Author: TheAcsMan

Daily Market Update – May 9, 2014 (9:00 AM)

The Week in Review will be posted by 6 PM and the Weekend Update will be posted by Noon on Sundy.

Today’s possible outcomes include:

Assignment:  BBY, GPS, TXN, UNH, VZ

Rollover:   GM, SBUX, TXN

Expiration:  EBAY, FDO, LOW

Trades, if any, will be attempted to be made by 3:30 PM EDT

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Daily Market Update – May 8, 2014 (8:45 AM)

Markets go up and markets go down all of the time, so it wasn’t or at least shouldn’t have been terribly surprising that yesterday would have a bounce back following Tuesday’s terrible market that saw a broad retreat.

But despite yesterday’s nice performance it was relatively superficial as the NASDAQ continued its high profile decline, taking with it not only the ones you would call the “usual suspects,” but also the more staid.

Last night was more of the same as further earnings were released and companies like Tesla are showing the strain and will just get added to the growing heap of casualties that are, thus far, taking longer than the usual time to at least start their recovery.

That’s discouraging and may not be something that will stay in isolation. As with most systems under attack, it’s the weakest that are usually the first to fall. Tremendously high beta and outrageous price/earnings are those characteristics that on the one hand send some stocks on a parabolic move higher and on an identical path lower.

But after they’ve fallen, what’s next?

To some degree that depends on the rate of the descent and the rate of the spread. It’s like contagion, except the  opposite.

In a real contagion the more quickly spreading and the more lethal, eventually the more self limiting, as the killer kills off its hosts and loses its ability to spread. But with stocks the quicker the descent the more it is likely to drag others along and feed upon itself. Even the healthy low beta, moderate price/earnings kind of names are then susceptible.

That’s why seeing bounce backs are so important, as is seeing evidence of companies that thrive under the same environment. But if the companies thriving under those kind of environments are restricted to utilities and the P&G’s of the world, that itself is a reflection of walls weakening. While the foundation is critical, most people don’t predicate their decisions on the foundations. It’s what else there is beyond the foundation that attracts or frightens people

What has been generally missing so far during this earnings season is much evidence of thriving companies. The signs of strength that would actually promote either investor enthusiasm or at least reflect real economic growth just aren’t there or aren’t widely noticed.

The last few quarters, at least the past two, have seen earnings that were generally referred to as average or better than average and have been some basis for the market moving even further ahead, although for much of the past two years prior to 2014 there wasn’t much reason required.

On a retail level and on a manufacturing level, not to mention iron and coal, the basic fuels of growth, the basis for believing economic growth was proceeding has been lacking. That didn’t matter in 2012 and 2013 and so far, isn’t terribly important now, either.

What had been conveniently overlooked in those previous quarters has been the increasing and ever wider im
pact of stock buy backs as the earnings, even if falling, were rising on a per shares basis.

While reporting earnings per share is supposed to make it an apples to apples kind of comparison, that’s just not always the case. Reduce the number of shares in your denominator and by comparison it’s as if you moved on to a new group of uglier friends that now makes yu look better than before.

It’s often said that the shortcoming of technical analysis is that it focuses solely on charts and doesn’t really consider fundamental factors. Likewise, fundamental analysis is faulted for not considering share movement, history and patterns, but they can be further faulted for willingly accepting numbers on their surface and sometimes comparing apples to oranges. To some degree that can’t be helped because the reporting of buy backs isn’t always made on a timely basis and may not coincide very neatly with the reporting periods.  Apple, for example, just released information regarding its buy backs as of February 2014, while its earnings were for the period ending in March.

Maybe the markets are coming to this kind of realization. You can’t blame tax selling, end of the year profit taking, seasonality,  or the weather anymore.

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Daily Market Update – May 7, 2014 (Close)

Yesterday was just an absolutely brutal day for the market and it continued into the after-hours trading.

Some stocks, like YELP, which reported nice earnings last week and went higher, despite being among those ultra-high beta momentum stocks just plunged yesterday, for no reason of its own, going down about 14%.

YELP  was one of the personal trades that I made recently that wasn’t part of the recommended list of trades because the risk seemed a little inappropriate, but that worked out for a very quick gain.

In hindsight I often think that such trades should have been included as part of the Trading Alerts.

