Daily Market Update – October 8, 2014 (Close)

 

  

 

Daily Market Update – October 8, 2014 (Close)

There are lots of people who are dismayed to see the market pointing mildly higher this morning. Imagine how they must feel as it came to its unlikely close this afternoon.

That’s because they believe that after a 272 point sell off the real healthy market action would be to have a blow out kind of selling environment. That is thought to be akin to “getting it all out of your system” and then being in a position to start all anew.

Instead, thanks mostly to a dovish FOMC Statement that took notice of European weakness, the market erased yesterday’s loss and even had one of those “key reversals” that get mentioned every now and then.

Thoose are supposed to be very, very positive signals.

The “blow out” theorists do seem to have history on their side, but it tends to be the sort of thing that you see during a protracted market decline and has more false positives than you might want to know about if you believed in that theory. Just look at the period of time between October 2007 and March 2009 and you’ll see lots of declines that could have qualified as “blow outs,” but were predictive of nothing.

Before getting too smug about what means what, those key reversals aren’t perfect, either.

On the other hand, there’s probably nothing terribly wrong with creating another one of these 5% declines that seem to occur every two months. We’re less than 1.5% away from having done that and if the past two years is any guide, after having done so it’s off to more new records.

That pattern will remain to be a valid one until it’s broken and it’s anyone’s guess whether we are on a path to break the pattern now, but we should know soon, as the peak to trough back to peak over the past two years has generally been on the order of less than 3 weeks.

Did today break reconfirm that pattern?

Well, maybe, but you would have been prematurely optimistic if saying the same thing last Friday on a similar kind of day.

But with today being an FOMC Statement release day there may be a little more riding on it than usual. Always something that the market finds a reason to react to, today any change that could be construed as indicating interest rate hikes coming sooner than expected could really tip the already nervous market into something of a blow off kind of selling pattern.

That’s true even though we all know that with each passing month that interest rate hike becomes a case of “sooner rather than later.”

Yesterday’s sell-off in advance of today’s FOMC wa
s surprising and again, there really wasn’t very much of substance to support that kind of selling, although fingers were pointed at Europe. However, the market which had already opened gapped down from the previous day’s close took a real drop sometime after 2 PM without any new news to account for that sell off.

This kind of back and forth alternation between losses and gains, especially in the magnitude of the changes is different from the 5% corrections that we’ve gotten accustomed to seeing. Those have been more based on smaller, but sustained movements lower, just as the bounces higher had also not been characterized by explosive movements.

What that means is also anyone’s guess. In the past 5 years it has both meant a highly tumultuous market with a large net decline, as well as a market that essentially was treading water.

Volatility, as the day was getting ready to begin trading, was at the same level it was at its peak during the last market mini-correction, when the S&P 500 stood at 1925, which was 10 points below yesterday’s close.

In the past year volatility hit its peak in February, approximately 25% higher than it currently sits and the S&P 500 was then at 1741, which would represent a very sizeable drop from the current level.

However, even that February volatility peak is fairly low by historical standards, so there’s some reason to be concerned, but only if there is a breech of the usual 10% correction threshold.

For those that have cash reserves, despite what appears to be some bargain prices, I would still be reluctant to do much shopping, although an occasional purchase can still be a timely one.Today’s surge after the FOMC report was interesting to watch, but other than looking for some opportunities to sell calls, it wasn’t very enticing as far as making me part with any more money.

If you’ve been sitting back, today was a good day to continue inactivity and tomorrow may be the same. If the market is destined to go higher after today’s key reversal, let it do so and let it do the hard lifting. If it results in some assignments, that would be just fine by me.

 

Daily Market Update – October 8, 2014

 

  

 

Daily Market Update – October 8, 2014 (9:00 AM)

There are lots of people who are dismayed to see the market pointing mildly higher this morning.

That’s because they believe that after a 272 point sell off the real healthy market action would be to have a blow out kind of selling environment. That is thought to be akin to “getting it all out of your system” and then being in a position to start all anew.

The “blow out” theorists do seem to have history on their side, but it tends to be the sort of thing that you see during a protracted market decline and has more false positives than you might want to know about if you believed in that theory. Just look at the period of time between October 2007 and March 2009 and you’ll see lots of declines that could have qualified as “blow outs,” but were predictive of nothing.

