were the same – Chesapeake Energy.

While last week  was a good week to not have invested much capital, especially early in the week, and it is difficult establishing diversity if you don’t commit much funds, that lack of diversity isn’t something that I’d want to do on a regular basis.

Hopefully the opportunities this week will be a little more far flung and I would especiually like to add some technology, industrials, healthcare and maybe even finance, despite the morning’s likely boost across that sector from the Citigroup news.

With a nearly triple digit advance in the pre-open market I don’t think that I’ll be rushing in if that is how the opening goes, but unlike other false starts sometimes coming from the pre-open, one that is fueled by the financials may be one that has greater legs, so I may be a little less likely to wait for a fallback from higher levels.

If there will be a party going on I want to be part of it.

Daily Market Update – Jul 11, 2014 (9:00 AM)

The Week in Review will be posted by 6 PM and the Week in Review will be posted by Noon on Sunday.

The possible outcomes today include:

Assignments:  General Motors

Rollovers: Pfizer

Expirations: Bed Bath and Beyond (puts)

Trades, if any, will be attempted to be made prior to 3:30 PM EDT

Daily Market Update – Jul 10, 2014 (Close)

This morning no one in Europe seemed to like the fact that a Portuguese bank delayed repayment of some short term debt as a result of some auditing problems at its main shareholder’s investment company. That investment company also happens to be owned by the founding family of the bank, so there’s a tangled web.

A few years ago CNBC was looking for their word of the year and selected my suggestion of “Eurosis,” which came at a time when European banks and national economies were in shambles. But that word proved to not really be prescient as the year went on as some good ECB leadership helped to  ease fears amid the strong suggestion that whatever was necessary would be done to support the banking systems of such nations as Spain and Greece.

This morning it’s hard to know whether the Portuguese bank issue is an isolated one or will simply be the first to come to anyone’s attention. For those who like to draw visual kind of parallels someone, maybe me, is bound to say something like “there’s never just one cockroach,” or something like that, to describe the likely situation.

As it turned out a few minutes before the close, Dennis Gartman used that expression during a CNBC interview, so I felt pretty badly about that.

Whenever you wake up in the morning and see precious metals surging and stocks plunging, you know that there’s a big story somewhere. My first thought wasn’t to think about some banking crisis in Portugal, however. My first thought was centered on the Middle East, but I thought it somewhat odd that when tuning into various TV stations this morning there was really no discussion of the weak futures and no discussion of what was its root cause.

If the lessons from 2010 and 2011 are to be heeded, it’s that problems in the European banking system aren’t necessarily the sort of things that support the ability to start a contagion across the Atlantic Ocean.

Back then our own markets would respond in a sympathetic manner and then relatively quickly shrug its shoulders and wonder why we were bothering to slow down.Back then our own markets were on a decidedly upward trajectory and its momentum wasn’t about to be slowed down by much of anything and certainly not for very long. Now the momentum may not be gone, but it is stalled and the only moves higher of late have been related to assuring words from the Federal Reserve rather than from fundamental factors, such as earnings and revenues.

So this morning will be a little bit of a ride with some relief of not having spent too much opening new positions this week and having had some good luck and fortune in rolling over more than the usual number of positions for the week and h
aving done so unusually early in the week.

I should stress the word “luck.”

Had it not been for this week’s release of the FOMC statement there would have been little reason to consider the early rollovers as there was absolutely no reason to suspect a breaking story such as greeted us this morning.

But with the market seeming to slow down, despite all of the new record highs, a little bit of caution probably has made some sense, but as with most everything that caution has to be in balance with the ability to dip a toe in even when it seems chilly.

Today had the potential to offer some opportunity even if taking advantage of any apparent opportunity could also potentially simply be a case of having faith too early. However, if taking advantage of re-purchasing recently assigned positions at lower prices is the outcome, then being too early isn’t the worst thing in the world and simply relieves the burden of some of the intermediate drop in price had shares been part of a buy and hold strategy.

We’ll see. We’ll see.

Daily Market Update – Jul 10, 2014 (9:15 AM)

This morning no one in Europe seemed to like the fact that a Portuguese bank delayed repayment of some short term debt as a result of some auditing problems at its main shareholder’s investment company. That investment company also happens to be owned by the founding family of the bank, so there’s a tangled web.

A few years ago CNBC was looking for their word of the year and selected my suggestion of “Eurosis,” which came at a time when European banks and national economies were in shambles. But that word proved to not really be prescient as the year went on as some good ECB leadership helped to  ease fears amid the strong suggestion that whatever was necessary would be done to support the banking systems of such nations as Spain and Greece.

This morning it’s hard to know whether the Portuguese bank issue is an isolated one or will simply be the first to come to anyone’s attention. For those who like to draw visual kind of parallels someone, maybe me, is bound to say something like “there’s never just one cockroach,” or something like that, to describe the likely situation.

Whenever you wake up in the morning and see precious metals surging and stocks plunging, you know that there’s a big story somewhere. My first thought wasn’t to think about some banking crisis in Portugal, however. My first thought was centered on the Middle East, but I thought it somewhat odd that when tuning into various TV stations this morning there was really no discussion of the weak futures and no discussion of what was its root cause.

