Daily Market Update – July 9, 2014

 

 

 

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

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 seems to be ready to get off to a mildly positive start heading into the afternoon’s FOMC release.

Again, while it’s not likely that there will be anything surprising in the statement, you can ne
ver tell what the reaction will be, especially in the early days of summer. Following yesterday’s sell-off there may also be additional reason to see an exaggerated reaction to news or even the lack of news.

As with the last couple of days, I’ll be 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 creates 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’s just another day of sitting back and seeing what may develop. While the money is available for new purchases I’m not expecting to add any new positions today, but if anything can change on a dime its the gap between expectations and actions.

 

 

 

 

 

Daily Market Update – July 8, 2014 (Close)

 

 

 

Daily Market Update – Jul 8, 2014 (Close)

Yesterday was, what has seemed to be a rare day. The market not only traded lower, but the broad market was weaker than the major indices indicated.

For someone who may be in the market to buy stocks in a meaningful way, yesterday’s decline wasn’t enough. It also wasn’t enough to send any signals that perhaps there was more to come.

There’s still some talk of money on the sidelines from more than 5 years ago. It’s hard to believe that could possibly be the case, but it’s just as hard to believe that anyone who has been on the sidelines that long would pick this as the right time to re-enter the markets.

While I always like to keep some money on the sidelines for unexpected opportunities, in hindsight those opportunities have been nearly every day for the past two years. I don’t know how many people that are actively invested also have cash reserves that could come into play, but what would be the catalyst to get those who do to give up on their discipline and go all in?

Also with the competition between asset classes for investment dollars, such as between stocks, bonds and real estate, you have to wonder what money is left in bonds that could come over to stocks, as well as the fact that real estate isn’t facing an exodus of investment dollars.

So you do have to wonder where the new money will come from to push stocks even higher.

Overseas money? Possibly, but with the inter-connected nature of the world’s economies and markets and shift would likely cause market casualties at their source and ripple throughout the world.

Who needs that?

Again there’s lots of focus on the yield of the 10 year Treasury as it approaches 2.6%. The thinking is now that rather than 3%, which was what everyone was watching just a few months ago as that level that would begin to draw investment dollars out of stocks and into bonds, it is 2.6%.

That either represents lowered expectations for returns or just more of the same guessing games that seek to create significance out of that which may have no significance.

One thing that has lost its significance of late has been the release of the FOMC statement each month, as it has become very predictable and often the words spoken by the various Federal Reserve Governors or the Chairman have more sway on markets for that particular moment in time. With the FOMC statement release tomorrow there wasn’t great likelihood that today would have any kind of meaningful move higher and probably not much reason to think that it would move significantly lower, either.

Yet it moved with some commitment, nonetheless and followed yesterday’s lead, although there was still no real impetus for the drop today, either.

With pre-open indications of another mildly negative open I wasn’t expecting too much reason to abandon a little bit of purchasing caution and simply hoped to be able to continue looking for some rollover opportunities for some of the many positions that expire this Friday.

Fortunately, even with all of that negativity some of those opportunities did present in addition to what looked like a potential buying opportunity in an old friend, Chesapeake Energy.

While I do find it more exciting to enter into a new position and the initial ROI is generally greater with those, it is the rollover that really makes the returns accumulate. So I certainly wouldn’t mind seeing some more of those rollovers happen tomorrow while at the same time still being able to conserve cash in anticipation of a day when it could serve me much better, and perhaps with less risk, as well.

Today’s market decline, at least in the big picture is pretty meaningless and could easily have been an artifact of volume. Any continuation, however, after tomorrow’s FOMC release could be reason to wonder if there’s something to what is now just a mere blip in the chart, taking us back all the way to levels not seen since June 30th.

 

Daily Market Update – July 8, 2014

 

 

 

Daily Market Update – Jul 8, 2014 (8:00 AM)

Yesterday was, what has seemed to be a rare day. The market not only traded lower, but the broad market was weaker than the major indices indicated.

For someone who may be in the market to buy stocks in a meaningful way, yesterday’s decline wasn’t enough. It also wasn’t enough to send any signals that perhaps there was more to come.

