Daily Market Update – January 5, 2015




Daily Market Update – January 5, 2015 (Close)

The first week of 2015 may be a busy one with economic news.

After today’s horrible day, we could use some economic news of any kind to give us something to think about, because today there was really nothing to think about and that didn’t work out terribly well.

On the schedule for some thought is this week’s FOMC Statement release. Although it always seems as if we just had one of those, this month there will actually be two of them to ponder.

The one this week is followed by an Employment Situation Report on Friday and either one can move markets, although at this point it’s hard to imagine how either could really move markets forward very much, as the pattern now seems to be pretty clear for each.

The FOMC is now just teasing us as far as when interest rates will increase and the Employment Situation Report gives us good news about growing employment, making us wonder when wage inflation will finally become a reality,

The FOMC will be especially interesting as since the last one there has been some indication that the GDP will be growing at a much faster than expected rate due to the drastically lowered energy prices. That may be the kind of data that causes the FOMC to start thinking more seriously about interest rate increases as the previous FOMC statement finally changed the wording from “considerable time” to “patience,” with regard to when those rate increases may begin.

Another strong Employment Situation report, though, could very conceivably set the stage for the second of the month’s FOMC Statements to  put forward a more hawkish kind of  position on the prospects of higher rates, which would be reasonably expected to cast a short term pall on the market’s climb.

This week we’re also left to wonder what ever happened to December and where the Santa Claus Rally went? The 300+ point drop to begin the new year didn’t do much to convince me that the Santa Claus Rally was just a little late in getting started. In fact, the way in which the tepid buying in the final 10 minutes faded was enough reason to believe that The Grinch was in control of things.

While wondering about such things there can also be all kinds of speculation as to what may motivate investors to begin 2015. As this morning’s sell off was getting started the conventional theory was that sellers were unloading money makers and waited until after the new year began so that they could wait another year to pay taxes.

That’s plausible, but it’s just not too likely that you would see so many people and so much volume in concert, reflecting people independently deciding to act the same way in their perceived best interests.

Just as plausible is th
at we followed the lead set in Europe and the tumbling Euro.

Maybe oil and the stock market are moving in tandem again, after oil broke the $50 level today amid reports of OPEC member nations now pumping even more oil, because they really need the money.

Forget the basic economic law of supply and demand. In this case it’s as simple as “pump more. make more.”

Or maybe we just don’t know what really went on today, but whatever it was, it wasn’t a good way to get things off, although the first trading week of 2014 wasn’t really very good, either.

It seems as if it has been a couple of years since “The January Effect” has actually occurred and some of those dogs in the DJIA have been dogs for more than just the one year that they were supposed to be in the doghouse.

With no assignments last week and no new cash added to reserves, I’m not overly enthused about committing new money this week. I would much rather see some assignments to begin the first week of the year and have a chance to see what, if any, theme gets us started.

Despite some of the really large price drops today, including in some positions that were on the potential buy list for this week, it’s not easy to be the first one to step in and test the waters as there wasn’t much evidence of people picking up bargains today.

For now there doesn’t look as if there is any new theme, as low oil prices continue to be the major story, as those prices may now once again be in control of where stocks are going from one day to the next.

The morning futures didn’t do too much to give me hope for being able to simply sell calls on existing uncovered positions, as that would still have been my preference this week as it has been now for quite a while. At least the gold miners were higher today, but you know that on days when your portfolio protection kind of stocks are higher it may not be a terribly good day to be a stock, otherwise.

With four positions set to expire this week it did at least offer some more income generation opportunities than the previous week, which may have been the slowest such week in the past 5 years. The good news is that now there are only 3 positions set to expire this Friday. Other than that it’s not too easy to find anything resembling good news.

Looking a week ahead, with a fair number of positions set to expire as the monthly cycle comes to its end, any new purchases this week are more likely to consider the use of weekly options, where available, rather than the extended ones, especially as the volatility continues to make the extended weekly premiums less appealing.

In the event, however, that the FOMC does introduce some kind of rally, as has been the case for the day before the FOMC Statement release the past few months, there may be reason to try and lock in some premiums on that kind of good news through the use of the expanded weeklies or even heading into the February cycle, as earnings season will also be at hand very soon.

After today, I’ll only believe that after i see it, though.