Daily Market Update – November 5, 2014

 

  

 

Daily Market Update – November 5, 2014 (9:00 AM)

The election results are in and the futures are heading higher despite the reasonable certainty that this would have been the election outcome, as power shifted from one party to another.

Presumably the optimism is because the feeling is that Republican dominance is better for the economy, although history rejects that hypothesis. Besides, the economy is such a slow and lumbering entity, that no one really notices when it turns some kind of corner. It usually happens a couple of years before anyone has noticed or a couple of years after some particular measures have been taken. It may only be coincidental that those turns may be associated with a change in the political landscape that happen with great regularity.

More often than not it’s just a question of being at the right place and at the right time, just as its opposite is true.

On the other hand, maybe the optimism is tied to the belief that the split in power will lead to more adult-like behavior and the passage of more laws rather than the gridlock of the past 15 years.

On paper that should be true, but most elected officials are already plotting what they or their party need to do for 2016 and cooperation with the opposing party isn’t going to make them look any better or their opponents any worse, so it’s not clear why there would be optimism. After all, job one, isn’t getting the job that you were elected to do, done. It’s getting yourself re-elected.

In a few days we will have likely forgotten about these election results other than for what will likely be some significant chest pounding and comments about how things are now going to be different.

So with lots of time to debate the merits of the election outcome, that just brings us to what’s in store for the rest of the week. It’s a question of jobs and whether the European Central Bank will follow the  Federal Reserve and now the Bank of Japan and inject money into the economy.

That means there are any number of catalysts for this week after the election and probably not too many surprises in store. It wouldn’t at all, for example, be unusual to see the largest employment gains come after a rebuke of the existing party in power. If not this week, give it a month or two.

Going back 6 years the first increases in employment after more than a year of declines started after the 2008 election, but no one gave credit retroactively and those in power were more than willing to take credit. Again, the beauty of the stealth movements of the economy. Temporal proximity is a powerful convincer of association that may not really exist.

That’s not a uniquely Republican nor a Democrat characteristic. It’s just the way it is and we simply believe the associations as they are presented to us. That may be the answer to why, in a 2013 poll in Louisiana, a majority of the respondents blamed President Obama for the Federal government’s response to Hurricane Katrina. Are you really going to place blame on someone who i
s ancient history or the one who is right there and already taking blame for lots of other things?

So for the next few months there will be lots of jockeying and probably very little getting done, but then that’s no different from the past few years and the markets simply went higher and higher.

I have no problem with that, at all, as long as it begins today.

 

 

 

 

 

 

 

 

Daily Market Update – November 4, 2014 (Close)

 

  

 

Daily Market Update – November 4, 2014 (Close)

Yesterday was one of those rare days when the market did what you would have reasonably expected from it, although that isn’t the case as often as should be the case.

There was really no news, maybe a little bit of a hangover from the latter half of last week and no real reason for the market to do anything, at all.

And that’s exactly what yesterday was like. There was almost no movement within a pretty tight trading range. For all of the excitement about Friday’s announcement by the Bank of Japan, there was absolutely no carry over through the weekend and it’s unlikely that we will ever see the benefit of Japan’s Quantitative Easing as it creates, perhaps, a more appealing competitor to our own equity markets.

There wasn’t much reason to think that today would have been any different and the futures markets were indicating that it should be another quiet day, but those indications are very often not very accurate when the futures trading is listless.

The trading range today did turn out to be bigger than yesterday, but there really wasn’t too much real movement. The overall market, probably due to its bigger energy representation, which was absolutely hammered today, greatly lagged the DJIA, but still wasn’t terribly off.

The real excitement may begin tomorrow as election results come in and we may find out whether control of the Senate moves over from one party to another, although there may be a delay if run-off elections become necessary in a key state or two. Still, that result is so widely expected that there shouldn’t be too much of a reaction as one form of balance and gridlock is traded for another form of balance and gridlock.

Most people, and I suspect most investors won’t care too much about the mid-term elections and what impact they may have on policy and the economy. What it known with great certainty is that the moment those results are in the winners will already be planning their re-elections and the losers will already be mapping out strategies for 2016, when it really counts.