There’s still some talk of money on the sidelines from more than 5 years ago. It’s hard to believe that could possibly be the case, but it’s just as hard to believe that anyone who has been on the sidelines that long would pick this as the right time to re-enter the markets.

While I always like to keep some money on the sidelines for unexpected opportunities, in hindsight those opportunities have been nearly every day for the past two years. I don’t know how many people that are actively invested also have cash reserves that could come into play, but what would be the catalyst to get those who do to give up on their discipline and go all in?

Also with the competition between asset classes for investment dollars, such as between stocks, bonds and real estate, you have to wonder what money is left in bonds that could come over to stocks, as well as the fact that real estate isn’t facing an exodus of investment dollars.

So you do have to wonder where the new money will come from to push stocks even higher.

Overseas money? Possibly, but with the inter-connected nature of the world’s economies and markets and shift would likely cause market casualties at their source and ripple throughout the world.

Who needs that?

Again there’s lots of focus on the yield of the 10 year Treasury as it approaches 2.6%. The thinking is now that rather than 3%, which was what everyone was watching just a few months ago as that level that would begin to draw investment dollars out of stocks and into bonds, it is 2.6%.

That either represents lowered expectations for returns or just more of the same guessing games that seek to create significance out of that which may have no significance.

One thing that has lost its significance of late has been the release of the FOMC statement each month, as it has become very predictable and often the words spoken by the various Federal Reserve Governors or the Chairman have more sway on markets
for that particular moment in time. With the FOMC statement release tomorrow there isn’t great likelihood that today will have any kind of meaningful move higher and probably not much reason to think that it would move significantly lower, either.

With pre-open indications of another mildly negative open I’m not expecting too much reason to abandon a little bit of purchasing caution and would continue looking for some rollover opportunities for some of the many positions that expire this Friday.

While I do find it more exciting to enter into a new position and the initial ROI is generally greater with those, it is the rollover that really makes the returns accumulate. So I certainly wouldn’t mind seeing those rollovers happen while at the same time still being able to conserve cash in anticipation of a day when it could serve me much better, and perhaps with less risk, as well.

 

 

 

 

 

 

 

 

 

 

Daily Market Update – July 7, 2014

 

 

 

Daily Market Update – Jul 7, 2014 (Close)

After a nice 3 1/2 days off from trading it looks as if there’s little memory of what got the markets to their new highs last week.

If you can recall back just a few weeks when the market got a nice boost from the FOMC and then Janet Yellen’s press conference remarks, that boost was very short lived, as well, never having any impact on the following week.

This past week’s boost, as opposed to the tiny steps that marked the large number of previous new highs en route to Dow 17000, was somewhat larger and more decisive. That alone should have created some momentum and optimism but in a world where short term memories are scant, maybe 3 1/2 days is just too long to sustain anything.

So it maybe it shouldn’t be a little surprising that the pre-open futures weren’t reflecting any of that optimism that ended last week’s trading, although with volume very likely to be light again this week, there’s no telling what kind of exaggerated moves may happen.

When the day finally settles the market had done as it did for the first half of last week and traded ina  narrow range, going lower, with the broad market weaker than the DJIA. There was really no news for today’s mild weakness and really no news for any kind of move.

Although there is an FOMC statement release this week, it’s an otherwise very quiet week on the news front.

On the events front it is the start of earnings season again, although it does get difficult to know where one season begins and the previous one ends.

With a large number of positions set to expire this week I do get a little concerned about potential fallout from the FOMC release even though there’s very little reason to suspect that it will contain anything surprising in nature.

Over the past two weeks the market has been spurred ahead by comments from Janet Yellen that should be reflected in the language used and the selection of words in the FOMC statement. With the belief that interest rates will be kept low until 2015 and news that the employment rate is dropping, equity markets shouldn’t find themselves spooked by anything that may be conta
ined in Wednesday’s release.

However, given that next week is the end of the July cycle that means that every position with a contract expiring this week could potentially be rolled over on Wednesday, without having had to wait for the appearance of the weekly option on Thursday, as is normally the case.