On the other hand, there’s probably nothing terribly wrong with creating another one of these 5% declines that seem to occur every two months. We’re less than 1.5% away from having done that and if the past two years is any guide, after having done so it’s off to more new records.

That pattern will remain to be a valid one until it’s broken and it’s anyone’s guess whether we are on a path to break the pattern now, but we should know soon, as the peak to trough back to peak over the past two years has generally been on the order of less than 3 weeks.

But with today being an FOMC Statement release day there may be a little more riding on it than usual. Always something that the market finds a reason to react to, today any change that could be construed as indicating interest rate hikes coming sooner than expected could really tip the already nervous market into something of a blow off kind of selling pattern.

That’s true even though we all know that with each passing month that interest rate hike becomes a case of “sooner rather than later.”

Yesterday’s sell-off in advance of today’s FOMC was surprising and again, there really wasn’t very much of substance to support that kind of selling, although fingers were pointed at Europe. However, the market which had already opened gapped down from the previous day’s close took a real drop sometime after 2 PM without any new news to account for that sell off.

This kind of back and forth alternation between losses and gains, especially in the magnitude of the changes is different from the 5% corrections that we’ve gotten accustomed to seeing. Those have been more based on smaller, but sustained movements lower, just as the bounces higher had also not been characterized by explosive movements.

What that means is also anyone’s guess. In the past 5 years it has both meant a highly tumultuous market with a large net decline, as well as a market that essentially was treading water.

Volatility is now at the same level it was at its peak during the last market mini-correction, when the S&P 500 stood at 1925, which is 10 points below yesterday’s close.

In the past year volatility hit its peak in February, approximately 25% higher than it currently sits and the S&P 500 was then at 1741, which would represent a very sizeable drop from the current level.

However, even that February volatility peak is fairly low by historical standards, so there’s some reason to be concerned, but only if there is a breech of the usual 10% correction threshold.

For those that have cash reserves, despite what appears to be some bargain prices, I would be reluctant to do much shopping, although an occasional purchase can still be a timely one.

If you’ve been sitting back, today seems to be a good day to continue inactivity.

 

Daily Market Update – October 7, 2014 (Close)

 

  

 

Daily Market Update – October 7, 2014 (CLose)

It’s hard to say whether yesterday was a disappointment or not.

While it’s true that the early morning gain never quite survived, neither did it give way to any kind of tangible profit taking.

But even if you had doubts about yesterday, there can’t be any about today.

This morning appeared ready to start exactly where yesterday left off. The market was pretty ambivalent yesterday and had a hard time deciding whether to finish higher or lower. This morning it looked as if there would be a mildly lower opening with no real news to fuel anything.

That changed, but without any real obvious reason and the market ended with another of these 200+ point moves, but in the wrong direction, unless you’re really into volatility.

Even I’m not that into volatility.

While yesterday had the Hewlett Packard news which by all appearances was a dizzying spin of why the split up was a reflection of Hewlett Packard’s success, today had nothing.

Other than all of the scheduled speakers this week and tomorrow’s FOMC Statement release, that pretty much describes the rest of the week.

In the meantime the market had been sitting just short of the mid-way point for its 2 year pattern of mini-corrections. It was getting ready to start the morning about 2.3% below its high from a few weeks ago, so it was really anyone’s guess where the next stop would be be.

Tomorrow morning the only thing to guess is whether we will see the market takes us to and perhaps beyond that 5% mini-correction level that we last saw at the very end of July, as the market ended today about 3.6% below its high.

Tomorrow comes the next challenge.

With the anticipation for the last FOMC Statement being so focused on the phrase “considerable time,” as it was being used to describe when the increase in interest rates would start, somewhere along the line will come the realization that with each passing month, by definition that “considerable time” has been shortened by a month.

Sooner or later there will be no time left and rates will go higher.

Although it shouldn’t come as a surprise, you can be reasonably assured that the market will react as if it was a surprise and then will bounce back from the shock that should never have been a shock.

But that scenario may not have to play out for so
me considerable time.

