Category: Daily Market Update

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

There’s very little planned for this week.

As far as planned news, data releases or earnings there won’t be too much going on. Lots of eyes will simply be trained on shares of Apple which begin trading on a post-split basis today.

Following its run much higher after the announcement of the split and increased dividend, it’s hard to argue that substantive product releases or product news were responsible for that climb, so it will be interesting to see how those post-split shares respond to their new affordability, particularly since so many have expected that the actual split will lead to further price appreciation.

Great theories always meet their match in reality.

The week begins at yet another new high, although the pre-open is almost at the flat line with absolutely nothing to react to other than some merger and buyout news.

After a week that saw more assignments than new positions opened for the first time in a little while my cash reserves have risen above where they opened the previous week and despite the increasing highs, I am willing to spend some of that down but I think it’s time to be also increasingly selective.

Over the past month it has been clear that the advancing market isn’t taking everything along as the number of new highs isn’t keeping up with the overall market, as is usually the case when there is broad market strength.

In what is becoming a broken record, my preference again this week would be to find opportunities to sell calls on existing, yet uncovered positions. Again, with a fair number of positions set to expire this week I would like to diversify by date of contract expiration, but with volatility so low it’s hard to justify the additional time for the low additional premiums that result.

Ideally, with also a number of positions set to expire next week as the monthly contract ends, it would be nice to begin finding contracts for June 27, 2014 and beyond, but those opportunities are sparse, all falling victim to the low volatility environment.

With stock prices still so high and premiums so low there is a skew of the risk-reward proposition such that the risk attenuation offered by selling calls is decreased relative to the risk associated with buying shares at or near their highs.

The response to that challenge is to either look for positions that haven’t participated as much in the market rally and by extension don’t have as much to fall or give back or look for those that have participated and may have higher premiums in reflection of the increased risk below.

Tough call, but like most everything going an all or none route is probably not a good idea, so there may be reason to look at the extremes when thinking about how to redeploy some cash until the market makes a real statement and does something more than just tentative moves higher.

Stocks to watch this week include Family Dollar Stores, following news after Friday’s close that Carl Icahn had taken a large stake.

Fortunately, the DOH traded shares were rolled over on Friday, but with the low volatility it was difficult getting a trade with a net credit without going out quite a bit in time. Even then the net credit was not because of the additional time, but because earnings were to be released that week. WIth the announcement on Friday there is likely to be greater volatility built into the premium so there may be greater rollover opportunities than there were this past Friday.

Today we’ll look to see whether there may be some opportunity to rollover the $60 lot that expires next week, specifically to try and either capture the dividend or to get some additional premium in the event of early assignment and then move on with some new found and unexpected cash.

Daily Market Update – June 6, 2014 (8:30 AM)

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

Today’s possible outcomes include:

Assignments:  JPM, MET

Rollovers:  FDO, GPS, LOW

Expirations:  BMY, BMY, EBAY, HFC,

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

Daily Market Update – June 5, 2014 (Close)

The ECB announcement, which had been talked about for more than a week, came off as expected and the market appeared to be showing no interest, continuing to trade with a modest upside biaas the announcement was made.

For the most part, modest moves, whether higher of lower have characterized the pre-opening sessions lately, as well as the regular trading sessions, so it appeared as if the ECB had absoluely no impact.

Very little has had an impact on the market as a whole, although individual stocks have been beaten up more than usual lately and have been staying down longer than usual.

Since the ECB news was widely expected, it’s not too surprising that the morning seemed to be showing no impact. In what I can’t quite understand, the overnight deposit rate in the EU is now negative, while the lending rate is down to 0.15%.

The latter is even better than some of those no interest loans from your credit card company, especially since there’s no origination fee. You just have to belong to the EU.

You would think that such low rates would have an incredible stimulatory effect on the economy, but if you look at own own banking experience in the aftermath of the financial meltdowns in 2007 and 2008, that really hasn’t been the case. While our own markets went much higher after easy money became available to the banking system, it wasn’t because of any ensuing economic boom. It’s not too likely that the same kind of market growth will be seen in the European markets and there’s certainly no expectation that multi-national businesses will experience much benefit from increased spending.

So that leaves tomorrow’s Employment Situation Report as the final test for the week that saw another record close on the S&P 500 yesterday and shows no sign of giving up on the climb.

At least that’s what you would have thought, until 10:16 AM, when the market abruptly turned around from it’s morning low point, which had the DJIA down about 20 points and the S&P 500 down 5 points from yesterday’s close.

