Daily Market Update – October 29, 2014




Daily Market Update – October 29, 2014 (9:00 AM)

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’ll have some idea this afternoon.

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 will interpret whatever is contained in the statement as another reason to move higher.

While the recent strength has essentially eroded all of the gains in volatility, at this point I wouldn’t mind 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.

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.

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.

Today will probably be a “wait and see” kind of day. 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’s even better reason to sit and wait until 2 PM.

Of course, if any strength pops up in the market before that FOMC release and the opportunity presents to sell some options, I would jump at that opportunity. Unfortunately, yesterday there were very few buyers of options and very large bid – ask spreads that couldn’t really be bridged, as I tried to get option sales made in a number of positions, but without much luck, other than for Kellogg and Ford.

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

Another strong move higher today could change that and might bring more call buyers back into the market, so I hope that whatever the FOMC offers today there will be fewer disappointed people than there will be optimistic people ready to drive prices even higher.