Month: December 2014

Daily Market Update – December 12, 2014 (9:00 AM)

The Week in Review will be posted by 6 PM and the Weekend Uopdate will be posted by Noon on Sunday.

The following outcomes are possible today:

Assignments: none

Rollovers: AZN, MOS

Expirations: DOW, GME, LULU, LVS, TMUS

The following were ex-dividend this week: GM (12/8 $0.30).

The following will be ex-dividend next week: LVS (12/16 $0.50)

Trades, if any, will be attempted to be made by 3:30 PM EST

Daily Market Update – December 11, 2014 (Close)

Yesterday was just an awful day and unlike the previous day, there was no attempt to recover from the depth of the loss at any point.

It was another day that seemed to be directly related to oil, but this time it wasn’t just the quantity of the price, it was also the quality.

While oil fell sharply again that may not have been as important as the suggestion that the declines we’ve been seeing, which most everyone attributed to rising supply, may actually, in part, be due to falling demand from China and elsewhere around the globe.

That puts a new wrinkle on things.

Up until yesterday’s quip by the Saudi Arabian Oil Minister, the conventional thinking had been that the price declines were all the result of increasing supply. That would have meant that declining oil was the result of good things, as opposed to a decreased demand, which is a bad thing.

While there have been so many questions as to whether the decrease in oil pricing would be good for our economy and markets, it would be hard to predict the outcome if the drop had been due to increasing supply, since we have had so little experience with that phenomenon.

But we do have experience with what happens when price drops as a result of decreased demand.

Fortunately, it appears that it’s really not a US problem of increasing demand. It may be a world-wide problem that has bypassed us and will likely be of great benefit to our economy and absent the energy sector, should be a great boost to the bottom lines of businesses.

While it certainly makes Chinese related investments suddenly appear more risky, it may also mean even more focus and investment in US stocks and companies, as we may be the most vibrant and growing economy among the major economies in the world.

That, though, is still a more long term kind of outlook. For now we’re stuck in a whirlpool with oil prices and the energy sector sucking the life out of everything.

While me may gloat a little about some weakness in China the fact is that US businesses are so highly dependent on China and its continued growth. As a nation we are also dependent on their demand for our debt issuances.  A decrease in demand for Treasuries could easily start the upward climb in interest rates.

While it may not be a bad thing to see some moderate increase in rates you would much rather see those increases come from a heating up of the economy and upward pressure on wages and prices, rather than because of decreased demand for debt.

This morning the November Retail Sales report was released and expectations, ex-auto, were for a nice increase in sales. That was the case as the morning’s tiny advance in the pre-op
ening futures really could have used the type of boost that the Retail Sales report ended up providing, especially since there wasn’t much of a reflex bounce from yesterday’s 1.6% decline.

With a couple of rollovers yesterday, there was a little less pressure as the week comes to its close, but there is still some opportunity for some more rollovers and assignments as we head into next week’s close to the monthly cycle.

Just not today, though, but a repeat of today’s trading, even well off its highs for the day would be a nice way to end the week and even more.

I would certainly like to see 2015 get off to a good start and a good end to this week could start to offset the prevalent weakness that oil has spawned

Daily Market Update – December 11, 2014 (7:30 AM)

Yesterday was just an awful day and unlike the previous day, there was no attempt to recover from the depth of the loss at any point.

It was another day that seemed to be directly related to oil, but this time it wasn’t just the quantity of the price, it was also the quality.

While oil fell sharply again that may not have been as important as the suggestion that the declines we’ve been seeing, which most everyone attributed to rising supply, may actually, in part, be due to falling demand from China and elsewhere around the globe.

That puts a new wrinkle on things.

Up until yesterday’s quip by the Saudi Arabian Oil Minister, the conventional thinking had been that the price declines were all the result of increasing supply. That would have meant that declining oil was the result of good things, as opposed to a decreased demand, which is a bad thing.