If the lessons from 2010 and 2011 are to be heeded, it’s that problems in the European banking system aren’t necessarily the sort of things that short support the ability for it to start a contagion across the Atlantic Ocean.

Back then our own markets would respond in a sympathetic manner and then relatively quickly shrug its shoulders and wonder why we were bothering to slow down.Back then our own markets were on a decidedly upward trajectory and its momentum wasn’t about to be slowed down by much of anything and certainly not for very long. Now the momentum may not be gone, but it is stalled and the only moves higher of late have been related to assuring words from the Federal Reserve rather than from fundamental factors, such as earnings and revenues.

So this morning will be a little bit of a ride with some relief of not having spent too much opening new positions this week and having had some good luck and fortune in rolling over more than the usual number of positions for the week and having done so unusually early in the week.

I should stress the word “luck.”

Had it not been for this week’s release of the FOMC statement there would have been little reason to consider the early rollovers as there was absolutely no reason to suspect a breaking story such as greeted us this morning.

But with the market seeming to slow down, despite all of the new record highs, a little bit of caution probably has made some sense, but as with most everything that caution has to be in balance with the ability to dip a toe in even when it seems chilly.

Today may offer some opportunity even if taking advantage of any apparent opportunity can simply be  a case of being too early. However, if taking advantage of re-purchasing recently assigned positions at lower prices is the outcome being too early isn’t the worst thing in the world and simply relieves the burden of some of the intermediate drop in price had shares been part of a buy and hoid strategy.

We’ll see. We’ll see.

Daily Market Update – Jul 9, 2014 (Close)

The CEO of Wal-Mart made an observation yesterday that seemed to come as a surprise to most everyone.

He commented that despite increasing jobs numbers there hasn’t been any real improvement on the consumer spending level.

How could that possibly be the case if the economy was actually improving? The stock market has certainly been advancing in reflection of that belief, although it’s probably just a coincidence that the market had a decidedly negative day yesterday.

After all, why would they begin to focus on rational thought and reality now?

I’ve been asking that seemingly obvious question for at least the past two earnings seasons, wondering why retail sales, other than at the very high end, were continuing to disappoint everyone. It just doesn’t make sense if people are actually going back to work and increasing their ability to make discretionary purchases.

Somehow, there has been a disconnect and increasing employment statistics may not be translating into what it traditionally meant.

Add to that, or better yet, subtract from it the two revisions of GDP for the first quarter of 2014 and you really do have to wonder what economic expansion people are talking about. Ultimately any economic growth is only as good as the ability for it to improve the lives of everyday people who are given the opportunity to contribute to that expansion

The weakness in retail, insofar as it seems to have lagged increasing employment levels, preceded the winter’s horrible weather and succeeded it, as well. Still, there has been money to be made in the retail sector, despite the  continuing lack of good news.

Imagine what may await retail sales if and when the consumer does return, although then you have to deal with those who will sell on the news, in the belief that the market had already discounted sales growth.

No matter what happens and no matter what the issue, there’s always a ready answer and a ready opposing view.

While the Wal-Mart CEO’s question was digested yesterday, today seemed to be ready to get off to a mildly positive start heading into the afternoon’s FOMC release. It did just that and maintained that mild advance and then wasn’t quite certain how to react to the statement once it was released.

Again, while it’s not likely that there would be anything surprising in the statement, you can never tell what the reaction would be, especially in the early days of summer. Following yesterday’s sell-off there could also have been additional reason to see an exaggerated reaction to news or even the lack of news.

The only surprise contained in the minutes was actaully what was expected last month. That is how to handle the odd $5 billion remaining in the taper as it got wound down from $85 billion per month to $0 in $10 billion increments. Last month there was concern that the Federal Reserve might decide to do a $15 billion taper in the final month.

Today that’s what they announced and the market didn’t explode.

As with the last couple of days, I was looking for any opportunity to do additional rollovers in an attempt to reduce exposure to any adverse market response to the FOMC prior to this week’s expiration. As a nice side effect that also created some income without having to dip into cash reserves, as there’s enough uncertainty in the air to be hesitant about spending too much while the market is still so close to those all time highs of last week.

So far, the rollovers for the week have all bypassed next week’s monthly expiration and have used the July 25th contract date. I would like to populate next week’s list of expiring positions a little better, but the monthly contract doesn’t usually offer as wide of a selection of strike prices as do the weekly options, so that has limited the ability to create rollovers with strike prices delivering decent dividends.

That may change on Thursday when some new strike levels may be added for the coming week, but with the FOMC today, I’ll still be looking for the opportunities wherever they may end up.

So, it was just another day of sitting back and seeing what may have  developed. AS it turned out not much really did. So even while the money is available for new purchases I wasn’t expecting to add any new positions today, so I wasn’t too disappointed, especially as some rollovers and other sales got made.

Tomorrow those expectations aren’t likely to change,.but if anything can change on a dime it’s the gap between expectations and actions.