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Daily Market Update – May 26, 2015 (8:45 AM)
Looking at the pre-open futures every indication is that this holiday shortened week is going to get off on the same foot that reflected all of last week. If that’s going to be the case it’s going to be another very listless trading session. The question, at some point, becomes just how long the market can essentially do nothing as it sits right at all time highs. That’s basically like trying to balance an 8 foot length piece of plywood on the head of a pin. For a split second there may be an equilibrium, but you just know that it can’t last. The only difference is that the plywood can only drop and the market doesn’t necessarily need a reason, such as the suspension of gravity and the laws of nature, to go higher. There’s not too much economic news this week, although there are a few that can give the FOMC some reason to begin the interest rate hiking process. This week there are Durable Goods, New Home Sales, Jobless Claims and perhaps, most importantly, Friday’s GDP. With all of the controversy surrounding the accuracy of the previous winter months GDP reports, this Friday’s release may cause a re-set in thinking. That’s because the rate of change may now take on a very different character as the results of those winter months are more closely re-scrutinized. The FOMC probably doesn’t care where the economy has been, but they do care about where it’s going and how fast it’s getting there. With what may have been faulty Q1 data, it’s really difficult to then assess the velocity or acceleration rate of change. But that’s their problem and I’m sure that they’ll deal with it in a measured and rational way. Not too many people are still thinking that a rate hike might be announced at the June meeting, but all it may take is a couple of corroborating reports to suggest that things are heating up after the winter and there could still easily be room for a small interest rate increase in the coming month. That would cast a near term pall on markets, as the debate had shifted to whether the rate hike would be coming in September or maybe even waiting until 2016. But that leaves the rest of us to wonder whether much of the foundation of the market’s recent strength, that is the expectation that higher interest rates weren’t coming too soon, may prove to have been a misguided expectation. As the market does sit right below all time closing highs and with cash still lower than I would like, I’m probably not going on a spending spree this week. However, if I’m going to meet the weekly goal of generating an income stream, that’s going to require some new purchases. I’m not a big fan of having competing interests in life, but this is one of those time when the desire to conserve cash is in conflict with the need to generate cash. That’s because what I mentioned a few weeks ago as a With virtually no positions to rollover there are no income producing positions unless new ones are added. With only 4 days of time reflected in this week’s option premiums there may be reason to look at extended weekly expirations for any new positions that may be opened and simply adding to the small handful that are already set to expire next week.
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