While there have been so many questions as to whether the decrease in oil pricing would be good for our economy and markets, it would be hard to predict the outcome if the drop had been due to increasing supply, since we have had so little experience with that phenomenon.

But we do have experience with what happens when price drops as a result of decreased demand.

Fortunately, it appears that it’s really not a US problem of increasing demand. It may be a world-wide problem that has bypassed us and will likely be of great benefit to our economy and absent the energy sector, should be a great boost to the bottom lines of businesses.

While it certainly makes Chinese related investments suddenly appear more risky, it may also mean even more focus and investment in US stocks and companies, as we may be the most vibrant and growing economy among the major economies in the world.

That, though, is still a more long term kind of outlook. For now we’re stuck in a whirlpool with oil prices and the energy sector sucking the life out of everything.

While me may gloat a little about some weakness in China the fact is that US businesses are so highly dependent on China and its continued growth. As a nation we are also dependent on their demand for our debt issuances.  A decrease in demand for Treasuries could easily start the upward climb in interest rates.

While it may not be a bad thing to see some moderate increase in rates you would much rather see those increases come from a heating up of the economy and upward pressure on wages and prices, rather than because of decreased demand for debt.

This morning the November Retail Sales report is released and expectations, ex-auto, are for a nice increase in sales. Hopefully that will be the case as the morning’s tiny advance in the pre-ope
ning futures could really use a boost, as there is no reflex bounce from yesterday’s 1.6% decline in the works, otherwise.

With a couple of rollovers yesterday, there is a little less pressure as the week comes to its close, but there is still some opportunity for some more rollovers and assignments as we head into next week’s close to the monthly cycle.

I would certainly like to see 2015 get off to a good start and a robust Retail Sales report could help to offset the prevalent weakness that oil has spawned

Daily Market Update – December 10, 2014 (Close)

Yesterday was an impressive kind of day.

Today was not, although it followed the same early path.

The market deterioration yesterday started fairly suddenly in the pre-opening futures about an hour before the open of trading, but came to a relatively abrupt halt in the early afternoon as the market had fallen more than 200 points.

Today that halt was missing.

There wasn’t very much reason for the fall, as the news that had been blamed was already many hours old and pointed toward China. Neither was there much reason for the turnaround. Not even technicians could come up with a reason to explain the move, even if they squinted really, really hard at their charts.

The JOLT Survey, which everyone was now believing had newfound importance, was a non-event and so no fingers could be pointed at it for moving the market as it had done in the previous month.

Oil actually showed some stability yesterday and maybe that played some role in re-introducing some strength into the market, if you’re the kind of person that really needs an explanation for why things happened, even if that explanation isn’t necessarily correct or accurate.

Today, however, that theory of the role of oil was put to a test as the Petroleum Status Report was released.

For me, that mid-morning Wednesday report is usually a yawner, but it may take on some new significance as inventory builds or draws may have greater impact on the overall market as long as oil continues being an area of focus.

As it would turn out, it’s hard to say whether today’s inventory news sparked broad weakness, as by the time the figures were released there was already some weakness and it didn’t really accelerate until about 3 hours later.

It was just a bad day with energy being the worst among a lot of very bad sectors.

This morning, before the market’s open, everything other than oil was just treading water. Stocks, precious metals and interest rates all seemed to either be taking a breather from yesterday or waiting to see where oil prices may be heading after the Petroleum Status Report release.

With a surprise trade that added shares of Dow Chemical yesterday, when the morning was set to begin, I didn’t believe that I’d be adding any more this week. That was an under-statement. With today’s real drag on oil and the further drag on anything remotely oil related, Dow Chemical went along for the ride, as well. and what seemed like a bargain yesterday is now even more of a bargain, but with fewer takers.

For those that follow volatility, yesterday was a day that saw some nice bounces in it, reflecting what the market itself was doing. From an incredibly low level, volatility is up nearly 30%
in less than a week, but still far below where it had been just 2 months ago. In fact, it would have to climb another 100% to get to those levels which were also fairly low, but at least at acceptable levels for trading.