At least that gives some greater flexibility in dealing with existing positions and any concerns for a surprise coming on Wednesday afternoon.

For the coming week with adequate cash there is certainly opportunity to add new positions, but the possibility of rolling over some of those existing positions may create ample cash streams to reduce the reliance on new positions to do so.

That would actually suit me just fine, as I wouldn’t mind a relatively quiet week for new positions. I would like to maintain cash near its current level so I don’t expect to be terribly aggressive with adding new positions.

However, the greatest likelihood is that with all of those positions set for this Friday’s expiration there’s reason to want to look at the July 19 contracts or beyond for any new positions in some attempt to diversify just a little.

As has been the case lately, there’s probably good reason to sit back and see how the market actually opens once the trading starts for the rest of us. This week, I would love to see some additional strength, if only to have the opportunity to rollover or see assignments on a wide scale. At the moment I find that more appealing than being able to pick up a broad selection of newly created bargains.

As the day took shape there wasn’t much reason to consider adding anything to the portfolio as there wasn’t really any movement in prices from the early established declines and there was absolutely no indication of any trend or direction other than the disappointment of not following through on last week’s good news.

For some, that’s reason enough to refrain, but at least there was some opportunity to do some of those early rollovers and even get coverage for one existing position to start the week.

Those may have been baby steps, too, but they may still get us to the hoped for destination if enough of them can be put together by Friday.

 

 

 

 

 

 

 

 

Daily Market Update – July 7, 2014

 

 

 

Daily Market Update – Jul 7, 2014 (9:30 AM)

After a nice 3 1/2 days off from trading it looks as if there’s little memory of what got the markets to their new highs last week.

If you can recall back just a few weeks when the market got a nice boost from the FOMC and then Janet Yellen’s press conference remarks, that boost was very short lived, as well, never having any impact on the following week.

This past week’s boost, as opposed to the tiny steps that marked the large number of previous new highs en route to Dow 17000, was somewhat larger and more decisive. That alone should have created some momentum and optimism but in a world where short term memories are scant, maybe 3 1/2 days is just too long to sustain anything.

So it maybe it shouldn’t be a little surprising that the pre-open futures weren’t reflecting any of that optimism that ended last week’s trading, although with volume very likely to be light again this week, there’s no telling what kind of exaggerated moves may happen.

Although there is an FOMC statement release this week, it’s an otherwise very quiet week on the news front.

On the events front it is the start of earnings season again, although it does get difficult to know where one season begins and the previous one ends.

With a large number of positions set to expire this week I do get a little concerned about potential fallout from the FOMC release even though there’s very little reason to suspect that it will contain anything surprising in nature.

Over the past two weeks the market has been spurred ahead by comments from Janet Yellen that should be reflected in the language used and the selection of words in the FOMC statement. With the belief that interest rates will be kept low until 2015 and news that the employment rate is dropping, equity markets shouldn’t find themselves spooked by anything that may be contained in Wednesday’s release.

However, given that next week is the end of the July cycle that means that every position with a contract expiring this week could potentially be rolled over on Wednesday, without having had to wait for the appearance of the weekly option on Thursday, as is normally the case.

At least that gives some greater flexibility in dealing with existing positions and any concerns for a surprise coming on Wednesday afternoon.

For the coming week with adequate cash there is certainly opportunity to add new positions, but the possibility of rolling over some of those existing positions may create ample cash streams to reduce the reliance on new positions to do so.

That would actually suit me just fine, as I wouldn’t mind a relatively quiet week for new positions. I would like to maintain cash near its current level so I don’t expect to be terribly aggressive with adding new positions.

However, the greatest likelihood is that with all of those positions set for this Friday’s expiration there’s reason to want to look at the July 19 contracts for any new positions in some attempt to diversify just a little.

As has been the case lately, there’s probably good reason to sit back and see how the market actually opens once the trading starts for the rest of us. This week, I would love to see some additional strength, if only to have the opportunity to rollover or see assignments on a wide scale. At the moment I find that more appealing than being able to pick up a broad selection of newly created bargains.

