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Daily Market Update – January 21, 2015 (8:00 AM) Yesterday was not very different from much of the rest of this month. It was actually a very volatile day, only the magnitude was missing. This past week Jamie Dimon mentioned that JP Morgan traders were victims of “bad volatility,” making the kind of distinction that isn’t really discussed very much, especially as the concept of volatility itself is so complex. Yesterday, though, was an example of the good kind of volatility, as the market made intra-day moves in alternating directions. The more about faces in a single day and the less the net result of those moves, the better is the volatility, which is also sometimes considered to be a measure of uncertainty felt by traders. The moves back and forth keep you on your toes and you never can really develop any confidence about direction. What can be more uncertain than that? Yesterday finished virtually unchanged after positive indications in the pre-open futures trading that didn’t last very long. The ensuing decline after the open looked as if it might convincingly take the market toward another of the now familiar triple digit losses, but it reversed itself as inexplicably as the reverse from the futures occurred. During the early part of yesterday’s decline I surprised myself by actually liking some positions during a time that I was thinking in terms of conserving cash. I’m still surprised, but after last week’s incredibly slow trading and waiting for something to happen, I wasn’t particularly interested in repeating that, even though the outcome was acceptable. But passivity has its limits and if the volatility seen thus far is any indication of what’s to come in 2015, passivity isn’t going to have the kind of success that it had in 2014. This morning the market is pointing lower in the pre-open trading, very similar to the level at which it was pointing higher yesterday. In neither situation was there much reason for the moderate gain or loss, respectively and when there is no real ereason to account for futures trading, those mild or moderate moves often have a way of disappearing once trading gets started for real. So despite the indication of a loss to begin the day, I’m still hopeful that there will be some new opportunities arising, especially when it comes to selling calls on uncovered positions. I think that the 3 new positions opened yesterday may end up being the sum total for the week, but even as cash shrinks away, it’s hard to think in terms of absolutes. With this being a shortened trading week and with a little bit of volatility being built into premiums, if those opportunities do show up, there’s reason to look at establishing some contracts Additionally, while there’s very little economic news coming from our shores this week to really move markets, there is a chance that the ECB may be able to move markets in one direction or another when it either makes an announcement regarding the implementation of quantitative easing or again simply defers action. While most want to hear news of an European QE becoming reality and it would likely give a momentary boost to our markets, especially if there are those who still doubt its announcement tomorrow, I think that it would serve to detract from US equity liquidity by removing some money from our markets to European markets. For those who believed that was the mechanism that fueled our own market’s rally from 2009, it would be difficult to ignore the same mechanism helping Europe to some degree and that money for new investment in European equities has to come from somewhere. So while European QE may be a good idea and while ECB President Draghi has certainly been dragging, I’m fine with him continuing to talk the talk and leaving it at that.
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