Tomorrow morning also brings the ADP Employment Report which sometimes has the ability to presage the really important Employment Situation Report on Friday.

In-between will possibly be some news from the ECB which could signal an EU intention to initiate Quantitative Easing, although expected, may still come as a surprise and give markets another boost.

So the latter half of the week may have reasons for the market to show some reaction and hopefully it will be in a positive direction, as it has now been a full day since having set another record closing high.

But with a couple of opening transactions already made this week and cash at its lowest point in years, I would like to simply see what most everyone wants to see with those holdings.


With volatility again at such a low level after only a couple of weeks of flirting with some more normal levels each passing day makes the sale of a weekly option less appealing, so yesterday would have been a very nice day for a market surge, especially when there’s no intention or desire to add new positions.

That didn’t happen and it didn’t look, from initial appearances, as if it would happen today, although individual opportunities could always appear, but lately, in the absence of earnings news, there has been little to no substantive movement in individual names on a daily basis. Moves have been fairly muted, especially on the upside.

Today was simply a day of waiting for tomorrow.

 

 

 

Daily Market Update – November 4, 2014

 

  

 

Daily Market Update – November 4, 2014 (8:15 AM)

Yesterday was one of those rare days when the market did what you would have reasonably expected from it, although that isn’t the case as often as should be the case.

There was really no news, maybe a little bit of a hangover from the latter half of last week and no real reason for the market to do anything, at all.

And that’s exactly what yesterday was like. There was almost no movement within a pretty tight trading range. For all of the excitement about Friday’s announcement by the Bank of Japan, there was absolutely no carry over through the weekend and it’s unlikely that we will ever see the benefit of Japan’s Quantitative Easing as it creates, perhaps, a more appealing competitor to our own equity markets.

There’s not much reason to think that today would be any different and the futures markets are indicating that it should be another quiet day, but those indications are very often not very accurate when the futures trading is listless..

The real excitement may begin tomorrow as election results come in and we may find out whether control of the Senate moves over from one party to another, although there may be a delay if run-off elections become necessary in a key state or two. Still, that result is so widely expected that there shouldn’t be too much of a reaction as one form of balance and gridlock is traded for another form of balance and gridlock.

Most people, and I suspect most investors won’t care too much about the mid-term elections and what impact they may have on policy and the economy. What it known with great certainty is that the moment those results are in the winners will already be planning their re-elections and the losers will already be mapping out strategies for 2016, when it really counts.

Tomorrow morning also brings the ADP Employment Report which sometimes has the ability to presage the really important Employment Situation Report on Friday.

In-between will possibly be some news from the ECB which could signal an EU intention to initiate Quantitative Easing, although expected, may still come as a surprise and give markets another boost.

So the latter half of the week may have reasons for the market to show some reaction and hopefully iut will be in a positive direction, as it has now been a full day since having set another record closing high.

But with a couple of opening transactions already made this week and cash at its lowest point in years, I would like to simply see what most everyone wants to see with those holdings.

With volatility again at such a low level after only a couple of weeks of flirting with some more normal levels each passing day makes the sale of a weekly option less appealing, so yesterday would have been a very nice day for a market surge, especially when there’s no intention or desire to add new positions.

That didn’t happen and it doesn’t look, from initial appearances, as if it will happen today, although individual opportunities could always appear, but lately, in the absence of earnings news, there has been little to no substantive movement in individual names on a daily basis. Moves have been fairly muted, especially on the upside.

Today may simply be a day of waiting for tomorrow.

 

 

 

Daily Market Update – November 3, 2014 (Close)

 

  

 

Daily Market Update – November 3, 2014 (Close)

After all of the tumult in October when the dust finally settled the month was 2% higher and we begin November at all time highs again.

What is interesting, to me, at least, is that we are in the same position as last year at this time.

Back in November 2013, by and large, hedge funds were severely underperforming a market that would end the year about 30% higher. There was lots of speculation that those hedge funds would either be faced with closing shop or letting it ride for the remaining two months and fueling the market through substantial bets that followed the year long momentum.

