Daily Market Update – October 22, 2014 (Close)




Daily Market Update – October 22, 2014 (Close)

Earnings continue this week and next and with the exception of some high profile names in the DJIA, thus far earnings have been reasonably good.

They have also likely been the reason for the market reversing its downtrend, although the very factors that may have sent the market lower may now be the ones sending it higher as they all have taken a break.

Ebola, ISIS, dropping energy prices, you name it. There’s really nothing going on right now and that allows for attention to be placed to where it rightfully belongs.

In an ideal world all we would really need to focus upon would be fundamentals and prospects for growth. We wouldn’t have to have our attentions diverted by so many extraneous factors, especially the ones that cause us to worry or panic.

This morning the futures were indicating a calm opening, although that was the situation yesterday as well, but yesterday and on Monday, there was undue influence from earnings related declines in some big names that obscured the building strength in the rest of the market.

This morning there was none of that fog from bad numbers to confuse the situation and the S&P 500 and the DJIA may actually perform in line with one another, as opposed to the DJIA lagging by about 0.8% over the past two days.

A little bit of stability would have been a nice thing right about now. While the market had reached a low point of about a 9% decline from its September peak, it is still about 4% below that level. Committing funds to new positions is rarely a good idea when markets are heading straight in one direction or another, nor is it really a good idea when they wildly alternate between drops and climbs.

Over the past month, however, there haven’t been many alternatives. What we haven’t seen are many days of little to no movement.

And today was no different.

It was a triple digit loss, closer to 200 points than to 100 points, because the calm was broken in Canada and possibly because the briefly seen stability in oil prices was disrupted.

Normally that would have meant oil prices went higher, but these days it means that they are going lower.

With yesterday’s move higher, I was content seeing asset appreciation on paper but would have been much happier if able to convert some of those moves higher into opportunities to sell calls. What you may have noticed, though, is that the sharp climb higher yesterday and the stealth climb on Monday that was otherwise obscured by IBM, saw large drops in volatility and along with it, drops in premiums.

That drop in premium has made the DOH trades that I was hoping to execute look less appealing from a risk – reward perspective.

That may change tomorrow as volatility recaptured some of what was lost earlier in the week, as suddenly even volatility has volatility.

This morning I didn’t expect to be buying anything and this now may end up being the second consecutive week of refraining from adding any new positions. I could get used to that as long as there is some other source of recurring income, so that would require some consistency in rollovers  or sales of new covered positions. Ideally, both of those would be occurring, but so far this week has been slow in the latter, although there were already some early rollovers that took advantage of some price moves higher while still being out of the money.

As the afternoon wore on, however, I found myself beginning to get ready to possibly add some new positions, but given the uncertainty regarding today’s terrible events in Canada, it might be a good idea to wait until there is some clarity.

With a number of DOH Trades set to expire this week that means a need to roll them over in the event that assignment seems likely. Ideally, DOH trades are allowed to expire, unless the volatility is still very high, in which case the cost of the transaction could be easily offset by the transaction. With those DOH trades and the objective of not seeing them get assigned, I don’t anticipate too many assignments, if any, this week.

Otherwise, today, at the mid-week point, it looked like a day for watching for any selective opportunities on an individual basis.

Of course, those really didn’t come along, so that wait is delayed until tomorrow.