Daily Market Update – October 14, 2014




Daily Market Update – October 14, 2014 (8:30 AM)

Yesterday was a very disappointing day from start to finish.

It started with an attempt to bounce back from Friday’s late day sell-off that lasted all of about 20 minutes.

It ended with another sell off in the final hour, most of which actually came during an acceleration phase in the final 30 minutes, that resulted in another 200 point loss.

As opposed to the triple digit moves that started three weeks ago on an alternating basis between qains and losses, the predominant flavor now is losses.

Yesterday would have been a perfect day to have seen a strong bounce, even if there was no sincerity behind it. As it was the way stocks went back and forth yesterday between mild gains and losses, before finally seeing everyone decide to sell, there was really no opportunity to execute any trades that made sense in order to establish covered positions from existing stocks.

It was an extremely rare kind of Monday that ended with me not having made any trades, at all. I’m not certain how much that will change for the rest of the week, as there are relatively few positions set to expire this week and a continuing desire to conserve cash.

Yesterday was also a good lesson, though, on how such appealing looking prices could be illusory, as those prices got even cheaper across the board by the time the final bell rang. Lately that has been a theme in development, but it has over-extended its welcome.

The S&P 500 is now down about 6.8% from its peak back in September, but so many stocks are in their own correction phase already, many of which haven’t really had any news to warrant the sharp moves lower, particularly in cases where there moves higher were of a gradual nature, rather than gap ups higher, which are much more prone to sharp drops down in the event of either bad news or a deteriorating market.

Many will point to the S&P 500 having fallen below its 200 day moving average as the catalyst for the sell off, but that barrier had actually been breached several times during the trading day before the serious selling started in the final hour of trading. None of those earlier breaches that didn’t result in selling will ever be remembered, only the one that did, making it much more easy to point to the successful ability of that particular indicator as a valid one.

While I would love to see a strong move higher, that would only be for purposes of selling new covered positions, because that kind of move is also just an illusory one. Past markets indicate that such moves are usually related to downtrends and not typically parts of sustained reversals or bull trends. Instead, I would much rather see a sustained move higher or, perhaps even better, simply treading in place right now.

That’s really where the best opportunity will come. While treading in place everyone is in a state of uncertainty, regardless of whether they wear bull or bear stripes and that uncertainty shows up where it really counts.

In the meantime the volatility was already moving higher yesterday before the late afternoon sell off as the market was going back and forth between gains and losses. Even with little to no net movement in value that kind of movement is the essence of volatility. The last hour’s sell-off added to the volatility, as it continued the reversal from the sustained moves higher that had characterized the markets for the past two years.

Hopefully some of that sustained move higher will emerge this morning and offer some opportunity to sell calls, but the pre-open futures aren’t particularly strong, but at least they are positive, with some mildly good news from the big three banks; JP Morgan, Citigroup and Wells Fargo.

Those usually, at least in the past two years, have out-performed the market, as a whole in earnings quality, but were a little under-whelming this morning. Still, the fact that the market has at least a positive bias this morning gives some reason for optimism, if only for a short while.

But that’s all I ask for the week.