Those final 2 months saw a 5% increase, but that was just barely higher than the rate for the previous 10 months. However, before the role of hedge funds attempting to rescue their performances is discounted, the market trend turned almost immediately once the new year started.

With 2 months left to go in 2014 we may again see desperate hedge funds taking off their hedges in hopes of playing catch-up and either continuing the market in its current momentum or propelling it forward.

Or they could just close up shop.

Last week saw the bubble burst for those who pinned their hopes on Quantitative Easing being delayed, yet the market ignored the disowning of the fuel that pushed it forward and pushed it forward even more.

That wasn’t expected by many and the initial response by the market seemed to be confusion rather than full speed ahead. But even more surprising was the news from the Bank of Japan. While all eyes were on the ECB and Mario Draghi, little was expected from Japan.

This morning there didn’t appear to be any follow through, but there rarely is to big events from the previous week, even if just a single trading day earlier. That sort of ambivalence was the name of the game today as trading was listless and within a pretty tight range.

Instead, this week focuses on the elections and the Employment Situation Report and with an ECB interlude on Thursday, which could act as another stimulus.

Most already expect control of the Senate to shift to Republicans, so you wouldn’t expect too much impact on Wednesday’s markets, but lately even the expected seems to come as a surprise and instead of being discounted as those sort of things usually have been, they are celebrated the following day.

Unless there is some surprise or unless the final verdict is delayed due to the need for run-off elections, the expectation is that mid-week should see some advances, but there are still the hurdles of Monday and Tuesday that have to be dealt with first.

While I’m not adverse to opening some new positions this week, the two opened today may be the full extent of buying. I still would much prefer taking advantage of any potential market strength to sell calls on existing positions. However, today’s lack of buying & with no real standouts, other than Herbalife, which went inexplicably much higher in advance of earnings, there was no opportunity to find those option sales.

That has been the aim for a while, but has been difficult to do, especially as the motive isn’t being reinforced with low volatility, It’s hard to think about putting positions at risk of assignment when the reward is so low, or that assignment would leave that position having significantly under-performed the market for the duration of its holding period.

However, I am increasingly looking at using lower than cost strike prices and accepting assignment in cases where the sum total of premiums and dividends leaves an assigned position in profit territory, solely for the purpose of raising cash reserves, as opposed to using them as “DOH Trades” to help accumulate dividends with the intention of seeing those sold option positions expire.

Like those hedge funds that may be ready to go all in, I’d love to do the same, but not so much with new cash, only with existing idle assets.

Where the opportunities may arise, I may be more willing to put them at risk of assignment or put them more in need of maintenance to prevent assignment, but I do want to see those premiums and dividends pile up.

Maybe tomorrow or maybe through the good graces of Mario Draghi.

 

Daily Market Update – November 3, 2014

 

  

 

Daily Market Update – November 3, 2014 (8:30 AM)

After all of the tumult in October when the dust finally settled the month was 2% higher and we begin November at all time highs again.

What is interesting, to me, at least, is that we are in the same position as last year at this time.

Back in November 2013, by and large, hedge funds were severely underperforming a market that would end the year about 30% higher. There was lots of speculation that those hedge funds would either be faced with closing shop or letting it ride for the remaining two months and fueling the market through substantial bets that followed the year long momentum.

Those final 2 months saw a 5% increase, but that was just barely higher than the rate for the previous 10 months. However, before the role of hedge funds attempting to rescue their performances is discounted, the market trend turned almost immediately once the new year started.

With 2 months left to go in 2014 we may again see desperate hedge funds taking off their hedges in hopes of playing catch-up and either continuing the market in its current momentum or propelling it forward.

Or they could just close up shop.

Last week saw the bubble burst for those who pinned their hopes on Quantitative Easing being delayed, yet the market ignored the disowning of the fuel that pushed it forward and pushed it forward even more.

That wasn’t expected by many and the initial response by the market seemed to be confusion rather than full speed ahead. But even more surprising was the news from the Bank of Japan. While all eyes were on the ECB and Mario Draghi, little was expected from Japan.

