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Daily Market Update – September 21, 2015 (8:30 AM)
Last week the market finally started doing the right thing and followed the logical direction with regard to their expectations for the FOMC’s action. It’s just that the FOMC didn’t do what everyone had only very recently come to expect. Even more recent than that expectation was the decision to act accordingly. Acting accordingly meant sending the market higher in advance of the expected announcement of that initial interest rate increase and then sending stocks lower when that expectation was dashed. This morning’s futures are indicating a recovery of at least the further loss that occurred on Friday, although that still leaves us in the hole for the very large reversal that took place during the course of Janet Yellen’s press conference. Normally, when Janet Yellen has spoken at the post-FOMC press conferences, her words have either supported the initial rise higher in stocks after the announcement or sent them even higher, so this past week’s reversal of fortune was a real surprise. What seems to have occurred is that traders felt disappointed, but for the right reason. Over the past 18 months as expectations for an eventual rate increase began, the disappointments that were expressed all had to do with fearing the end of the Federal Reserve’s handout through their Zero Interest Rate Policy. Now the concern seems to have become that the economy may not be as strong as we had hoped and was unable to withstand an increase in interest rates. This morning’s futures bounce doesn’t really provide much in the way of sentiment. It could easily be nothing more than some bargain hunting on small volume. The story, as it almost always does, begins for real at the opening bell and while I’m hopeful that the next series of sustained moves will be higher and move us further away from the line between correction and no correction, it’s just not that clear. At least China wasn’t a factor as this week is set to begin, as Shanghai moved higher to open their week, but lately our own markets have discounted their wild swings. Instead, we seem much more likely to start focusing on economic news and fundamentals. This week brings a GDP report, but not much else. Earnings start again in about 3 weeks, but otherwise it may just be a period of time for investors to either tread water or speculate over the meaning of every bit of economic news. With some more cash in hand after a couple of assignments last week and with only one position set to expire this week and only a single ex-dividend position, I wouldn’t mind adding some new positions in an effort to create some income for the week. Ordinarily, I’d like to do that with weekly expirations in mind, but a number of the potential trades this week may require the use of expanded weekly options due to the dividend dates involved in those stocks and while providing income may make it more difficult to be prepared to open even more new positions the following week if those positions aren’t assigned early to capture dividends. I expect this to be another relatively quiet week with regard to personal portfolio trading, but would be very anxious to capitalize on any opportunity to sell some calls on unhedged positions, especially after some rebound in volatility to close the week. That would likely also look to see whether it makes sense to use some longer term contracts in an effort to lock in some higher premiums while awaiting some long overdue price rebounds as 2015 is now heading into the final stretch.
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