Daily Market Update – February 4, 2015 (Close)




Daily Market Update – February 4, 2015 (Close)

Another day without a single trade, at least not for any new positions.That makes three in a row to start the week.

That’s no way to make money.

Given the choice, I’d rather not be making any trades in the face of a market showing a great advance than sitting around and being paralyzed into inaction during a tremendous decline, as long as my positions aren’t already in the money.

Today, I got my wish, at least for a very short while as it was a really strange day in the markets and an especially strange final hour.

For that brief time that the market was up another triple digits I got that part of my preferences.

Why the market went from a day of complete boredom with the DJIA positive only because of strong performances by Disney and Visa, adding about 80 points, to a day where the broad market turned reasonably positive to one where even the DJIA was underwater until the final moment, all in the space of 60 minutes, is a mystery.

At least for part of the day we were able to see some green and at least they didn’t take off so much that positions ended up being deep in the money and unable to participate.

I think that’s actually my worst case scenario. There’s not much worse than seeing a slew of positions already in the money being unable to celebrate in a broad and sustained market rally.

On the other hand, if your positions are well covered there’s a strange sense of comfort, maybe even satisfaction if a large decline suddenly hits.

As the past 2 days 500 point advance served to bring positions closer to assignment or easier to rollover, that two day move was much welcomed, especially as there was some further catch-up by the energy sector, which is now helping to continue the string of relative out-performance, just as it led to under-performance late in 2014, as it was in the throes of its decline.

Today began the 3 days of employment related data that will be streaming in.

As I wrote this morning’s update the ADP data has already been released and it was a little weaker than expected. Tomorrow’s Jobless Claims and Friday’s Employment Situation Report complete the story, but just as this morning’s ADP report, shouldn’t have too much influence on where the market will be going.

Later this morning came the release of the counterpart to the ISM Manufacturing Index. The Non-manufacturing Index measures changes in the services sector.

Lately, despite logic telling us that both manufacturing and services should be growing, and perhaps even growing at a greater rate, that hasn’t really been the case and the continuing increase in employment and the extra money in people’s pockets from higher wages, growing employment and from their energy dividend, hasn’t been finding its way back into the economy in any measurable way.

But in a nice surprise, the non-manufacturing numbers were actually better than expected and coupled with some better than expected guidance from Kohls and Macys in advance of their earnings reports in 2 weeks, came some reason to be optimistic.

While Wednesdays are usually quiet days and I don’t often make any new purchases during the latter half of the week, this week may be a little different, seeing as there haven’t been any so far this week. Although I knew that there wouldn’t be much activity as I wanted to conserve cash and hopefully add to it from week ending assignments, the hunt never ends.

While I do want to see my cash reserve grow right now and would be more interested in generating weekly income from existing positions, I’m not completely adverse to adding new positions. The big concern that I have right now, however, is related to the same thing that makes for some joy.

That is, the past 2 days.

While it’s great seeing the past 500 points get added, there’s till no escaping the reality that those kinds of moves, especially coming on the heels of some equally large declines, are not the sort of thing that you see in bullish runs.

Today’s 100 point gain that was methodically built upon the scaffolding provided by Disney and Visa was nice, but its quick collapse was not.

Taking a wide angle look at things those large moves higher are typically seen as a part of a developing bear market and create a bull trap fr those getting in just to share in what they think will be the party to come.

FOMO,” or the “fear of missing out,” can be just as deadly as greed and panic, as the final 30 minutes of trading could have illustrated.

While I’ll be content to let things ride that can benefit from the ride, having seen a series of reversals over the past 6 weeks makes it hard to believe that the past two days are the real thing.

I have no idea what today’s trading means. It certainly wasn’t very real and it would be really hard to draw any conclusions from the changes in direction and sentiment.

Instead, if the market can continue this sort of back and forth and do so with big moves in both directions, the beneficiaries will be those that can take advantage of the volatility.

If that volatility does rise and stay at elevated levels, you don’t have to create as many new positions to generate your income. All you have to do is try and trade your existing positions and rolling over as often as possible, taking advantage of the better and better premiums.