What will play out almost immediately will be earnings, that really get going tomorrow, even though the traditional leader of the season, Alcoa is no longer in the DJIA.

This earnings period will be interesting because the likelihood is that retail will have some good news, but energy will have some bad news, especially as it gives forward guidance.

If you asked anyone what the future would hold for the energy sector, given all of the geo-political risk, they would have had to have been crazy to not believe that the future for profits was incredibly bright. But this period in time is markedly different, as even with all of the world’s craziness energy prices (and precious metals) are plummeting.

They will surely go up at some point, but as the expression goes “if not now, when?”

After a couple of purchases yesterday, I wouldn’t have minded adding some others for the week, but am still not committed to it. If anything, I may be interested in buying back some of last week’s assigned positions, but I’m not too convinced that I’ll have much interest to break out beyond those names at the moment. As the afternoon progressed and there was a sell-off on top of the already weak numbers, there was even less reason to make those purchases.

As has become the pattern of late, unless there’s a spike higher to open a session, giving an opportunity to sell calls, the likelihood is that sitting back and watching to see how that early trading evolves is the way to go. That was definitely the way to go today and it was also a good idea to resist anything looking like a value.

With the exception of last Friday when the market indicated higher and stayed that way, these early morning trading patterns have had very poor predictive value. Lower opening trading hasn’t offered much in the way of value and higher opens haven’t led to higher closes, for the most part.

I had suspected that the typical FOMC pattern would be in play today, unless, as last month, someone thought to have an inside track, such as the Wall Street Journal’s Jon Hilsenrath, offers an opinion on what tomorrow will bring. Otherwise, there was very little reason to suspect any kind of accentuated movement in either direction, as most traders are playing very conservatively now.

Most of the time that’s not too bad of an idea.

Today, though, they were neither conservative nor in panic, but maybe a blow off from some kind of panic is better than this seemingly unwarranted syncopated sell-off that has been going on for the past three weeks.

But who knows, maybe Janet Yellen will give us a brief respite tomorrow.

 

Daily Market Update – October 7, 2014

 

  

 

Daily Market Update – October 7, 2014 (9:15 AM)

It’s hard to say whether yesterday was a disappointment or not.

While it’s true that the early morning gain never quite survived, neither did it give way to any kind of tangible profit taking.

This morning appears ready to start exactly where yesterday left off. The market was pretty ambivalent yesterday and had a hard time deciding whether to finish higher or lower. This morning it looks as if there will be a mildly lower opening with no real news to fuel anything.

While yesterday had the Hewlett Packard news which by all appearances was a dizzying spin of why the split up was a reflection of Hewlett Packard’s success, today has nothing.

Other than all of the scheduled speakers this wek and tomorrow’s FOMC Statement release, that pretty much describes the rest of the week.

In the meantime the market is sitting just short of the mid-way point for its 2 year pattern of mini-corrections. It is currently about 2.3% below its high from a few weeks ago, so it really is anyone’s guess where the next stop will be.

With the anticipation for the last FOMC Statement being so focused on the phrase “considerable time,” as it was being used to describe when the increase in interest rates would start, somewhere along the line will come the realization that with each passing month, by definition that “considerable time” has been shortened by a month.

Sooner or later there will be no time left and rates will go higher.

Although it shouldn’t come as a surprise, you can be reasonably assured that the market will react as if it was a surprise and then will bounce back from the shock that should never have been a shock.

But that scenario may not have to play out for some considerable time.

What will play out almost immediately will be earnings, that really get going tomorrow, even though the traditional leader of the season, Alcoa is no longer in the DJIA.

This earnings period will be interesting because the likelihood is that retail will have some good news, but energy will have some bad news, especially as it gives forward guidance.

If you asked anyone what the future would hold for the energy sector, given all of the geo-political risk, they would have had to have been crazy to not believe that the future for profits was incredibly bright. But this period in time is markedly different, as even with all of the world’s craziness energy prices (and precious metals) are plummeting.

They will surely go up at some point, but as the expression goes “if not now, when?”

