Category: Daily Market Update

Daily Market Update – November 13, 2014 (8:30 AM)

The news coming in from retail is mixed, as far as investors are concerned.

They always look at the top line and the bottom line.

The top line represents revenues and the bottom line represents profits. Then they add into the mix forward guidance, which is far from an exact science, just as imaginative accounting removes the simple arithmetic behind profit and loss sheets from the realm of being an exact science.

The mixed news is that the trend is that the bottom lines are increased, but the top lines aren’t always so, although Wal-Mart reported this morning higher on both.

The consequence to that is that the bottom line represents sales and expenses, while the top line represents sales. One can be reflective of a company’s efficiencies, while the other can be much more reflective of what is going on int he economy, in addition to the particular popularity of a company at a moment in time.

So while seeing a general trend of increasing profits investors may be happy, especially if also guiding higher, but that may overlook the bigger picture.

On the other hand, if the revenue trend is flat or lower among a group of retailers, there has to be some concern that the consumer isn’t really participating, especially as employment statistics are suggesting that more and more people are at work and increasingly capable of spending their money.

Nothing propels an economy and creates confidence like consumer spending.

While we all love the very low interest rate environment that we have been in for so long, the one thing that we don’t think about too much is that the low interest rates are very much a by-product of the inability to consume. The pressure to drive prices higher by everyone seeking to satisfy personal demand for goods just isn’t there.

Somewhere is q happy medium that allows for some reasonable increase in interest rates as discretionary spending and business expansion is growing.

For the past few years and in particular the past year, there has been lots of concern about the Federal Reserve raising rates and the very idea of them going higher has placed a ceiling on the market’s climb higher, despite all of the advances that have been made.

Barely a year ago, the market was concerned at 10 year rates were approaching 3%. Then it got concerned at rates were beginning to climb to 2.5%. Just a few weeks ago the rate fell to 1.9% and had then taken a very strong bounce higher to its current  2.35%, having reached its bottom and begun its rise concurrent with the stock market in mid-October.

However, unless increasing employment will lead to increasing consumer demand for things big and small and not just European trips to take advantage of the strong dollar, t
here isn’t going to be anything to really drive those top lines and there is only so much that can be done by companies to increase their profits without those top line increases.

But those are all issues for another day, or at least until Target reports its earnings next week.

For now, it’s all about how to end up the week with some assignments, rollovers and call sales in preparation for the final week of the November cycle.

This morning looks like it will begin as yet another quiet day in a week that was expected to be that way.

Who know, maybe something will create a spark, hopefully higher, but for now there’s nothing really in sight as the clock ticks to tomorrow’s clsoe.

Daily Market Update – November 12, 2014 (Close)

Today was Wednesday, generally the quietest day of the week, right in the middle of what was expected to be a quiet week.

With Singles Day and Veterans Day now over, the most interesting thing this week may turn out to be today’s planned space landing on a moving comet which went from “planned” to “successful landing.”

How that figures into anything is debatable, but at least it’s interesting and really the stuff of science fiction.

While that’s going on the market seemed as if it was prepared to open weaker than the past two days, but still not with very much conviction.

While there are still some earnings reports to go, for the most part that has now been removed as an overall market catalyst, although individual stocks can obviously still have their significant ups and downs, although the prevalent significant movement, when it occurs, has been lower.

Those whose every breath is fully invested in the market know very well that November and December tend to be good months, regardless of how the holiday retailing season stacks up. While patterns tend to break down as they become more widely recognized, especially when everyone talks about it, such as with the “January Effect,” the November – December effect isn’t one that’s too widely discussed and there’s still plenty of reason to believe that there’s hedge fund fuel to keep that pattern alive for another year.

One thing that could definitely help the overall market to move higher would be some good numbers coming from the retailers that are just now gearing up to report their earnings. More importantly, their forward guidance can really be the catalyst that seems to be missing right now.

Those good numbers and good forward prospects have to come from more than the higher end retailers, though. That segment of society has noticeably increased discretionary spending, but in the really big picture they represent a very small portion of what really matters. Even Macys isn’t entirely reflective of an improving retail picture if it reports good earnings. The improved results really have to be seen from the bottom up, including dollar stores, Wal-Mart, specialty retailers and big box stores throughout the spectrum.