 

 

 

 

 

 

 

 

Dashboard – July 7 – 11, 2014

 

 

 

 

 

Selections

MONDAY:  Not much news scheduled this week, other than lots of earnings reports, but the market appears to be ready to get off to a nice start to begin trading, with a little bit of surprising earnings help from Citigroup.

TUESDAY:     More good earnings from financial sector with JP Morgan and Goldman Sachs reporting. Congressional testimony from Janet Yellen over the next two days could add to sense that economic expansion is now really taking hold.

WEDNESDAY

THURSDAY:   

FRIDAY

 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

Weekend Update – July 6, 2014

You never really know what kind of surprises the market will bring on any given day. I’ve long given up trying to use rational thought processes to try and divine what is going to happen on any given day. It’s far too humbling of an experience to continually make such attempts.

Uncertainty may be compounded a little when we all know that low trading volume has a way of exaggerating things. With an extra long holiday coming up and many traders likely to be heading up to the Hamptons to really begin the summer, a three and half day trading week wasn’t the sort of thing that was going to generate lots of trading frenzy, although it could easily create lots of excitement and moves.

So when two big events occur in such a short time span, both of which seem to inspire optimism, as long as you’re not a bond holder, you can guess a plausible outcome. That’s especially so because lately the market hasn’t been in a "good/bad news is bad/good news" kind of mentality

In what was described as "the most significant speech yet in her still young Federal Reserve Chairmanship," Yellen re-affirmed he commitment to keep interest rates at low levels even in the face of bubbles. She made it clear that in her opinion higher interest rates was not the answer to dealing with financial excesses.

If you happen to be someone who invests in stocks, rather than bonds, could you be given any better gift, other than perhaps the same gift that Yellen gave just two weeks earlier during her post – FOMC press conference?

That gift didn’t have too much staying power and it’s unclear whether a few days off in celebration of Independence Day will makes us forget the most recent gift, but it’s good to have important friends who are either directly or indirectly looking out for your financial well-being.

When seeking to try and understand why stocks continue to perform so well, one concept that is repeatedly mentioned is that it is simply the best of alternatives at the moment. If you believe that to be the case, you certainly believe it even more after this week, especially when realizing that interest rates are likely to remain low even in the face of inflationary pressures.

Borrowing from an alternate investment class credo, it seems clear that the strategy should be simply stated as "Stocks, stocks, stocks."

As if there were any doubts about that belief, the following day came the release of the monthly Employment Situation Report and it lived up to and exceeded expectations.

So it appears that despite a significant revision of GDP indicating a horrible slowdown in the first quarter, the nation’s employers just keep hiring and the unemployment rate is now down to its lowest point since September 2008, which wasn’t a very good time if you were an equity investor.

While the "U-6 Unemployment Rate," which is sometimes referred to as the "real unemployment rate" is almost double that of the more commonly reported U-3, no one seems to care about that version of reality. As in "Animal House," when you’re on a roll you go with it.

More people working should translate into more discretionary spending, more tax revenues and less government spending on social and entitlement programs. That all sounds great for stocks unless you buy into the notion that such events were long ago discounted by a forward looking market.

However, normally that sort of economic growth and heat should start the process of worrying  about a rising interest rate environment, but that seems to be off the table for the near future.

Thank you, Janet Yellen.

Of course, with the market propelling itself beyond the 17000 level for the first time and closing the week on strength, what now seems like an age old problem just keeps persisting. That is, where do you find stock bargains?

I’m afraid the answer is that "you don’t," other than perhaps in hindsight.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or "PEE" categories.

Among my many faults are that I tend to be optimistic.

I don’t say that as many job applicants do in trying to turn the question about their greatest weakness into a strength in an effort to blow smoke in their prospective employer’s face.

That optimism, however, is more of a long term trait, as I’m always pessimistic in the short term. That seems consistent with someone who sells calls, especially of the short term variety. However, part of the problem is that my optimism often means that I purchase stocks too early on the heels of either bad news or performance in the belief that resurrection is at hand.