After a couple of purchases yesterday, I wouldn’t mind adding some others for the week, but am not committed to it. If anything, I may be interested in buying back some of last week’s assigned positions, but I’m not too convinced that I’ll have much interest to break out beyond those names at the moment.

As has become the pattern of late, unless there’s a spike higher to open the session, giving an opportunity to sell calls, the likelihood is that sitting back and watching to see how that early trading evolves is the way to go.

With the exception of last Friday when the market indicated higher and stayed that way, these early morning trading patterns have had very poor predictive value. Lower opening trading hasn’t offered much in the way of value and higher opens haven’t led to higher closes, for the most part.

I suspect that the typical FOMC pattern will be in play today, unless, as last month, someone thought to have an inside track, such as the Wall STreet Journal’s Jon Hilsenrath, offers an opinion on what tomorrow will bring. Otherwise, there’s very little reason to suspect any kind of accentuated movement in either direction, as most traders are playing very conservatively now.

Most of the time that’s not too bad of an idea.

 

Daily Market Update – October 6, 2014 (Close)

 

  

 

Daily Market Update – October 6, 2014 (Close)

What a wild week ahead.

There’s not too much as far as scheduled economic news goes and there may also be some peaceful short term resolution to the protests underway in Hong Kong, but there will be an incredible amount of hot air generated this week.

Today, Secretary of Treasury Jack Lew speaks and on Thursday European Central Bank President Mario Draghi speaks

In-between will be Wednesday’s release of the monthly FOMC Statement and the eager anticipation around the wording used to indicate what we all know is now coming at least one month sooner than we thought last month.

Finally, there are 12 speeches scheduled to be given by members of the FOMC this week, winding up with hawkish member, Richard Fisher, who is able to move markets very much in the same manner that the Chairman, Janet Yellen can do, despite the fact that Fisher has frequently been wrong in his opinions and predictions.

Unfortunately, he speaks just a few hours before the market finishes its trading for the week and he has a habit of sending shares lower when he focuses on the need to increase interest rates sooner.

This morning none of that seemed to matter as the pre-opening futures indicated a moderately higher opening, possibly buoyed by Hewlett Packard’s split into 2 companies. Nonetheless, 28 out of 30 of the DJIA components were higher prior to the bell ringing,

That kind of opening would have been welcome, even though I ordinarily like to see weakness to start the week.

That’s because I generally am looking to replace assigned positions and want to spend money, but don’t want to overspend.

This week, however, is another week that I’m not overly anxious to spend much money. Following 2 weeks of very confusing trading and seeing large moves in both directions with little or no provocation, it seems a little reckless to commit one way or another.

Today really did nothing to get rid of the confusion. After looking as if there might be a possible early triple digit move to the upside the market loss all of it and actually was down as low as about 70 points, only to finish the day virtually unchanged.

Rational thinking might say that there’s more downside than upside, but when has rational thinking really worked terribly well in the markets?  If rational thinking had any role most people would have missed the last couple of thousand of points gain in the DJIA while awaiting the correct
ion that we all knew to be obviously lurking.

With a handful of positions scheduled to expire this week and the same for next week’s monthly cycle end, at the moment, if making any new purchases I’m likely to look to add to this week’s expirations or possibly go out to October 24th.

In addition to the usual considerations whenever buying any new positions this week begins yet another earnings season, so that has to be thrown into the mix.

However, for the first time in a while, I’m actually optimistic about the upcoming earnings. The potential confounder will be the impact of share buy-backs. During the past few quarters those buy-backs have artificially boosted earnings per share, even as revenues were flat or even decreasing.

This time around, I expect revenues to be higher, especial in retail and consumer sections, but expect that buy backs have slowed down. That may result in higher revenues, but not the same pace of share reduction, which could lead to some earnings per share disappointments.

So as the bell was getting ready to ring, I was hoping that the strength would continue, but as we all know those kind of mild to moderate pre-open futures really don’t mean much of anything. Just as so often happens, today’s early jump higher just withered away.

Although there wasn’t much of a net change today, the constant back and forth did end up increasing volatility, which had fallen on Friday’s straight climb higher. That climb wasn’t too much, though, and did nothing really to make finding extended option opportunities any easier. Nonetheless, for now, I’d prefer to see some higher moving prices, even at the expense of volatility, if that meant a greater likelihood of putting some existing stock positions to work.