The conventional wisdom is that this market was once again moved by the casual thoughts of hedge fund manager David Tepper, who said he now had less to worry about, except that those words came almost two hours after the turnaround started. In fact, the S&P went up only another 2 points after his comments and the DJIA went up just another 9 points.

So you can be the judge.

We still do have tomorrow to deal with.

Lately the talk has started looking at the growth in employment from a cynical perspective, beginning to question whether the recent large numbers have been sufficient or at least meaningful.

While I don’t expect much to happen with tomorrow’s announcement, that kind of skepticism can get magnified in the event that the reported number comes in as a disappointment, particularly now that weather is out of the equation.

But none of that changes what has been the goal this week.

What has gotten in the way of achieving the goal have been the tepid moves seen. Ideally, the time to sell new calls is when there is a strong move higher in a stock, but those have been few and far between, as most have simply just showed up this week and are going through the motions.

TOday was a real contra-distinction to the past couple of weeks and it was nice to see any kind of conviction.

With next week’s weekly contracts appearing today a nice move higher was especially welcome in that it more broadly trickled down to the market’s components that have been essentially left out of the party. At least there was some opportunity to take advantage of that strength today and hopefully there will be some mopre tomorrow.

For now, it’s just sitting back and waiting for any sign or any signal.

Daily Market Update – June 5, 2014 (8:45 AM)

The ECB announcement, which had been talked about for more than a week, came off as expected and the market appears to be showing no interest, continuing to trade with a modest upside bias. FOr the most part, modest moves, whether higher of lower have characterized the pre-opening sessions lately, as well as the regular trading sessions.

Very little has had an impact on the market as a whole, although individual stocks have been beaten up more than usual lately and have been staying down longer than usual.

Since the ECB news was widely expected, it’s not too surprising that the morning seems to be showing no impact. In what I can’t quite understand, the overnight deposit rate in the EU is now negative, while the lending rate is down to 0.15%.

The latter is even better than some of those no interest loans from your credit card company, especially since there’s no origination fee. You just have to belong to the EU.

You would think that such low rates would have an incredible stimulatory effect on the economy, but if you look at own own banking experience in the aftermath of the financial meltdowns in 2007 and 2008, that really hasn’t been the case. While our own markets went much higher after easy money became available to the banking system, it wasn’t because of any ensuing economic boom. It’s not too likely that the same kind of market growth will be seen in the European markets and there’s certainly no expectation that multi-national businesses will experience much benefit from increased spending.

So that leaves tomorrow’s Employment Situation Report as the final test for the week that saw another record close on the S&P 500 yesterday and shows no sign of giving up on the climb.

Lately the talk has started looking at the growth in employment from a cynical perspective, beginning to question whether the recent large numbers have been sufficient or at least meaningful.

While I don’t expect much to happen with tomorrow’s announcement, that kind of skepticism can get magnified in the event that the reported number comes in as a disappointment, particularly now that weather is out of the equation.

But none of that changes what has been the goal this week.

What has gotten in the way of achieving the goal have been the tepid moves seen. Ideally, the time to sell new calls is when there is a strong move higher in a stock, but those have been few and far between, as most have simply just showed up this week and are going through the motions.

With next week’s weekly contracts appearing today any nice move higher that more broadly trickles down to the market’s components may finally offer that opportunity.

For now, it’s just sitting back and waiting for any sign or any signal.

Daily Market Update – June 4, 2014 (Close)

With the exception of the monthly release of the FOMC statement, Wednesdays tend to be quiet trading days. Even the ADP employment statistics don’t do very much to shake up the market and today seemed to be no exception in the early morning and stayed true to that path.

At different times over the years different economic statistics have had acute importance. There was a time when it was the money supply. Then there was a time when it was the trade deficit. Inflation rate was once an important measure and so on and on.

This week there are still two potentially big events to come, but I don’t think that either will have too much of an impact, yet there’s very little reason to chance that belief.

A real contrarian would believe that all of the negative sentiment going around, even as we hit new highs, can be nothing more than a signal to commit even more to the long side.

While the crowd usually isn’t right, there has to be the realization that sometimes even the crowd gets it right.

How unusual is it that a market that continually reaches new highs does so on such consistently light volume?

This morning looked to get off to a mildly negative start and it wasn’t  too likely that the market would commit very strongly in either direction in advance of the ECB announcement and then the Employment Situation Report.