This morning there doesn’t appear to be any follow through, but there rarely is to big events from the previous week, even if just a single trading day earlier.

Instead, this week focuses on the elections and the Employment Situation Report.

Most already expect control of the Senate to shift to Republicans, so you wouldn’t expect too much impact on Wednesday’s markets, but lately even the expected seems to come as a surprise and instead of being discounted as those sort of things usually have been, instead they are celebrated the following day.

Unless there is some surprise or unless the final verdict is delayed due to the need for run-off elections, the expectation is that mid-week should see some advances, but there are still the hurdles of Monday and Tuesday that have to be dealt with.

While I’m not adverse to opening some new positions this week I still would much prefer taking advantage of any potential market strength to sell calls on existing posit
ions.

That has been the aim for a while, but has been difficult to do, especially as the motive isn’t being reinforced with low volatility, It’s hard to think about putting positions at risk of assignment when the reward is so low, or that assignment would leave that position having significantly under-performed the market for the duration of its holding period.

However, I am increasingly looking at using lower than cost strike prices and accepting assignment in cases where the sum total of premiums and dividends leaves an assigned position in profit territory, solely for the purpose of raising cash reserves, as opposed to using them as “DOH Trades” to help accumulate dividends with the intention of seeing those sold option positions expire.

Like those hedge funds that may be ready to go all in, I’d love to do the same, but not so much with new cash, only with existing idle assets.

Where the opportunities may arise, I may be more willing to put them at risk of assignment or put them more in need of maintenance to prevent assignment, but I do want to see those premiums and dividends pile up.

 

Dashboard – November 3 – 7, 2014

 

 

 

 

 

SELECTIONS

MONDAY:  Elections and Employment Situation Report characterize the week after one marked by unexpected events and reactions. No surprise events are expected this week, but the reactions are less predictable

TUESDAY:     Another relatively quiet day looms ahead, with no real reason to be much different from yesterday’s trading. Tomorrow’s election results and ADP Employment Report may begin a busy latter half of the week.

WEDNESDAY:  Election results are in and the market seems to like what it sees, maybe hopeful of some adult like behavior to come as a result of power sharing. However, victors and losers alike probably only focused on what they can do to make themselves look better in 2016 and their opponents look worse, rather than working toward something of mutual value

THURSDAY:    ECB is center stage today and Employment Situation Report tomorrow as we come off yesterday’s post-election highs. Today awaits teh ECB, but expectations for anything substantive are now low. Any announcement of an EU version of Quantitative Easing should send US markets much higher for a short while

FRIDAY:  Today the Employment SItuation Report will set the tone and expectations are for another good month of job gains. The market usually reacts in line with those numbers and expectations.

 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

Weekend Update – November 2, 2014

 It’s really hard to know what to make of the past few weeks, much less this very past one.

On an intra-day basis having the S&P 500 down 9% from its high point seemed to be the stop right before that traditional 10% level needed to qualify as a bona fide “correction.”

But something happened.

What happened isn’t really clear, but if you were among those that credited the words of Federal Reserve Governor James Bullard, who suggested that the exit from Quantitative Easing should be delayed, the recovery that ensued now appears more of a coincidence than a result.

That’s because a rational person would have believed that if the upcoming FOMC Statement failed to confirm Bullard’s opinion there would be a rush to the doors to undo the rampant buying of the preceding 10 days that was fueled under false pretenses.

But that wasn’t the case.

In fact, not only did the FOMC announce what they had telegraphed for almost a year, but the previously dissenting hawks were no longer dissenters and a well known dove was instead the one doing the dissenting.

I don’t know about you, but the gains that ensued on Thursday, had me confused, just as the markets seemed confused in the two final trading hours after the FOMC Statement release. You don’t have to be a “perma-bear” to wonder what it’s going to take to get some of your prophesies to be fulfilled.

Even though Thursday’s gains were initially illusory owing to Visa’s (V) dominance of the DJIA, they became real and broadly applied as the afternoon wore on. “How did that make any sense?” is a question that a rationally objective investor and a perma-bear might both find themselves asking as both are left behind in the dust.