This week I’d rather see myself producing income in that manner, along with more than the usual number of ex-dividend positions, than through the depletion of cash reserves.

Like last week, it’s very possible that the two early purchases for the week may be as much as will be made, although with any further declines in eBay, Comcast and Walgreen, the stocks assigned this past Friday, it may just be time to buy those back.

Daily Market Update – October 6, 2014

 

  

 

Daily Market Update – October 6, 2014 (9:00 AM)

What a wild week ahead.

There’s not too much as far as scheduled economic news goes and there may also be some peaceful short term resolution to the protests underway in Hong Kong, but there will be an incredible amount of hot air generated this week.

Today, Secretary of Treasury Jack Lew speaks and on Thursday European Central Bank President Mario Draghi speaks

In-between will be Wednesday’s release of the monthly FOMC Statement and the eager anticipation around the wording used to indicate what we all know is now coming at least one month sooner than we thought last month.

Finally, there are 12 speeches scheduled to be given by members of the FOMC this week, winding up with hawkish member, Richard Fisher, who is able to move markets very much in the same manner that the Chairman, Janet Yellen can do, despite the fact that Fisher has frequently been wrong in his opinions and predictions.

Unfortunately, he speaks just a few hours before the market finishes its trading for the week and he has a habit of sending shares lower when he focuses on the need to increase interest rates sooner.

This morning none of that seems to matter as the pre-opening futures are indicating a moderately higher opening, possibly buoyed by Hewlett Packard’s possible split into 2 companies. Nonetheless, 28 out of 30 of the DJIA components were higher prior to the bell ringing,

That kind of opening would be welcome, even though I ordinarily like to see weakness to start the week.

That’s because I generally am looking to replace assigned positions and want to spend money, but don’t want to overspend.

This week, however, is another week that I’m not overly anxious to spend much money. Following 2 weeks of very confusing trading and seeing large moves in both directions with little or no provocation, it seems a little reckless to commit one way or another.

Rational thinking might say that there’s more downside than upside, but when has rational thinking really worked terribly well in the markets?  If rational thinking had any role most people would have missed the last couple of thousand of points gain in the DJIA while awaiting the correction that we all knew to be obviously lurking.

With a handful of positions scheduled to expire this week and the same for next week’s monthly cycle end, at the moment, if making any new purchases I’m likely to look to add to this week’s expirations or possibly go out to October 24th.

In addition to the usual considerations whenever buying any new positions this week begins yet another earnings season, so that has to be thrown into the mix.

However, for the first time in a while, I’m actually optimistic about the upcoming earnings. The potential confounder will be the impact of share buy-backs. During the past few quarters those buy-backs have artificially boosted earnings per share, even as revenues were flat or even decreasing.

This time around, I expect revenues to be higher, especial in retail and consumer sections, but expect that buy backs have slowed down. That may result in higher revenues, but not the same pace of share reduction, which could lead to some earnings per share disappointments.

So as the bell rings, I hope that the strength continues and doesn’t do as so often has been the case and just withers away. If that strength does continue and builds on Friday’s close, volatility will move lower and that may make it a little more difficult to find expanded option opportunities. Nonetheless, for now, I’d prefer to see some higher moving prices, even at the expense of volatility, if that meant a greater likelihood of putting some existing stock positions to work.

This week I’d rather see myself producing income in that manner, along with more than the usual number of ex-dividend positions, than through the depletion of cash reserves.

 

 

 

 

 

 

 

 

Dashboard – October 6 – 10. 2014

 

 

 

 

 

Selections

MONDAY:  Unbelievable week for hot air enthusiasts. 12 speeches by FOMC members, one by Treasury Secretary Jack Lew and One by ECB Presient Mario Draghi, in addition to Wednesday’s FOMC Statement. Other than that, nothing else really of interest.

TUESDAY:     A  mildly negative start to the day looks to be the logical place to start after yesterday’s fade and before tomorrow’s FOMC.

WEDNESDAY:  Coming off a 272 point loss makes today’s FOMC Statement even more important as the slightest change in wording could tip negative sentiment into what many believe is the “blow off” selling that is necessary to get the market back on its higher track.