Most recently Coach (COH) has been a great example of that inappropriate optimism. Having owned shares 20 times in less than two years those purchases have frequently been made following earnings related disappointments and up until the most recent such disappointment, I haven’t found myself displaying a similar emotion. I’ve usually been pretty happy about the decision to enter into positions, although, in hindsight they were frequently initiated too early and I could have avoided some gastric erosion.

However, this time has been different in that even after an initially large price drop, the kind that in the past would have rebounded, shares just kept going lower. But also different is that the bad news didn’t end with earnings this time around.

As with another recent recommendation, Whole Foods (WFM), I believe that meaningful support has been displayed and now begins the time to start whittling down the paper losses through the addition of shares  or opening a new position. Despite what will certainly be years of ongoing competition with Michael Kors (KORS) and others in vying for the customer loyalty, Coach has dumped lots of bad news into a single quarter and is poised to begin its rebound along with a recovering retail sector.

While not  in retail, Mosaic (MOS) is another company that I’ve spent a year trying to whittle down the paper losses following dissolution of the potash cartel that no one ever knew had existed. In that time nine additional rounds of ownership have wiped out the losses, so now it’s time to  make some money. 

Shares have had some difficulty at the $50 level and recently have again fallen below. As with Coach, dividends and option premiums make it easier to exercise some patience, but they also can make it a compelling reason to initiate or add to positions. If adding at this level I would be very happy to see shares continue to trade in its narrow range and wouldn’t mind the opportunity to continually rollover option contracts as has been the case in the past, helping to erase large paper losses.

Also similar to Coach, in that I believe that all of the bad news and investor disbelief has been exhausted, is Darden Restaurants (DRI). There’s probably not much need to re-hash some of the dysfunction and what appears to be pure self-interest on the part of its CEO that has helped to keep its assets undervalued. However, at its current level I believe that there is room for share appreciation and a good time to start a position is often in advance of its ex-dividend date and nearly 5% dividend. 

While Darden’s payout ratio is well above the average for S&P 500 stocks, there isn’t much concern about its ability to maintain the payouts. With only monthly options available and a reporting earnings late in the upcoming season, I would consider the use of August 2014 options, rather than the more near term monthly cycle.

Also only offering monthly options, Transocean (RIG) has been slowly building off of its recent lows, but is having difficulty breaking through the $45 level. With recent pressure on refiners as a result of a Department of Commerce decision regarding exports there may be reason to believe that there would be additional incentive to bring supply to market for export. While clearly a long term process there may be advantage to being an early believer. Transocean, which I have now owned 14 times in two years also offers a very generous dividend.

As long as in the process of tabulating the number of individual rounds of ownership, Dow Chemical (DOW) comes to mind, with 18 such positions over the past two years. The most recent was added just a few weeks ago in order to capture its dividend, but shares then went down in sympathy with DuPont (DD) as it delivered some unexpectedly bad news regarding its seed sales. Showing some recovery to close the week, Dow Chemical is an example of a stock that simply needs to have  are-set of expectations in terms of what may represent a fair price. Sometimes waiting for shares to return to your notions of fairness may be an exercise in futility. While still high in my estimation based on past experience, I continue to look at shares as a relatively safe way to generate option income, dividends and share profits.

Microsoft (MSFT) is another obvious example of one of the many stocks that are at or near their highs. In that kind of universe you either have to adjust your baselines or look for those least susceptible to systemic failure. That is, of course, in the assumption that you have to be an active participant in the first place.

Since I believe that some portion of the portfolio always has to be actively participating, it’s clear that the baseline has to be raised. Currently woefully under-invested in technology, Microsoft appears to at least have relative immunity to the kind of systemic failure that should never be fully dismissed. It too offers that nice combination of option premiums and dividend to offset any potential short term disappointment.

Family Dollar Stores (FDO) reports earnings this week and must be getting tired of always being referred to as the weakest of the dollar stores. It may also already be tired of being in the cross hairs of Carl Icahn, but investors likely have no complaint regarding the immediate and substantial boost in share price when Icahn announced his stake in the company.