As the morning started, I didn’t think that it too unlikely that I’d be adding any new positions this week, although I believed that to be the case yesterday, as well. The difference is that today was Wednesday and that tends to be a slow trading day for me, as well as for the markets. For many positions the new option contracts don’t come out until tomorrow and the premium for just three days, especially in a low volatility environment makes it very difficult to justify taking on the risk. For a 7 day contract? Perhaps. But 3 days? Not likely.

One thing that caught my interest yesterday was a report by Goldman Sachs on commodities, which have basically been the bane of my recent existence.

They are shifting to a more bullish stance on commodities and they have been an influential voice in the past, although not always right and not always right away. Certainly not today.

This time, though, I hope they’re right and soon, too.

Not only for the direct impact on commodity prices, but also on the indirect impact which would be reflected in increasing industrial activity and economic growth.

Not much happens overnight, but if anything, I’m patient and hopeful that this t
ime Goldman has gotten it right. If they have, it’s not too likely that the current stock market has anticipated that kind of growth and that could be a catalyst to go even higher, as it’s otherwise difficult to see what the catalyst would be.

This morning, as for the past 2 days, I was hopeful for some opportunities to find new cover for some positions, but as the market has been so quiet and trading within such a narrow range, there haven’t been too many of those opportunities, so it has been a very slow week, made sustainable only by last week’s rollovers.

As with most event driven markets, that situation could easily change tomorrow or Friday, or on both days. Hopefully, the week will be one that finds no disappointment in the awaited reports and some of the market’s climb higher trickles down to more stocks and carries them along for a change.

Too many have been left behind and the market has been very unforgiving while holding grudges for far too long.

Daily Market Update – June 4, 2014 (9:00 AM)

With the exception of the monthly release of the FOMC statement, Wednesdays tend to be quiet trading days. Even the ADP employment statistics don’t do very much to shake up the market and today seems to be no exception.

At different times over the years different economic statistics have had acute importance. There was a time when it was the money supply. Then there was a time when it was the trade deficit. Inflation rate was once an important measure and so on and on.

This week there are still two potentially big events to come, but I don’t think that either will have too much of an impact, yet there’s very little reason to chance that belief.

A real contrarian would believe that all of the negative sentiment going around, even as we hit new highs, can be nothing more than a signal to commit even more to the long side.

While the crowd usually isn’t right, there has to be the realization that sometimes even the crowd gets it right.

This morning looks to get off to a mildly negative start and it’s not too likely that the market would commit very strongly in either direction in advance of the ECB announcement and then the Employment Situation Report.

At the moment, I think that it’s unlikely that I’ll be adding any new positions this week, although I believed that to be the case yesterday, as well. The difference is that today is Wednesday and that tends to be a slow trading day for me, as well as for the markets. For many positions the new option contracts don’t come out until tomorrow and the premium for just three days, especially in a low volatility environment makes it very difficult to justify taking on the risk. For a 7 day contract? Perhaps. But 3 days? Not likely.

One thing that caught my interest yesterday was a report by Goldman Sachs on commodities, which have basically been the bane of my recent existence.

They are shifting to a more bullish stance on commodities and they have been an influential voice in the past, although not always right.

This time, I hope they’re right.

Not only for the direct impact on commodity prices, but also on the indirect impact which would be reflected in increasing industrial activity and economic growth.

Not much happens overnight, but if anything, I’m patient and hopeful that this time Goldman has gotten it right. If they have it’s not too likely that the current stock market has anticipated that kind of growth and that could be a catalyst to go even higher, as it’s otherwise difficult to see what the catalyst would be.

This morning,
as for the past 2 days, I’m hopeful for some opportunities to find new cover for some positions, but as the market has been so quiet and trading within such a narrow range, there haven’t been too many of those opportunities, so it has been a very slow week, made sustainable only by last week’s rollovers.

As with most event driven markets, that situation could easily change tomorrow or Friday, or on both days. Hopefully, the week will be one that finds no disappointment in the awaited reports and some of the market’s climb higher trickles down to more stocks and carries them along for a change.

Daily Market Update – June 3, 2014 (Close)

For a change, this week seems to have a lot of news, but that doesn’t mean that much is expected to happen.

The biggest news yesterday was that the once really important ISM Manufacturing Index had to be corrected twice in one day due to an error in the calculation. There’s probably not too much reason that should happen, but neither the original release nor the revisions had much of an impact on the market which traded very lazily throughout the day, although did close at record highs once again.