But YELP’s subsequent drop That actually paled in comparison to Twitter, which didn’t likely set off the bad day, but was bad enough to distort most everything, as it went down about 18% on incredible volume.

Then again, trades like Twitter make me glad, in hindsight, that some trades aren’t part of the recommended list of trades.

Twitter was joined by the likes of GNC (down 11.3%), FireEye (down  16.5%), Zuillily (down 20.5%) and Whole Foods, which went down 13.8% and appears to be headed even lower in the pre-open.

Among the names above, not all are high beta, yet they were also horribly punished.

In the case of Whole Foods, it’s a little hard to understand. Months ago I write about the drop Whole Foods had taken as it announced some lower same store sales that were caused by bad weather. At that time I wrote that I hoped that it wouldn’t be doubly punished when earnings were released.

It was.

This morning, after yesterday’s terrible all around showing, which was made even more intolerable because it came on a Tuesday and we had grown accustomed to  strong market performances on Tuesdays, appears to be headed mildly higher.

But we’ll see.

The action is Twitter was bad from the beginning and I was surprised. I really hadn’t expected so much selling and so much price pressure, particularly since shares had already fallen quite a bit and insiders said they wouldn’t be selling. It reminded of Facebook when it faced its own lock-up expiration. The scenario was identical. Shares had fallen from their $38 IPO to $21 right before the expiration date. They eventually fell to about $18, but the selling was fairly muted and not on explosive volume. Lots of Facebook insiders likely believed that shares were valued too cheaply and they may have known that there were some good initiatives and news to come.

Twitter, on the other hand, may be populated by insiders who don’t have the same confidence.

But the real blow came when Mark Mahaney, a respected analyst, who was fired from Citigroup a few years ago for sharing non-public information and who came to  a settlement with Massachusetts regulators, suggested that perhaps Twitter insiders who said they wouldn’t sell shares at the expiration did actually sell shares.

He wasn’t questioned on that comment and offered no additional information.

But shares accelerated their decline after those comments.

Even if I hadn’t added to my short put positions I would have thought that to have been a reckless thing to say, unless there was personal gain to be had.

Today is likely to be a slow day on the personal front and spent hoping to see some strength re-developing in the market and in individual positions that may have been treated far too harshly.

The hopes came true, but there was scant opportunity to sell new calls today. So there’s every reason to keep hoping tomorrow and Friday and to urge all of your friends to shop at Whole Foods and then Tweet out their experiences.

Daily Market Update – May 7, 2014 (8:30 AM)

Yesterday was just an absolutely brutal day for the market and it continued into the after-hours trading.

Some stocks, like YELP, which reported nice earnings last week and went higher, despite being among those ultra-high beta momentum stocks just plunged yesterday, for no reason of its own, going down about 14%.

YELP  was one of the personal trades that I made recently that wasn’t part of the recommended list of trades because the risk seemed a little inappropriate, but that worked out for a very quick gain.

In hindsight I often think that such trades should have been included as part of the Trading Alerts.

But YELP’s subsequent drop That actually paled in comparison to Twitter, which didn’t likely set off the bad day, but was bad enough to distort most everything, as it went down about 18% on incredible volume.

Then again, trades like Twitter make me glad, in hindsight, that some trades aren’t part of the recommended list of trades.

Twitter was joined by the likes of GNC (down 11.3%), FireEye (down  16.5%), Zuillily (down 20.5%) and Whole Foods, which went down 13.8% and appears to be headed even lower in the pre-open.

Among the names above, not all are high beta, yet they were also horribly punished.

In the case of Whole Foods, it’s a little hard to understand. Months ago I write about the drop Whole Foods had taken as it announced some lower same store sales that were caused by bad weather. At that time I wrote that I hoped that it wouldn’t be doubly punished when earnings were released.

It was.

This morning, after yesterday’s terrible all around showing, which was made even more intolerable because it came on a Tuesday and we had grown accustomed to  strong market performances on Tuesdays, appears to be headed mildly higher.

But we’ll see.

The action is Twitter was bad from the beginning and I was surprised. I really hadn’t expected so much selling and so much price pressure, particularly since shares had already fallen quite a bit and insiders said they wouldn’t be selling. It reminded of Facebook when it faced its own lock-up expiration. The scenario was identical. Shares had fallen from their $38 IPO to $21 right before the expiration date. They eventually fell to about $18, but the selling was fairly muted and not on explosive volume. Lots of Facebook insiders likely believed that shares were valued too cheaply and they may have known that there were some good initiatives and news to come.