It did, however, climb more than 25% more today, so we’re getting there.

What would be a nice impact of maybe even marginally increasing volatility would be some return of volume to the option market. That sparse volume has made it very challenging to get trades done, especially since it has also created a greater schism between motivated buyers and sellers, creating bigger bid and ask spreads than I recall ever seeing.

With the volatility rising today it was somewhat easier to get some rollovers executed.

For today, I expected that like most Wednesdays it would be a quiet day, however, it was nice to get the opportunity to execute some rollovers early, especially as it would turn out that prices really deteriorated as the afternoon wore on and on.

Tomorrow will be interesting as no one can stop looking at oil and still debating what kind of an impact lower prices will have on the economy and the stock market. Sooner or later supply and demand dynamics will begin to stabilize prices and when that happens you can be reasonably assured that there will be an over-reaction on the buying side of the equation that has so far taken the energy sector down about 40%

Daily Market Update – December 10, 2014 (8:30 AM)

Yesterday was an impressive kind of day.

The market deterioration started fairly suddenly in the pre-opening futures about an hour before the open of trading, but came to a relatively abrupt halt in the early afternoon as the market had fallen more than 200 points.

There wasn’t very much reason for the fall, as the news that had been blamed was already many hours old and pointed toward China. Neither was there much reason for the turnaround. Not even technicians could come up with a reason to explain the move, even if they squinted really, really hard at their charts.

The JOLT Survey, which everyone was now believing had newfound importance, was a non-event and so no fingers could be pointed at it for moving the market as it had done in the previous month.

Oil actually showed some stability yesterday and maybe that played some role in re-introducing some strength into the market, if you’re the kind of person that really needs an explanation for why things happened, even if that explanation isn‘t necessarily correct or accurate.

Today, however, that theory of the role of oil may be put to a test as the Petroleum Status Report is released.

For me, that mid-morning Wednesday report is usually a yawner, but it may take on some new significance as inventory builds or draws may have greater impact on the overall market as long as oil continues being an area of focus.

This morning, before the market’s open, everything other than oil is just treading water. Stocks, precious metals and interest rates all seem to either be taking a breather from yesterday or waiting to see where oil prices may be heading after the Petroleum Status Report release.

With a surprise trade that added shares of Dow Chemical yesterday, now I really don’t believe that I’ll be adding any more this week, instead trying to direct efforts toward rollovers and assignments. However, just as the Dow Chemical purchase was a surprise, I suppose there could be more possible.

For those that follow volatility, yesterday was a day that saw some nice bounces in it, reflecting what the market itself was doing. From an incredibly low level, volatility is up nearly 30% in less than a week, but still far below where it had been just 2 months ago. In fact, it would have to climb another 100% to get to those levels which were also fairly low, but at least at acceptable levels for trading.

What would be a nice impact of maybe even marginally increasing volatility would be some return of volume to the option market. That sparse volume has made it very challenging to get trades done, especially since it has also created a greater schism between motivated buyers and sellers, creating bigger bid and ask spreads than I recall ever seeing.

For today, I expect that like most Wednesdays it will be a quiet week, however, I wouldn’t mind the opportunity to execute some rollovers early, if possible. I did try to do that with Joy Global yesterday, but it was one of those stocks that just had such a wide bid and ask range and non-existent volume. Maybe that will change as Friday draws to its close, but lately that has only been the case in the last 10 minutes or so of Friday’s trading, right before the options are set to expire and suddenly the spreads become a little more realistic, at least for the in the money strikes.

Otherwise, it may simply be a day of watching and wondering in what remains to be a very quiet news week once 10:30 AM has passed.

Daily Market Update – December 9, 2014 (Close)

Yesterday was not a terribly good way to begin the week as it looks as if continuing weakness in oil started to drag lots of things down in an indiscriminate way.