With today being a Tuesday the reasonable expectation would be that the market would move higher. That’s especially expected because its also a week that contains the release of the Employment Situation Report, which has its own pattern.

However, as the morning’s futures  were shaping up, it looked as if Tuesday might not be paying too much attention to the playbook and hard as it may be to believe this Tuesday ended without setting a new record.

Still, it’s hard to discount the fact that yesterday was another new high, although it continued the incremental pattern of just adding a little more onto the top of the pile.

What’s needed to inspire confidence is blowing through the top. While on the surface that might seem as an open invitation to then plumb the depths, instead it usually encourages additional buying behavior.

The same isn’t necessarily the case in a downward moving market and one that is seemingly inflicting “death by a thousand cuts.” In that kind of case a large sell-off on top of all of those incremental losses, also called a “capitulation” is thought to be necessary to herald turning the corner and moving higher again.

Ultimately, it’s those slow gains or losses that create nervousness and despite the low level of volatility suggesting that the expectations of any kind of blow-out is low, there is quite a bit of nervousness. The low trading volume is one reflection of people not jumping in and eager to participate.

I’m in that camp and am reluctant to embrace the climbs higher and higher.

I saw a great statistic about 30 minutes from the end of yesterday’s close that may have altered somewhat by the close, but was telling.

“….another new record high close imminent for the S&P 500, with 41% of NYSE stocks advancing and 42% below their 50-day moving averages.”

 Where’s the good news in that unless you are lucky enough to be holding those select stocks that are actually moving higher?

In essence, the higher moving market is somewhat of an illusion and that’s why you’re not seeing or hearing anyone beating their chests proclaiming to have conquered or bested the market.

So that reluctance to embrace the climb higher is likely to be manifested by limited new purchases this week, as that seems to be the “new normal.”

Back when the market was rising and everything was going along for the ride it wasn’t unusual to have 10 or more new purchases in a single week, due to the prevalence of assignments.

But now, the market continued to rise, but is leaving many stocks behind and so the need to replace assigned positions is lessened for now.

As long as rollovers can get executed that’s not an issue, in fact, it is preferable. It allows income generation while still being able to keep reserves in the event of real opportunity. However, conceptually, the behavior isn’t encouraging for market prospects as a whole.

A healthy market is firing on all cylinders. This one is very tentative and I much prefer functioning in a market with clarity, even if that clarity points lower.

Again, today was the kind of day that I was more interested in finding any opportunity to sell new options on existing positions, although I wouldn’t have wanted to completely ignore any apparent opportunity that may have come along, but not many did.

Just as well, I wasn’t overly eager to spend too much along the way, anyway.

That may be the closest anyone gets to a “win-win” in this market.

Daily Market Update – June 3, 2014 (9:15 AM)

For a change, this week seems to have a lot of news, but that doesn’t mean that much is expected to happen.

The biggest news yesterday was that the once really important ISM Manufacturing Index had to be corrected twice in one day due to an error in the calculation. There’s probably not too much reason that should happen, but neither the original release nor the revisions had much of an impact on the market which traded very lazily throughout the day, although did close at record highs once again.

With today being a Tuesday the reasonable expectation would be that the market would move higher. That’s especially expected because its also a week that contains the release of the Employment Situation Report, which has its own pattern.

So far, as the morning’s futures are shaping up, it looks as if Tuesday may not be paying too much attention to the playbook.

Still, it’s hard to discount the fact that yesterday was another new high, although it continued the incremental pattern of just adding a little more onto the top of the pile.

What’s needed to inspire confidence is blowing through the top. While on the surface that might seem as an open invitation to then plumb the depths, instead it usually encourages additional buying behavior.

The same isn’t necessarily the case in a downward moving market and one that is seemingly inflicting “death by a thousand cuts.” In that kind of case a large sell-off on top of all of those incremental losses, also called a “capitulation” is thought to be necessary to herald turning the corner and moving higher again.

Ultimately, it’s those slow gains or losses that create nervousness and despite the low level of volatility suggesting that the expectations of any kind of blow-out is low, there is quite a bit of nervousness. The low trading volume is one reflection of people not jumping in and eager to participate.

I’m in that camp and am reluctant to embrace the climbs higher and higher.

I saw a great statistic about 30 minutes from the end of yesterday’s close that may have altered somewhat by the close, but was telling.