Twitter, on the other hand, may be populated by insiders who don’t have the same confidence.

But the real blow came when Mark Mahaney, a respected analyst, who was fired from Citigroup a few years ago for sharing non-public information and who came to  a settlement with Massachusetts regulators, suggested that perhaps Twitter insiders who said they wouldn’t sell shares at the expiration did actually sell shares.

He wasn’t questioned on that comment and offered no additional information.

But shares accelerated their decline after those comments.

Even if I hadn’t added to my short put positions I would have thought that to have been a reckless thing to say, unless there was personal gain to be had.

Today is likely to be a slow day on the personal front and spent hoping to see some strength re-developing in the market and in individual positions that may have been treated far too harshly.

Daily Market Update – May 6, 2014 (Close)

Yesterday saw an impressive turnaround following a nearly 130 point drop. But it doesn’t look as if today will have much in the way of follow-through. As it was, there wasn’t much reason for the fall, other than to play “follow the leader,” having taken Europe’s cue. Likewise, there wasn’t too much reason to turn things back around, either, other than the closure of the European markets.

Given the pattern of recent Tuedays, you would have to excuse anyone who thought that today would be a day to buy stocks or at least watch the existing ones go higher and higher.

Not so.

The biggest story of the week is likely to be today’s lock-up expiration of Twitter and some kind of celebration of the fourth anniversary of what is known as the “Flash Crash.”

It didn’t take much of  crystal ball to have that figured out, but it did take one to see just how big Twitter’s drop would be. It was well beyond what anyone imagined, especially since none of the big insiders said they were going to be sellers of shares, but more on that later.

While Twitter shares are pointing sharply lower in the pre-trading market, if there’s any remote resemblance to the case of Facebook, as it faced its first big lock-up expiration, it would mark a trading low and an opportunity to start accumulating shares. Facebook fell about 10% on that lock-up expiration day, but Twitter ended up falling almost 18%.

That’s tough to make back except by a little at a time.

That kind of drop made it even more difficult to rollover $43.50 puts that were done for my personal trading, but I thought it might open open open forward opportunities. By the time the day was done I had sold two new Facebook put lots for my personal trading and by the end of the day had to roll them over to the following week,as the selling just kept going on and on.

While shares were weak to begin with, they really accelerated after RBS analyst, Mark Mahaney, suggested that there was selling by insiders who said they wouldn’t sell. He wasn’t questioned about that comment and he offered nothing else.

This is the same Mark Mahaney who was fired by Citigroup for provoding non-public information when he shouldn’t and with whom a settlement was reached with the COmmonwealth of Massachusetts regarding such activities related to Facebook and Google.

And now we have Twitter.

Beyond Twitter, it’s still amazing that no one can explain what happened that day in May when I was headed to the garden store with my wife driving. Even if being able to use more than 140 spaces to do so, still no one can explain. While listening in disbelief to the radio I wanted to grab the steering wheel from her and car jack my own car so I could get back home.

But instead, she got peonies, while I got hosed.

That was a day that created lots of trust in the system. The fact that they can’t explain what had happened and initially tried blaming it on a “fat finger,” shouldn’t leave too many people with an abiding sense of security.

Yet, we go on, because it’s still the best place to be, even with lots of hiccoughs and lots of irrational behaviors. Imagine that if the “smart money” acts the way it does, just how bizarre must be the behavior of you and I.

After a fairly busy day yesterday, I’m not expecting many more new purchases for the week, although looking at some pre-market drops in specific stocks, like AIG and Holly Frontier,  both earnings related, I get interested in saying hello to some old friends.

But lately some of these earnings related drops have been lasting a little longer than usual and aren’t the same kind of slam-dunk purchases as they may have been a year ago. In a market that went only higher even disappointments were quickly forgiven.  That’s just not as certain in 2014.

So while the money is there, I may be a little more discerning and maybe wait for even more selling.

With enough new positions to probably keep me satisfied for the week attention then gets diverted to what has been increasingly important. That is to make existing revenue streams continue through rollover and more importantly get new coverage on existing positions.

The weakness yesterday, even with the turnaround, didn’t do very much to help achieve that latter goal and this morning’s preliminary weakness isn’t doing much, either.