There’s some speculation that the weakness in oil has started creating margin calls and causing people to sell some of the year’s winners in order to meet those calls.

Who knows, but if so, that just demonstrates another risk associated with margin, especially as taxes may be related.

If I had to choose between selling a big winner, even if subject to short term capital gains, I would much rather try to do it in a little more than 3 weeks and get an additional year to have to pay taxes than to incur the liability now.

Today was likely to be another day of focusing on oil and retail sales. With the oil discussion being so paramount, retail has actually taken a back seat from its usual prominence heading into the final weeks of the year.

This morning, at least, there seemed to be a little respite to the decline in oil futures, but the US Futures were trading moderately lower, and then they plunged for no discernible reason just prior to 8 AM, continuing yesterday’s weakness.

The final close for the day was far better than was seen in the late morning when the DJIA was down over 200 points.

While yesterday so many focused on the weakness seen in Exxon, Chevron and McDonalds as explaining the decline in the DJIA, the decline was so much more broad than that, as there was so much more red than green on the screens.

This morning, before the official bell, it wasn’t looking anywhere near as onerous as yesterday’s colors indicated, with lots more green showing before trading started, even with the sudden early morning drop.  Even the oil stocks were showing some small gains, for now, which isn’t too bad considering that the overall market was and then continued pointing much lower.

With a couple of purchases yesterday I wasn’t certain if there would be any more to come for the week, although some of yesterday’s declines really seemed inappropriate.

One of those was Dow Chemical, which was just assigned last week. for example and is getting unduly punished, probably because of its relatively small position in a Kuwaiti oil venture.

The one thing that is certain is that while there is already talk of some of the major oils cutting their dividends to deal with the sudden decrease in cash flow, that’s not too likely to be the case with Dow Chemical and so it would be expected to hold share price better against any continuing onslaught.

Ultimately, it was just too difficult to resist the logic of getting back into Dow Chemical at a price lower
than shares were assigned just a  couple of days ago.

While the focus today was certain to continue on oil and retail, there may have been a little diversion at 10 AM, when the JOLT Survey was released.

That was a little regarded report until about a month or two ago when Janet Yellen said she paid attention to it, as it represented optimism among those already in the workforce, by virtue of those people willing to take the risk of leaving their jobs for better paying ones. That certainly hasn’t been the case for the previous 5 years, but now as employment is rising, so too may the quality of the jobs being offered.

While people still debate whether lower energy prices are good for the economy, there’s not too much doubt that more jobs and better paying jobs are good for the economy and ultimately good for retailers and consumer goods.

But instead, we reverted back to not caring about JOLTS today. Maybe the initial shock of seeing the market down so much was enough for one day.

If you’re heavily weighted in energy, as I am, you may not be following the logic, as your personal economy now would much rather see something of a return of energy prices to the kind of levels that would drag share prices higher. I think I can do more shopping and spending if oil prices were higher, although at the moment I’d be happy for some kind of a compromise.

Maybe today will be the start of that equilibrium between price at the pump and price at the NYSE, but it may take much more than a day to have any confidence that is going to be the case.

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

Yesterday was not a terribly good way to begin the week as it looks as if continuing weakness in oil started to drag lots of things down.

There’s some speculation that the weakness in oil has started creating margin calls and causing people to sell some of the year’s winners in order to meet those calls.

Who knows, but if so, that just demonstrates another risk associated with margin, especially as taxes may be related.

If I had to choose between selling a big winner, even if subject to short term capital gains, I would much rather try to do it in a little more than 3 weeks and get an additional year to have to pay taxes than to incur the liability now.

Today is likely to be another day of focusing on oil and retail sales. With the oil discussion being so paramount, retail has actually taken a back seat from its usual prominence heading into the final weeks of the year.

This morning, at least, there may be a little respite to the decline in oil futures, but the US Futures were trading moderately lower, and then they plunged for no discernible reason just prior to 8 AM, continuing yesterday’s weakness.