“….another new record high close imminent for the S&P 500, with 41% of NYSE stocks advancing and 42% below their 50-day moving averages.”

 Where’s the good news in that unless you are lucky enough to be holding those select stocks that are actually moving higher?

In essence, the higher moving market is somewhat of an illusion and that’s why you’re not seeing or hearing anyone beating their chests proclaiming to have conquered or bested the market.

So that reluctance to embrace the climb higher is likely to be manifested by limited new purchases this week, as that seems to be the “new normal.”

Back when the market was rising and everything was going along for the ride it wasn’t unusual to have 10 or more new purchases in a single week, due to the prevalence of assignments.

But now, the market continued to rise, but is leaving many stocks behind and so the need to replace assigned positions is lessened for now.

As long as rollovers can get executed that’s not an issue, in fact, it is preferable. It allows income generation while still being able to keep reserves in the event of real opportunity. However, conceptually, the behavior isn’t encouraging for market prospects as a whole.

A healthy market is firing on all cylinders. This one is very tentative and I much prefer functioning in a market with clarity, even if that clarity points lower.

Again, today will be a day that I’ll be much more interested in finding any opportunity to sell new options on existing positions, although wouldn’t completely ignore any apparent opportunity that may come along, but I’m not overly eager to spend too much along the way.

Daily Market Update – June 2, 2014 (Close)

The week ahead has lots of events and news that could potentially move the markets.

Apparently, the once important ISM Manufacturing Index isn’t that important, anymore, as it came in with some awful numbers and the market really didn’t react very much. Then it also didn’t react much when the numbers were corrected due to an error in calculation that was spotted by some astute people.

As if that wasn’t bad enough, sometime later, a second revision to the statistics released this morning was made and for the most part the market just yawned, as all eyes were on Apple instead, hearkening back to the days when Apple ruled and lead the markets.

The always interesting Apple World Wide Developers Conference (WWDC) kicked off today in the week that the Apple stock split takes effect.

The week ends with the Employment Situation Report and in-between is a much awaited ECB announcement on interest rates, which are widely expected to be reduced.

While there may be some positive news ahead for Apple, at least in the short term, that may move shares even higher once the split occurs, I don’t know if anything this week really is of such magnitude that it can convincingly cause the market to create new highs, rather than eking them out.

With only two positions closed last week while I’m willing to dip into cash reserves for new purchases, I’m not willing to go in too much.

As has been the case of late, I would much rather generate income by being able to sell calls on currently uncovered positions rather than putting new money at risk and when all else fails just simply rollover existing positions, which is usually a good kind of failyre.

With the market setting new high after new high a rational person would likely jump in and join the fun, but I think a toe at a time is fun enough right now unless there is some evidence of a breakout higher.

At some point it would be nice to see some conviction, whether it takes us higher or lower, rather than a tepidly trading market that just can’t seem to make its mind up as to whether to trade the market we have opr the market of the future.

As far as what awaits us in the past the axiom was always that trading was discounting the future by 6 months and was more reflective of the future than the present.

If that’s the case the outlook for the next 6 months is clouded, at best and certainly not enthusiastically embraced.

A lot of emphasis is being placed this week on Thursday’s ECB report on interest rates. While it’s widely expected that Mario Draghi, the Janet Yellen of the EU will announce a rate reduction it doesn’t seem too likely that if that news is confirmed that it will drive markets higher, simply because it is so anticipated.

On the other hand if what is anticipated ends up becoming a disappointment, by either not happening or being different than anticipated, there’s no telling what the result may be.

The very next day after that ECB announcement is the Employment Situation Report and lately the association between that report and the market moving higher on that same day has been breaking down a bit, although the entire week association, that is the week moving higher, has been holding.

So with a bit of tentativeness, I think this week may end up being a net positive, but there may be some bumps along the way.

With a number of positions already set to expire this week and having been able to roll over a fair number of positions last week, I may be somewhat more interested in finding expirations for next week, as looking at any potential new purchases. Additionally, where feasible, it may make some sense to execute rollovers before the ESR on Friday and possibly even before Thursday morning’s ECB report.

At least that was the plan this morning.

Instead, during a very lackluster day with trading in a very narrow range there was vert little to get excited about and the only two opportunities that seemed to come along ended up getting weekly contracts written.

So much for planning out the course of action.

There’s always tomorrow and we’ll see whether it being a Tuesday lives up to its expectations.