Hopefully the market will just do what it has been so good at doing in the past and just move higher, with or without a catalysts. Unfortunately, there really don’t appear to be any catalysts on the horizon that might send shares higher, but there are enough things on the near term horizon that could introduce some nervousness into the equation.

Today did nothing to help.

While I always have at least one antennae up to  figure out what curve balls may lie ahead the preponderance of uncertainty isn’t really overwhelming. Especially since it all seems so obvious and is on everyone’s radar.

Those just seem to be good times to do more than dip a toe in.

Daily Market Update – May 6, 2014 (9:30 AM)

Yesterday saw an impressive turnaround following a nearly 130 point drop. But it doesn’t look as if today will have much in the way of follow-through. As it was, there wasn’t much reason for the fall, other than to play “follow the leader,” having taken Europe’s cue. Likewise, there wasn’t too much reason to turn things back around, either, other than the closure of the European markets.

The biggest story of the week is likely to be today’s lock-up expiration of Twitter and some kind of celebration of the fourth anniversary of what is known as the “Flash Crash.”

While Twitter shares are pointing sharply lower in the pre-trading market, if there’s any remote resemblance to the case of Facebook, as it faced its first big lock-up expiration, it will mark a trading low and an opportunity to start accumulating shares.

That may or may not help me to rollover some existing puts that were done for my personal trading, but it may open open forward opportunities.

Beyond Twitter, it’s still amazing that no one can explain what happened that day in May when I was headed to the garden store with my wife driving. Even if being able to use more than 140 spaces to do so, still no one can explain. While listening in disbelief to the radio I wanted to grab the steering wheel from her and car jack my own car so I could get back home.

But instead, she got peonies, while I got hosed.

That was a day that created lots of trust in the system. The fact that they can’t explain what had happened and initially tried blaming it on a “fat finger,” shouldn’t leave too many people with an abiding sense of security.

Yet, we go on, because it’s still the best place to be, even with lots of hiccoughs and lots of irrational behaviors. Imagine that if the “smart money” acts the way it does, just how bizarre must be the behavior of you and I.

After a fairly busy day yesterday, I’m not expecting many more new purchases for the week, although looking at some pre-market drops in specific stocks, like AIG and Holly Frontier,  both earnings related, I get interested in saying hello to some old friends.

But lately some of these earnings related drops have been lasting a little longer than usual and aren’t the same kind of slam-dunk purchases as they may have been a year ago. In a market that went only higher even disappointments were quickly forgiven.  That’s just not as certain in 2014.

So while the money is there, I may be a little more discerning and maybe wait for even more selling.

With enough new positions to probably keep me satisfied for the week attention then gets diverted to what has been increasingly important. That is to make existing revenue stream
s continue through rollover and more importantly get new coverage on existing positions.

The weakness yesterday, even with the turnaround, didn’t do very much to help achieve that latter goal and this morning’s preliminary weakness isn’t doing much, either.

Hopefully the market will just do what it has been so good at doing in the past and just move higher, with or without a catalysts. Unfortunately, there really don’t appear to be any catalysts on the horizon that might send shares higher, but there are enough things on the near term horizon that could introduce some nervousness into the equation.

While I always have at least one antennae up to  figure out what curve balls may lie ahead the preponderance of uncertainty isn’t really overwhelming. Especially since it all seems so obvious and is on everyone’s radar.

Those just seem to be good times to do more than dip a toe in.

Daily Market Update – May 5, 2014 (Close)

I like getting the week off to a start with cash in reserve, especially when the market looks as if it may be opening up on the weak side.

What I don’t like is one of those subtle areas of discrimination that don’t allow for a level playing field.

I’m not referring to this LA Clipper and Donald Sterling story, but instead to the discrimination that allows an option contract holder the opportunity until after the market closes to elect not to participate in automatic assignment.

In this case it was JP Morgan, which closed at $55.58 and was destined for assignment at $55.50. At least that’s what any normal person would have expected to be the case.

That is until it announced some adverse news regarding forward revenues and risk in Russia.

While normally shares closing a penny or more above the strike price are automatically assigned, that’s really not accurate. Contract holders have the right to tell their brokerages not to assign shares on their behalf. The automatic assignment is referred to as “exercise by exception.” They can request an exception to that exception.