While yesterday so many focused on the weakness seen in Exxon, Chevron and McDonalds as explaining the decline in the DJIA, the decline was so much more broad than that, as there was so much more red than green on the screens.

This morning, before the official bell, it’s not looking anywhere near as onerous as yesterday’s colors indicated, with lots more green showing, for now, even with the sudden early morning drop.  Even the oil stocks are showing some small gains, for now, which isn’t too bad considering that the overall market is pointing much lower.

With a couple of purchases yesterday I’m not certain if there will be any more to come for the week, although some of yesterday’s declines really seemed inappropriate.

One of those was Dow Chemical, which was just assigned last week. for example and is getting unduly punished, probably because of its relatively small position in a Kuwaiti oil venture.

The one thing that is certain is that while there is already talk of some of the major oils cutting their dividends to deal with the sudden decrease in cash flow, that’s not too likely to be the case with Dow Chemical and so it would be expected to hold share price better against any continuing onslaught.

While the focus today will continue on oil and retail, there may be a little diversion at 10 AM, when the JOLT Survey is released.

That was a little regarded report until about a month or two ago when Janet Yellen said she paid atten
tion to it, as it represented optimism among those already in the workforce, by virtue of those people willing to take the risk of leaving their jobs for better paying ones. That certainly hasn’t been the case for the previous 5 years, but now as employment is rising, so too may the quality of the jobs being offered.

While people still debate whether lower energy prices are good for the economy, there’s not too much doubt that more jobs and better paying jobs are good for the economy and ultimately good for retailers and consumer goods.

If you’re heavily weighted in energy, as I am, you may not be following the logic, as your personal economy now would much rather see something of a return of energy prices to the kind of levels that would drag share prices higher. I think I can do more shopping and spending if oil prices were higher, although at the moment I’d be happy for some kind of a compromise.

Maybe today will be the start of that equilibrium between price at the pump and price at the NYSE, but it may take much more than a day to have any confidence that is going to be the case.

Daily Market Update – December 8, 2014 (Close)

There’s not too much too distinguish this week from the past two. 

Again, most of the focus will be on holiday retail sales and the price of oil. The general theme is likely to be that holiday sales in traditional brick and mortar outlets are falling while on-line sales are increasing.

No big surprise, but the overall sentiment is likely to be painted as one of lagging retail sales, because that’s pretty much what the script says every year until the final numbers are tallied and then everyone is pleasantly surprised.

The real surprise is probably still going to be contained in the oil story, especially if prices continue to move lower. It’s hard to imagine that they still can, but that was exactly the belief last week and the week before and the week before that.

And guess what?

They still can and did move even lower today and probably was the reason that the entire market was dragged lower today in a serious way.

Other than that it is an extremely slow news week and there is only one Federal Reserve Governor scheduled to give a speech, as opposed to last week when you would have thought they were all running for re-election. Last week, though, it seemed that nothing could really budge the markets in either direction. Not even outgoing voting member Richard Fisher could say anything to excite or scare people.

This week does have the JOLT Survey on Tuesday. That previously obscure report was a big mover of the market last month after Janet Yellen had earlier suggested that we should pay more attention to some of the information contained in the report. The piece that she believes is important, and if she believes so, we should, too, was the number of people leaving their jobs voluntarily in the belief that they would get better paying jobs quickly.

As that number goes higher it reflects optimism in the work place, which can only be a good thing for everyone. Put more jobs, better paying jobs and much lower energy prices together and you have a formula for increased retail sales, with the real prize coming at the reporting of the fourth quarter GDP in early 2015.

What wasn’t good, at least not for the markets as they get ready to start the week were the overnight economic numbers from China and Japan, reflecting weaker than expected growth.

At some point the realization will hit us that China couldn’t possibly keep growing at the pace it had been doing and we will also come to realize that no matter what Japan does it will continue to be mired in an aging population in a  nation with no natural resources other than tuna.