Shares saw some weakness as the previous week the potential buyout suitor, Dollar General (DG), considered to be the best in the class, saw its CEO announce his impending 2015 retirement. That was immediately interpreted as a delay in any buyout, at the very least and shares of both companies tumbled. While that presented an opportunity to purchase Dollar General, Family Dollar Stores are still a bit off of their Icahn induced highs of just a few weeks ago and is now facing earnings this coming week.

The option market is implying a relatively small 4.4% price move and it doesn’t quite fulfill my objective of tring to identify a position offering a weekly 1% return for a strike level outside of the implied price range. In this case, however, I would be more inclined to consider a sale of puts after earnings if the response to the report drives shares down sharply. While that may lead to susceptibility of repeating the recent experience with Coach, Carl Icahn, like Janet Yellen is a good friend to have on your side.

Finally, among the topics of the past week were the question of corporate responsibility as it comes to divulging news of the changing health status of key individuals. With the news that Jamie Dimon, Chairman and CEO of JP Morgan Chase (JPM), had been diagnosed with curable throat cancer, the question was rekindled. Fortunately, however, Dimon spared us any supposition regarding the cause of his cancer, perhaps having learned from Michael Douglas that we may not want to know such details.

While hoping for a swift and full recovery many recall when Apple (AAPL) shares briefly plunged when news of Steve Jobs’ illness was finally made public in 2009 and he took a leave of absence, opening the door for Tim Cook’s second seat at the helm of the company.

JP Morgan’s shares went down sharply on the report of Dimon’s health news on a day that the financials did quite well. To his and JP Morgan’s credit, the news, which I believe should be divulged if substantive, should not have further impact unless it changes due to some unfortunate deterioration in Dimon’s health or unexpected change of leadership.

In advance of earnings in two weeks I think at its current price JP Morgan shares are reasonably priced and in a continuing low interest rate environment and with increased regulatory safeguards should be much more protected form its own self than in past years. WHether as a short term or longer term position, I think its shares should be considered as a cornerstone of portfolios, although I wish that I had owned it more often than I have, despite 18 ventures in the past two years.

Hopefully, with Jamie Dimon continuing at the helm and in good health there will be many more opportunities to do so and revel in the process with Janet Yellen providing all the party favors we’ll need.

 

Traditional Stocks: Dow Chemical, JP Morgan Chase, Microsoft, Transocean

Momentum: Coach, Mosaic

Double Dip Dividend: Darden

Premiums Enhanced by Earnings: Family Dollar Stores

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.

Week in Review – June 30 – July 3, 2014

 

Option to Profit Week in Review
June 30 – July 3,  2014
 
NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
4 / 4 1 5 1  / 0 2  / 0 0

    

Weekly Up to Date Performance

June 30 – July 3, 2014 

New purchases for the week beat the unadjusted S&P 500 by 0.5% and surpassed the adjusted index by 0.6%

The market was on target to do nothing for this week until some unexpected words and better than expected data captured everyone’s attention.

Despite a week of really low voulme, or perhaps because of that really low volume, the market passed 17000 for the first time and then reasonablty decidedly added to that figure today, even as so many had already settled in for the long weekend in the Hamptons.

New positions, and there was still a minimal number of those climbed 1.8% higher while the overall market was up its own very healthy 1.3% on an unadjusted basis and 1.1% higher on an adjusted basis.

Existing positions were able to keep up
with the market despite its strong gains. I usually expect them to lag on market strength, but rollovers, dividends and additional option cover helped to equalize performance.

With only one assignment this week, and it again being Las Vegas Sands,  performance of positions closed in 2014 didn’t change very much, but they continue to out-perform the S&P 500 performance by 1.4%. They were up 3.4% out-performing the market by 69.8%. 

It’s a little difficult to characterize this week. It was so short and as has been the case lately, there really hadn’t been much newsworthy or market moving taking place.

The moves higher on the backs of Jenet Yellen’s message that lent further support of stocks over bonds and then the Non-farm payroll statistics reminds me of two weeks ago. Then too, it was a lackluster week until Janet Yellen’s Wednesday press conference, which changed everything.

But if you recall there was absolutely no follow through to the next week.