I include myself in that camp, as I didn’t take advantage of what turned out to be the market lows as now new closing highs have been set.

Those new highs came courtesy of the Bank of Japan on Friday as it announced the kind of massive stimulus program that we had been expecting to first come from the European Central Bank.

While the initial reaction was elation and set the bears further into despair it also may have left them wondering what, if any role rational thought has left in the processes driving stocks and their markets.

Many, if not most, agree that the Federal Reserve’s policy of Quantitative Easing was the primary fuel boosting U.S. stock markets for years, having drawn foreign investor demand to our shores. Now, with Japan getting ready to follow the same path and perhaps the ECB next in line, we are poised to become the foreigners helping to boost markets on distant shores.

At least that what a confused, beaten and relatively poorer bear thinks as the new week gets underway.

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

I love listening to Howard Schultz defending shares of Starbucks (SBUX) after the market takes the stock lower after earnings. No one defends his company, its performance and its outlook better than Howard Schultz.

But more importantly, he has always followed up his assertions with results.

As with many stocks over the past two weeks, Starbucks is one, that in hindsight I should have purchased two weeks ago, while exercising rational thought processes that got in the way of recognizing bargain prices. Friday’s drop still makes it too late to get shares at their lows of 2 weeks ago, but I expect Schultz to be on the correct side of the analysis once again.

There’s not much disagreement that it has been a rough month for the energy sector. While it did improve last week, it still lagged most everything else, but I think that the Goldman Sachs (GS) call for $75 oil is the turning point. Unfortunately, I have more energy stocks than I would have liked, but expect their recovery and am, hesitatingly looking to add to the position, starting with British Petroleum (BP) as it is ex-dividend this week. That’s always a good place to start, especially with earnings already out of the way.

While I continue to incorrectly refer to BP as “British Petroleum” that is part of my legacy, just as its Russian exposure and legal liabilities are part of its legacy. However, I think that all of those factors are fully  priced in. Where I believe the opportunity exists is that since the September 2014 highs up to the Friday’s highs, BP hasn’t performed as well as some of its cohorts and may be due for some catch-up.

I purchased shares of Intel (INTC) the previous week and was hoping to capture its dividend, as its ex-dividend date is this week. 

Last week Intel had quite a ride as it alternated 4% moves lower and then higher on Thursday and Friday. 

Thursday’s move, which caught most everyone by surprise was accompanied by very large put option trading, including large blocks of aggressive in the money puts with less than 2 days until expiration and even larger out of the money puts expiring in 2 weeks.

Most of the weekly puts expired worthless, as there was fairly low activity on Friday, with no evidence of those contracts getting rolled forward, as shares soared.

While initially happy to see shares take a drop, since it would have meant keeping the dividend for myself, rather than being subject to early assignment, I now face that assignment as shares are again well above the strike. 

However, while entertaining thoughts of rolling those shares over to a higher strike at the same expiration date or the same strike at next week’s expiration, I may also consider adding additional shares of Intel,  for its dividend, premiums and share appreciation, as well. Given some of the confusion recently about prospects for the semi-conductor industry, I think Intel’s vision of what the future holds is as good as the industry can offer if looking for a crystal ball.

What can possibly be said about Herbalife (HLF) at this point that hasn’t already been said, ad nauseum. I’m still somewhat stunned that a single author can write 86 or so articles on Herbalife in a 365 day period and find anything new to say, although there is always the chance that singular opinion expressed may be vindicated.

The reality is that we all need to await some kind of regulatory and/or legal decisions regarding the fate of this company and its business practices.

So, like any other publicly traded company, whether under an additional microscope or not, Herbalife reports earnings this week, having announced it also reached an agreement on Friday regarding a class action suit launched by a past dis
tributor of its products.

The options market is predicting a 16% movement in shares upon earnings release. At its Friday closing price, the lower end of that range would find shares at approximately $44. However, a weekly 1% ROI could still be obtained if selling a put option 35% below Friday’s close.

That is an extraordinary margin, but it may be borne out of extraordinary circumstances, as Monday’s earnings release may include other information regarding pending lawsuits, regulatory or legal actions that could conceivably send shares plummeting.