THURSDAY:    Down 272 one day, up 274 the next, but for the past 3 weeks that’s not all that unusual. Today shows no follow through to begin the morning and no expected catalysts, but since when are those important?

FRIDAY:  Not much relief in sight to end the week as market is now 4% below its September highs and up less than 5% for the year.

 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

Weekend Update – October 5, 2014

This week’s markets didn’t respond so positively when Mario Draghi, the head of the European Central Bank failed to deliver on what many had been expecting for quite some time.

The financial markets wanted to hear Draghi follow through on his previous market moving rhetoric with an ECB version of Quantitative Easing, but it didn’t happen. After two years of waiting for some meaningful follow through to his assertion that “we will do whatever it takes” Draghi’s appearance as simply an empty suit becomes increasingly apparent and increasingly worrisome.

On a positive note, as befitting European styling, that suit is exquisitely tailored, but still hasn’t shown that it can stand up to pressure.

It also wasn’t the first time our expectations were dashed and no one was particularly pleased to hear Draghi place blame for the state of the various economies in the European Union at the feet of its politicians as John Chambers, the head of Standard and Poor’s Sovereign Debt Committee did some years earlier when lowering the debt rating of the United States.

Placing the blame on politicians also sends a message that the remedy must also come from politicians and that is something that tends to only occur at the precipice.

While the Biblical text referring to a young child leading a pack of wild animals is a forward looking assessment of an optimistic future, believing that an empty suit can lead a pack of self-interested politicians is an optimism perhaps less realistic than the original passage.

At least that’s what the markets believed.

Befitting the previous week’s volatility that was marked by triple digit moves in alternating fashion, Draghi’s induced 238 point decline was offset by Friday’s 208 point gain following the encouraging Employment Situation Report. Whereas the previous week’s DJIA saw a net decline of only 166 points on absolute daily moves of 810 points, this past week was more subdued. The DJIA lost only 103 points while the absolute daily changes were 519 points.

The end result of Friday’s advance was to return volatility to where it had ended last week, which was a disappointment, as you would like to see volatility rise if there has been a net decline in the broader market. Still, if you’re selling options, that level is better than it was two weeks ago.

While Friday’s gain was encouraging it is a little less so when realizing that such memorable gains are very often found during market downtrends. There is at least very little doubt that the market behavior during the past two weeks represents some qualitative difference in its behavior and an isolated move higher may not be very reflective of any developing trend, but rather reactive to a different developing trend.

As with Draghi, falling for the rhetoric of such a positive response to the Employment Situation Report, may lead to some disappointment.

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

Many of the positions being considered this week are recently highlighted positions made more appealing following recent price pullbacks rather than on any company specific factors. Of course, when looking at stocks whose price has recently fallen at some point the question regarding value versus “value trap” has to be entertained.

With some increase in volatility, despite the rollback this week, I’ve taken opportunity to rollover existing positions to forward weeks when expanded option contracts have been available. As those premiums have increased a bit being able to do so helps to reduce the risk of having so many positions expire concurrently and being all exposed to a short term and sudden price decline.

Just imagine how different the outcome for the week may have been if Thursday’s and Friday’s results were reversed if you were relying on the ability to rollover positions or have them assigned.

However, with the start of earnings season this week there’s reason to be a little more attentive when selecting positions and their contract expiration dates as earnings may play a role in the premiums. While certainly making those premiums more enticing it also increases the risk of ownership at a time when the relative market risk may outweigh the reward.

One stock not reporting earnings this week, but still having an enriched option premium is The Gap (GPS). It opens the week for trading on its ex-dividend date and later in the week is expected to announce its monthly same store sales, being one of the few remaining companies to do so. Those results are inexplicably confusing month to month and shares tend to make strong price movements, frequently in alternating directions from month to month. For that uncertainty comes a very attractive option premium for shares that despite that event driven volatility tend to trade in a fairly well defined range over the longer term.

When it comes to their fashion offerings you may be ambivalent, but when it comes to that kind of price movement and predictability, what’s not to like?