This week ends with a long, long weekend and so when trading begins on Monday, despite standing at even more new record highs, there’s a reasonable chance that the news and cheer of this week will be long forgotten or at least will not have much in the way of impact on anyone’s thinking.

While there was lots of excitement over the employment news, especially since previous months  were also revised higher, no one seemed to remember the GDP revision and the seeming disconnect between an economy slowing down on the services and production end of things, yet heating up on the emplotyment side of the equation.

The over-riding belief, nd it may finally be time to prepare for real expansion, is that the economy is improving.

Never mind that other measures of employment, that are also released along with the Employment Situation Report, such as the U-6 Report, which is sometimes referred to as the “real unemployment rate” is nearly double the more familiar U-3.

In other words, lots of people are still unable to contribute to economic expansion, yet the market is ignoring an aspect of reality that does have consequences.

Ignoring it may have its own consequences.

Still, it was a good week.

Certainly from the bottom line perspective, but it was also a decent week in terms of trading and generation of option premium, despite the ever lower moving volatility. It was also another nice week in which dividends kept piling on.

The one change of behavior that I see myself succumbing to was evident with shares of Kohls today and some other companies in recent weeks.

In the case of Kohls its shares dropped precipitously in the final 7 minutes of trading to go from about $53.06 to 52.95, with an expiring $53 option. I had been hoping that it would have joined Las Vegas Sands and I was also consiering re-purchasing shares next week, as this middle of the road company is a nice strategic position.

While I don’t want to make any trades in the final 30 minutes, so as to not catch anyone flat-footed and unable to execute a trade, this was also an example of not wanting to pay the premium to close the existing option, as well as incurring the transaction expense, while forward week volatility, and therefore, premium, is relatively low.

Sometimes, and certainly moreso lately, I’d rather take the chance of not being able to make the trade next week than getting into a trade where the net premium is quite a bit less than I would think is appealing, due to the added costs.

Otherwise, it was a good week for rollovers and at least a couple of positions gained new cover. There was a net drain on cash reserves, with four new positions opened and only one assigned, but at least it was a good week in which to put some money to work.

Next week has lots of expirations coming due. While I have funds available for new purchases the likelihood is that, where possible, I would look to the end of the option cycle, now just two weeks away, as the contract term.

The low volatiltiy, however, sometimes makes that hard to swallow, but uncharacteristically the cycle ending month is currently very sparsely populated, so next week may be a good time to fix that and diversify risk a little bit more.

For now, though, my only concern is that there’s a happy, health and safe July 4th holiday ahead for us all.







.



Still, there were more new records and one of those inexplicable triple digit moves that really had no beginning, but did have an end.

This was another one of those weeks that the entire market should have just taken a vacation.



 

     

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, DG, HFC, WFM

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:  BMY, DG, JPM, KSS

Calls Rolled over, taking profits, into extended weekly cycle:  EBAY (7/25)

Calls Rolled over, taking profits, into the monthly cycle:  none

Calls Rolled Over, taking profits, into a future monthly cycle: none

Calls Rolled Up, taking net profits into same cyclenone

New STO:  PFE

Put contracts expired: none

Put contract rolled over: none

Long term call contracts sold:  none

Calls Assigned:  LVS

Calls Expired:   HFC, KSS

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: BMY (7/1 $0.36), JPM (7/1 $0.40), WFM (7/1 $0.12)

Ex-dividend Positions Next Week:  GPS (7/7 $0.22), MA (7/7 $0.11), DRI (7/8 $0.55), FCX (7/11 $0.31)

 

 

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, BMY, C, CLF, COH, EBAY, FCX, HFC, JCP, KSS, LULU, MCP, MOS,  NEM, PFE, PBR , RIG, TGT, WFM, 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.



Daily Market Update – July 3, 2014

 

 

 

Daily Market Update – Jul 3, 2014 (8:00 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: LVS

Rollovers: KSS

ExpirationsHFC

Trades, if any, will be attempted to be made prior to 12:30 PM EDT. The market closes early today to begin  the July 4th holiday.

Happy and safe celebration to all.