Or soaring.

On a more sedate, and maybe less controversial note, Whole Foods (WFM) reports earnings this week. I’m still saddled with an expensive lot of shares, that has been offset a bit by the assignment of 4 other lots this year, including this past week.

After a series of bad earnings results and share declines I think the company will soon be reporting positive results from its significant national expansion efforts.

While I generally use the sale of puts when considering an earnings related trade, usually because I would prefer not owning shares, Whole Foods is one that I would approach from either direction. While its payout ratio is higher than its peers, I think there may also be a chance that there will be a dividend increase, particularly as some of the capital expenditures will be decreasing.

While not reporting earnings this week, The Gap (GPS) is expected to provide monthly same store sales. It continues to do so, going against the retail tide, and it often sees its shares move wildly. Those moves are frequently on a monthly alternating basis, which certainly taxes rational thought.

Last month, it reported decreased same store sales, but also coupled that news with the very unexpected announcement that its CEO was leaving. Shares subsequently plummeted and have been very slow to recover.

As expected, the premium this week is significantly elevated as it reflects the risk associated with the monthly report. As with Whole Foods, this trade can also justifiably be approached wither from the direction of a traditional buy/write or put sale. In either case, some consideration should also be given to the fact that The Gap will also report its quarterly earnings right before the conclusion of the November 2014 option cycle, which can offer additional opportunity or peril.

Also like Whole Foods, I currently own a much more expensive lot of Las Vegas Sands (LVS), but have had several assigned lots subsequently help to offset those paper losses. Shares have been unusually active lately, increasingly tied to news from China, where Las Vegas Sands has significant interests in Macao.

Share ownership in Las Vegas Sands can be entertaining in its own right, as there has lately been a certain roller coaster quality from one day to the next, helping to account for its attractive option premium. In the absence of significant economic downturn news in China, which was the root cause of the recent decline, it appears that shares have found some support at its current level. Together with those nice premiums and an attractive dividend, I’m not adverse to taking a gamble on these always volatile shares, even in a market that may have some uncertainty attached to it.

Finally, Facebook (FB) and Twitter (TWTR) each reported earnings last week and were mentioned as potential earnings related trades, particularly through the sale of put options.

Both saw their shares drop sharply after the releases, however, the option markets predicted the expected ranges quite well and for those looking to wring out a 1% weekly ROI even in the face of post-earnings price disappointment were rewarded.

I didn’t take the opportunities, but still see some in each of those companies this week.

While Twitter received nothing but bad press last week and by all appearances is a company that is verging on some significant dysfunction, it is quietly actually making money. It just can’t stick with a set of metrics that are widely accepted and validated as having relevance to the satisfaction of analysts and investors.

It also can’t decide who to blame for the dysfunction, but investors are increasingly questioning the abilities of its CEO, having forgotten that Twitter was a dysfunctional place long before having gone public and long before Dick Costolo became CEO.

At its current price and with its current option premiums the sale of out of the money puts looks as appealing as they did the previous week, as long as prepared to rollover those puts or take assignment of shares in the event the market isn’t satisfied with assurances.

Facebook, on the other hand is far from dysfunctional. Presumably, its shares were punished once Mark Zuckerberg mentioned upcoming increased spending. Of course, there’s also the issue of additional shares hitting the markets, as part of the WhatsApp purchase.

Both of those are reasonable concerns, but it’s very hard to detract from the vision and execution by Zuckerberg and Cheryl Sandberg.

However, the option market continues to see the coming week’s options priced as if there was more than the usual amount of risk inherent in share pricing. I think that may be a mistake, even while its pricing of risk was well done the previous week.

Bears may be beaten and wondering what hit them, but a good tonic is profit and the sale of puts on Facebook could make bears happy while hedging their bets on a market that may put rational thought to rest for a little while longer.

Traditional Stocks:   Starbucks, The Gap

Momentum: Facebook, Twitter, Las Vegas Sands

Double Dip Dividend: British Petroleum (11/5), Intel (11/5)

Premiums Enhanced by Earnings: Herbalife (11/3 PM), Whole Foods (11/5 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.