If you’re waiting for a traditional correction, one that requires a 10% pullback, look no farther than Mosaic (MOS). While it had been valiantly struggling to surpass the $50 level on its long road to recovery from the shock of the break-up of the potash cartel, it has now fallen about 13% in 5 weeks. Most recently Mosaic announced a cutback in phosphate production and lowered its guidance and when a market is already on edge it doesn’t need successive blows like those offered by Mosaic as it approaches its 52 week low.

Can shares offer further disappointment when it reports earnings at the end of this month? Perhaps, but for those with a longer term outlook, at this level shares may be repeating the opportunity they offered upon hitting their lows on the cartel’s dissolution for serial purchase and assignment, while offering a premium enhanced by uncertainty.

Seagate Technology (STX) is also officially in that correctio
n camp, having dropped 10% in that same 5 week period. It has done so in the absence of any meaningful news other than perhaps the weight of its own share price, with its decline having come directly from its 52 week high point.

For a company that has become fairly staid, Pfizer (PFE) has been moving about quite a bit lately. Whether in the news for having sought a tax inversion opportunity or other acquisitions, it is clearly a company that is in need of some sort of catalyst. That continuing kind of movement back and forth has been pronounced very recently and should begin making its option premium increasingly enticing. With shares seemingly seeking a $30 home, regardless of which side it is currently on and an always attractive dividend, Pfizer may start getting more and more interesting, particularly in an otherwise labile market.

Dow Chemical (DOW) is one of those stocks that used to be a main stay of my investing. It’s price climb from the $40 to $50 range made it less so, but with the realization that the $50 level may be the new normal, especially with activist investor pressure, it is again on the radar screen, That’s especially true after this week’s price drop. I had been targeting the $52.50 level having been most recently assigned at $53.50, but now it appears to be gift priced. Unfortunately, it may be a perfect example of that age old dilemma regarding value, having already greatly under-performed the market since its recent high the “value trap” part may have already been played out.

While MasterCard (MA) is ex-dividend this week, it is certainly not one to chase in order to capture its dividend. With a payout ratio far below its competitors it would seem that an increase might be warranted. However, what makes MasterCard attractive is that it has seemingly found a trading range and is now situated at about the mid-point of that range. While there is some recent tumult in the world of payments and with some continuing uncertainty regarding its presence in Russia, MasterCard continues to be worth consideration, particularly as it too has significantly under-performed the S&P 500 in the past two weeks.

Equal in its under-performance to MasterCard during that period has been Texas Instruments (TXN). I’ve been eager to add some technology sector positions for a while and haven’t done so as often as necessary to develop some better diversification. Along with Intel (INTC) which I considered last week, as well, Texas Instruments is back to a price level that has my attention. Like Intel, it reports earnings soon and also goes ex-dividend during the October 2014 option cycle. Unlike Intel, however, Texas Instruments doesn’t have a couple of gap ups in price over the past three months that may represent some additional earnings related risk.

When it comes to under-performance it is possible that Coach (COH) may soon qualify as being synonymous with that designation. Not too surprisingly its past performance in the past two weeks, while below that of the S&P 500 may be more directly tied to an improved price performance seen in its competitor for investor interest, Michael Kors (KORS). However, Coach seems to have established support at its current level and may offer a similar opportunity for serial purchase and assignment as had been previously offered by Mosaic shares.

Finally, with the exception of YUM Brands (YUM) all of the other stocks highlighted this week have under-performed the S&P 500 since hitting its recent high on September 18, 2014. YUM Brands reports earnings this week and is often very volatile when it does so. This time, hover, the options market doesn’t seem to be expecting a very large move, only about 4.5%. Neither is there an opportunity to achieve a 1% ROI through the sale of a put option at a strike outside of the range implied. However, YUM Brands is one of those stocks, that if I had sold puts upon, I wouldn’t mind owning if there was a likelihood of assignment.

So often YUM Brands share price is held hostage to food safety issues in China and so often it successfully is able to  see its share price regain sudden losses. That, however, hasn’t been the case thus far since it’s summertime loss. There are probably little expectations for an upside surprise upon release of earnings and as such there may be some limited downside, perhaps explaining the option market’s subdued pricing.