Sometimes they make that decision because they just don’t have the money to pay for the shares. Other times they just think that there’s something better they can do with their money and leverage it, to boot.

The cynic in me believes that some knew of what kind of news was to come.

When JP Morgan shares then dropped after hours to about $55 at first I felt relieved, but then I realized it’s not a fair world.

What’s galling is that brokerages have a different time cut-off for option contract holders to make that automatic assignment decision. The cut-off is after the closing bell, so that they can react to news that you can’t.

This was the second time that’s happened to me.

Once it resulted in shares being assigned that I expected to still be with me on Monday and this time it resulted in shares going unassigned.

The first time resulted in missing out on nice after hour gains and this time taking on the losses that I expected someone else would carry as a burden.

At some point I’ll get over it, especially if I can put the cash from those that were rightfully assigned to good use.

With cash up to 35%, which is down a couple of percentage points after finding JP Morgan still in my account, I’m willing to get down to about 20% this week.

Again, with a fair number of positions set to expire this week, I may instead look at next week, which happens to be the end of the May 2014 cycle for my new expirations.

In the meantime,as the market has opened with a triple digit loss, it’s not necessarily a time to just immediately jump in, even with the cash in hand. Barely a couple of hours later, though, and with no reason to have expected as such, that entire loss was reversed.

I had plan on sitting and watching a bit, listening for news and looking for any signs of stability. The news never came, but the stability did as this was one of the busiest trading Mondays I’ve had for a while It almost seemed like the old days.

Still, I was bothered by JP Morgan and for a while I believed that it might end up becoming the first trade of the day but its premium didn’t really reflect much in the way of risk that usually comes with any kind of large, especially unexpected movement in price. 

Making that purchase would have made me happy if the shares were replacement for the assigned ones, but I suppose I could get some satisfaction by simply booking a profit on the new shares and getting an opportunity to sell options on the old and unwanted ones. But that happiness, too, was taken away from me.

It’s beginning to sound like something out of a soap opera.

Daily Market Update – May 5, 2014 (9:45 AM)

I like getting the week off to a start with cash in reserve, especially when the market looks as if it may be opening up on the weak side.

What I don’t like is one of those subtle areas of discrimination that don’t allow for a level playing field.

I’m not referring to this LA Clipper and Donald Sterling story, but instead to the discrimination that allows an option contract holder the opportunity until after the market closes to elect not to participate in automatic assignment.

In this case it was JP Morgan, which closed at $55.58 and was destined for assignment at $55.50. t least that’s what any normal person would have expected to be the case.

That is until it announced some adverse news regarding forward revenues and risk in Russia.

While normally shares closing a penny or more above the strike price are automatically assigned, that’s really not accurate. Contract holders have the right to tell their brokerages not to assign shares on their behalf. The automatic assignment is referred to as “exercise by exception.” They can request an exception to that exception.

Sometimes they make that decsion because they just don’t have the money to pay for the shares. Other times they just think that there’s something better they can do with their money and leverage it, to boot.

When JP Morgan shares then dropped after hours to about $55 at first I felt relieved, but then I realized it’s not a fair world.

What’s galling is that brokerages have a different time cut-off for option contract holders to make that automatic assignment decision. The cut-off is after the closing bell, so that they can react to news that you can’t.

This was the second time that’s happened to me.

Once it resulted in shares being assigned that I expected to still be with me on Monday and this time it resulted in shares going unassigned.

The first time resulted in missing out on nice after hour gains and this time taking on the losses that I expected someone else would carry as a burden.

At some point I’ll get over it, especially if I can put the cash from those that were rightfully assigned to good use.

With cash up to 35%, which is down a couple of percentage points after finding JP Morgan still in my account, I’m willing to get down to about 20% this week.

Aga
in, with a fair number of positions set to expire this week, I may instead look at next week, which happens to be the end of the May 2014 cycle for my new expirations.

In the meantime,as the market has opened with a triple digit loss, it’s not necessarily a time to just immediately jump in, even with the cash in hand,

I plan on sitting and watching a bit, listening for news and looking for any signs of stability.

What bothers me, watching JP Morgan this morning, is that it may be the likely first trade of the week.

That would have made me happy if the shares were replacement for the assigned ones, but I suppose I could get some satisfaction by simply booking a profit on the new shares and getting an opportunity to sell options on the old and unwanted ones.

It’s beginning to sound like something out of a soap opera.