 

 

 

 

 

 

Daily Market Update – July 2, 2014 (Close)

 

 

 

Daily Market Update – Jul 2, 2014 (Close)

Yesterday was a great example of how you can make something from nothing at all and that it’s so much easier when there’s little volume to fight back against the move.

Today was justa great example of how the market can be open all day long and no one would even have known about it, as it traded in an even more narrow range than on Monday.

Yesterday was something totally different, though. There wasn’t much reason for yesterday’s rise, but it was the kind that could easily perpetuate itself as the DJIA was approaching 17000. Those kind of round numbers tend to attract buying. As much as professional traders profess that such numbers have no meaning to them, it’s clear that market dynamics do seem to care, for whatever reason.

The market did close at another new high, but that 17000 wasn’t breached today. The tendency is that when those big round numbers are breached, they are done so in a pretty convincing fashion.

I certainly have no complaints because yesterday did offer an opportunity for a number of rollovers, leaving only a handful left for this shortened trading week. As for the rest of the portfolio, sometimes it really is better letting the market do the heavy lifting and simply enjoying the ride. Yesterday was one of those days, just occasionally punctuated with some unexpected rollover opportunities.

I don’t have any complaints about today, either, but it was nothing like yesterday, at least on an activity basis.

With markets closing in the early afternoon on Thursday, just a few trading hours after the release of the Employment Situation Report, that didn’t leave too much time to recover in the event of a drop and certainly didn’t leave too much time to trade, so yesterday’s activity was very welcome.

It was nice seeing the opportunity to execute the rollovers, Ideally, it’s always best to sell calls into strength, just as it is to sell puts into weakness.

You just never know what tomorrow brings and the shares of JP Morgan were a perfect example of that.

With shares having been due to expire this week at $58 and being within easy reach of that on Tuesday, who would have known of the unfortunate news to come after the close reporting that Jamie Dimon had been diagnosed with throat cancer? Given that other major banks went nicely higher today, you would have to believe that JP Morgan’s drop was related to the bad news regarding its Chairman.

Yesterday was a rare opportunity of strong price strength coming early in the week that happened to have an early expiration to boot. It was a Tuesday, but effectively was like a Thursday when it came to  option premiums and beginning to look for rollover opportunities.

With only a few new purchases for yet another week it always feels a little better being able to generate weekly income streams from existing positions. Yesterday’s activity didn’t leave much else to rollover this week, but there is still the chance that some more buying opportunities may appear this week using next week or the monthly cycle’s ending week option contracts. Somewhat unusually, there aren’t very many positions yet scheduled to expire at the cycle’s end, so if premiums allow, I may be more interested in those expirations rather than for next week.

Added into the equation is the beginning of earnings season prior to the end of the cycle. Just one more thing to keep eyes on. The past few quarters were very punishing for any company earnings disappointments and price recoveries tended to be much longer than during other times in this bull cycle. By and large, analysts have thought that earnings were in line, but ignored the impact of massive stock re-purchases and their contribution to raising EPS statistics. With much of the corporate cost cutting having already been done in previous years, the only real mechanism to increase earnings is through revenue and most everyone understands that revenues have not been stellar, as it tends to take a robust workforce and economy to drive revenues.

Yet, the march higher continued.

What will be interesting to see is whether the second quarter will show any kind of bounce back from the numbers of the previous quarter that were widely attributed to weather. The expectation would be for considerable improvement, so there is an immediate environment being established for disappointment to be the theme.

The rest of the week is framed by this morning’s ADP Report and followed by tomorrow’s Employment Situation Report. The ADP number was much larger than expected and had no revisions. Considering that their statistics are based on their payroll processing business you would have to wonder why there would ever be revisions.

The pre-open trading greeted that number with a yawn and gave up a small piece of the early gains upon the news.

It’s hard to imagine much that could or more appropriately, should, have an impact on markets, there’s some anxiety over a disappointing number, even as expectations are for another 200,000+ new jobs statistic. That nervousness is based on GDP revisions and the knowledge that it is most likely going to be a very lightly traded day, again introducing the low volume wild card.

With all of that, I’m glad it’s a short week and opportunity came along when it did.