If facing assignment of puts being sold with an upcoming ex-dividend date the following week, I would be inclined to accept assignment and proceed from the point of ownership rather than trying to continue avoiding ownership of shares. However, with the slightest indication of political unrest spreading from Hong Kong to the Chinese mainland that may be a decision destined for regret, just like the purchase of an ill-fitting and overly priced suit.

Traditional Stocks: Dow Chemical, Pfizer, Texas Instruments, The Gap

Momentum: Coach, Mosaic, Seagate Technology

Double Dip Dividend:  MasterCard (10/7)

Premiums Enhanced by Earnings: YUM Brands (10/7 PM)

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.

Daily Market Update – October 3, 2014

 

  

 

Daily Market Update – October 3, 2014 (8:45 AM)

The Week in Review will be posted by 6 PM and the Weekend Uodate will be posted by 12:00 Noon on Sunday.

The following outcomes are possible today:

Assignments: EBAY

Rollovers: CMCSA, GM, GPS, WAG

Expirations: ANF, GDX, JOY, WFM

 

Trades, if any, will be attemopted to be made prior to 3:30 PM EDT.

 

The following positions were ex-dividend this week: CMCSA (9/29 $0.22), BMY (10/1 $0.36)

The following positions are ex-dividend next week: GPS (10/6 $0.22), CPB (10/8 $0.31), DRI (10/8 $0.55), CHK (10/9 $0.10), FCX (10/10 $0.31)

 

 

 

 

 

Daily Market Update – October 3, 3013 (Close)

 

  

 

Daily Market Update – October 2, 2014 (Close)

After yesterday’s 238 point drop and following all of the tumult of the past two weeks, it’s hard to believe that the market is down only about 3% from its peak of just two weeks ago.

For the most part there really hasn’t been much in the way of meaningful news during the past two weeks but the market has certainly taken on a very, very different tone.

Whether the net movement is lower or higher there’s a palpable difference even if you have never heard of the word “volatility.”

For all intents and purposes the market was neither higher nor lower today, but you certainly know that it was volatile, having traded over an 180 point range, having lost 130 points at its lowest point.

When there are no real over-riding economic themes, as there haven’t been of late, you can at least see why the market is like a ping pong ball in active play. The movements of the past two weeks have really been dizzying and there’s no indication of when the next period of stability will be at hand.

The only thing that may return some fundamentals to trading may be the beginning of earnings season next week.

It would be nice to see a market trading on something tangible, such as fundamentals.

It lately has been ignoring geo-political events, which is a good thing, but has also been ignoring the precipitous drop in commodity prices which would ordinarily have a positive impact on growth and discretionary spending.

Of course the results from earnings season could cut both ways, especially as there is an increasing consensus looking for improved numbers. The problem with those kinds of expectations is that there is more possibility for disappointment.

We all know the phenomenon of “good not being good enough,” and that consistently extends to stocks when they report their earnings.

Before next week’s earnings there was still the matter of this morning’s statement from the ECB and tomorrow’s Employment Situation Report.

What may be increasingly noted on the ECB front is that its leader, Mario Draghi may be much better at rhetoric than action.

He has moved global markets on more than one occasion by making comments suggesting that the ECB can and will do whatever it takes to meet the ECB’s single mandate, which is to maintain price stability.

Most recently the expectation has been that the ECB would introduce its version of Quantitative Easing to help keep interest rates low, but it has really done nothing.

That didn’t change this morning as Draghi announced that the ECB will continue to observe the situation. He also lambasted the EU leadership and that pleased no one and may ahve been the ultimate reason for the morning’s weakness.

So that leave’s tomorrow’s Employment Situation Report to offer some respite to the negative trend.

After last month’s disappointment we really don’t need another, but too good of a number will get ebveryone all concerned again about the prospect of rising rates, so it may be another case of bad news better better than good news.

Hopefully, whatever the news , it will be interpreted as good news. If so, it couldn’t come at a better time, but at least today didn’t move positions further, or at least much further from their strike levels. That removes some of the burden from tomorrow’s market and it won’t be requiring an explosively upside move in order to get that desired combination of rollovers and assignments.