Daily Market Update – October 29, 2014 (Close)




Daily Market Update – October 29, 2014 (Close)

Other than the fact that recent months have seen rallies on the day before an FOMC Statement release, there really wasn’t any reason to have expected yesterday’s nearly 200 point climb.

Although there was a gap higher to start the day, a larger move higher started at about 1 PM, with no real news to account for that optimism.

It really is very confusing to understand what is going on, particularly if you believe that the recent abrupt bounce higher of the nearly past two weeks has been due to the suggestion that the Federal Reserve wouldn’t be exiting its Quantitative Easing policies this month, as scheduled.

It would seem then that it is a binary bet that is on the table. Either QE ends or it doesn’t and that was a fairly big bet being made yesterday.

Of course, there were those who believed that yesterday’s market was an expression of confidence that the market could continue to thrive without QE continuing and then there were those who believed that the 200 points tacked on was an expression of the FOMC’s decision to continue some form of QE.

At least we would finally get to have some idea this afternoon, but I don’t think anything was really cleared up, despite the fact that we now know that QE has come to its end.

If the past few months have been any indication, in fact, if Janet Yellen’s tenure as the Federal Reserve Chairman is any indication, the market would interpret whatever is contained in the statement as another reason to move higher. But that wasn’t what happened today as there were some really mixed signals that left you wondering whether the FOMC was beginning to take on a more hawkish posture.

While the recent strength has essentially eroded all of the gains in volatility, at this point I wouldn’t have minded seeing the gains continue, as I would like to see some assignments getting made and the opportunity to replenish my cash reserves, which are at a 5 year or more low point.

Today’s market never really offered that opportunity and got moderately weaker after the FOMC release, before recovering somewhat.

Yesterday’s really unexpected rally was simply a good opportunity to take a break and let the momentum carry you along, but in the right direction. Today did nothing other than to create a need to beware of tomorrow as people have a chance to digest what things mean and to position themselves, accordingly.

I would think that for those that were encouraged by James Bullard there has to be a sense of becoming deflated.

the trade in Ford, in order to capture the dividend, was one of those that also got taken along for the ride. I really didn’t expect it to breech the $14.12 level, which would have made it susceptible for early assignment. After having gotten to about $14.15 it reversed course and fell to about $14.07 with a bit more than an hour to go in trading. But that final hour carried everything along and Ford shares went back up to $14.16 so it was time to do that rollover, although the one day return wouldn’t have been too bad, particularly if enough shares were held, but the potential 2 week return was even better.

As it would turn out, no one reported having had their unrolled shares assigned early, anyway. Although it was questionable whether those shares would be assigned early, because the closing price was only a few pennies above that $14.12 threshold and there were still 3 days left on the contract, I look at the lack of assignments as a sign of bearishness, at least in shares of Ford, if not in the market in general.

Today was going to be a “wait and see” kind of day anyway. from the onset, but with the exception of a single DOH trade in Abercrombie and Fitch, that’s how it remained. Since Wednesday’s are usually the slowest trading day of my week, even when trading frequently, as has been the case up until the past couple of weeks, there was plenty of reason to sit and wait until the 2 PM release, but as it turned out no reason to do anything otherwise after 2 PM.

While I would have liked the opportunity to take advantage of any pop up in the market before that FOMC release  to sell some options, it never came, just as the futures trading predicted would have been the likely case. I would have  jumped at that opportunity.

Unfortunately, neither yesterday nor today were there many buyers of options and very large bid – ask spreads existed couldn’t really be bridged, as I tried to get option sales made in a number of positions yesterday, but without much luck, other than for Kellogg and Ford. Today I didn’t really even try very much, as there were so many stocks with absolutely no bids to buy at all.

That difficulty indicated to me a less optimistic option market, at least on the call side of the equation. Few are betting on a continued climb.

Another strong move higher today could have changed that and might have brought more call buyers back into the market. For today the FOMC offered nothing to entice people into becoming optimistic ready to drive prices even higher.

But there’s always tomorrow.