But at some point also comes the realization that decreasing economic activity, especially from China, also decreases demand for oil and introduces that factor along with production related over-supply.

With Europe continuing in its doldrums where else are you going to look other than to the US for economic leadership right now?

Unfortunately, the market isn’t looking as if it’s going to reflect that leadership this morning and by the time the day ended there was really no place to go or to hide.

After a number of assignments last week and some cash replenishment, I’m again not adverse to adding new positions, but once again don’t anticipate adding much more than 3 or 4 such positions. With the really nice flow of dividends of the past two weeks now dried up, there will be more need to generate the weeks’s income from a combination of new positions, rollovers and sales on existing positions.

Last week, despite no real action in the broader market, turned out to be a good one for achieving a nice combination of activity and I would love to see the same this week.

Despite adding two new positions this week at what seemed like good prices and actually getting calls sold on eBay shortly after the market opened, there wasn’t much chance to see anything else move higher as the day developed.

In the event that the JOLT Survey does bring us some good and actionable news tomorrow, with about an equal number of positions set to expire this week and next, which is the end of the December 2014 option cycle, I will probably look at expirations for any new trades to also reflect that distribution, as there is very little incentive to go out further as long as volatility remains so incredibly low.

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

There’s not too much too distinguish this week from the past two. 

Again, most of the focus will be on holiday retail sales and the price of oil. The general theme is likely to be that holiday sales in traditional brick and mortar outlets are falling while on-line sales are increasing.

No big surprise, but the overall sentiment is likely to be painted as one of lagging retail sales, because that’s pretty much what the script says every year until the final numbers are tallied and then everyone is pleasantly surprised.

The real surprise is probably still going to be contained in the oil story, especially if prices continue to move lower. It’s hard to imagine that they still can, but that was exactly the belief last week and the week before and the week before that.

Other than that it is an extremely slow news week and there is only one Federal Reserve Governor scheduled to give a speech, as opposed to last week when you would have thought they were all running for re-election. Last week, though, it seemed that nothing could really budge the markets in either direction. Not even outgoing voting member Richard Fisher could say anything to excite or scare people.

This week does have the JOLT Survey on Tuesday. That previously obscure report was a big mover of the market last month after Janet Yellen had earlier suggested that we should pay more attention to some of the information contained in the report. The piece that she believes is important, and if she believes so, we should, too, was the number of people leaving their jobs voluntarily in the belief that they would get better paying jobs quickly.

As that number goes higher it reflects optimism in the work place, which can only be a good thing for everyone. Put more jobs, better paying jobs and much lower energy prices together and you have a formula for increased retail sales, with the real prize coming at the reporting of the fourth quarter GDP in early 2015.

What wasn’t good, at least not for the markets as they get ready to start the week were the overnight economic numbers from China and Japan, reflecting weaker than expected growth.

At some point the realization will hit us that China couldn’t possibly keep growing at the pace it had been doing and we will also come to realize that no matter what Japan does it will continue to be mired in an aging population in a  nation with no natural resources other than tuna.

With Europe continuing in its doldrums where else are you going to look other than to the US for economic leadership right now?

Unfortunately, the market isn’t looking as if it’s going to reflect that leadership this morning.

After a number of assignments last week and some cash replenishment, I’m again not adverse to adding new
positions, but once again don’t anticipate adding much more than 3 or 4 such positions. With the really nice flow of dividends of the past two weeks now dried up, there will be more need to generate the weeks’s income from a combination of new positions, rollovers and sales on existing positions.

Last week, despite no real action in the broader market, turned out to be a good one for achieving a nice combination of activity and I would love to see the same this week.

With about an equal number of positions set to expire this week and next, which is the end of the December 2014 option cycle, I will probably look at expirations for any new trades to also reflect that distribution, as there is very little incentive to go out further as long as volatility remains so incredibly low.