I hope that turns out to be the case, as it also will get the albatross around our necks to be released. That is the fear of when interest rate increases will finally happen. A heating up economy, especially in those phases that necessitate an increase in interest rates tends to be good for everyone and would finally get us over the fear of those hikes, just as the eventual announcement of a taper finally got us over the anticipation of that announcement.

Macys, which did report its earnings before the market’s open fared very well, despite offering lowered guidance and lower revenues, but despite it rising about 5% it did nothing to nudge the market higher

For the next few days I doubt that I’ll be adding any new positions. With a couple of DOH Trades
set to expire this week,  I would like to see them either expire or will have a need to roll them over, hopefully into a marketplace that has more willing sellers than has recently been the case.

That lack of a willing market of sellers may continue to add to the difficulty of executing rollover trades at fair prices, but I expect that when hedge funds get back into the practice of hedging that will no longer be the case.

Today that reluctance to participate was still obvious as attempted rollovers in International Paper, Lorillard and T-Mobile went nowhere.

A convoluted trade to roll International Paper from a $50 strike to a $53 in the hope of seeing it assigned early in order to have the dividend taken tomorrow, was just too much risk even for the nice dividend.

The lesson, I think, is that if market participants are acting in an irrational fashion, it’s probably best not to try to meet them, even half way.

Daily Market Update – November 12, 2014 (8:00 AM)

It’s now Wednesday, generally the quietest day of the week, right in the middle of what was expected to be a quiet week.

With Singles Day and Veterans Day now over, the most interesting thing this week may turn out to be today’s planned space landing on a moving comet.

How that figures into anything is debatable, but at least it’s interesting and really the stuff of science fiction.

While that’s going on the market seems as if it prepared to open weaker than the past two days, but still not with very much conviction.

While there are still some earnings reports to go, for the most part that has now been removed as an overall market catalyst, although individual stocks can obviously still have their significant ups and downs, although the prevalent significant movement, when it occurs, has been lower.

Those whose every breath is fully invested in the market know very well that November and December tend to be good months, regardless of how the holiday retailing season stacks up. While patterns tend to break down as they become more widely recognized, especially when everyone talks about it, such as with the “January Effect,” the November – December effect isn’t one that’s too widely discussed and there’s still plenty of reason to believe that there’s hedge fund fuel to keep that pattern alive for another year.

One thing that could definitely help the overall market to move higher would be some good numbers coming from the retailers that are just now gearing up to report their earnings. More importantly, their forward guidance can really be the catalyst that seems to be missing right now.

Those good numbers and good forward prospects have to come from more than the higher end retailers, though. That segment of society has noticeably increased discretionary spending, but in the really big picture they represent a very small portion of what really matters. Even Macys isn’t entirely reflective of an improving retail picture if it reports good earnings. The improved results really have to be seen from the bottom up, including dollar stores, Wal-Mart, specialty retailers and big box stores throughout the spectrum.

I hope that turns out to be the case, as it also will get the albatross around our necks to be released. That is the fear of when interest rate increases will finally happen. A heating up economy, especially in those phases that necessitate an increase in interest rates tends to be good for everyone and would finally get us over the fear of those hikes, just as the eventual announcement of a taper finally got us over the anticipation of that announcement.

For the next few days I doubt that I’ll be adding any new positions. With a couple of DOH Trades set to expire this week,  I would like to see them either expire or will have a need to roll them over, hopefully into a marketplace that has more willing sellers than has recently been the case.

That lack of a willing market of sellers may continue to
add to the difficulty of executing rollover trades at fair prices, but I expect that when hedge funds get back into the practice of hedging that will no longer be the case.

Daily Market Update – November 11, 2014 (Close)

Yesterday, in what is otherwise a slow week, so much attention was placed on the Alibaba manufactured holiday called “Singles Day.”

It’s a day that single people are supposed to take the time and present a gift to themselves. Of course there are those who might believe that being single is gift enough, but nonetheless, it is a perfectly materialistic occasion that would have the leaders of the 1948 Revolution apoplectic.Having actually celebrated a 30th wedding anniversary yesterday, coinciding with Singles Day, somehow I didn’t receive anything for my troubles, so maybe I should have just following the crowd and gifted myself.

Today, in the United States, it is Veterans Day, where we honor those who gave the gift of freedom rather than honoring themselves with a gift.

I’m not quite certain why stock markets are open, as the bond markets and banks are closed.

But they are and on those few days a year that the credit markets are closed and stocks do trade, those are usually fairly slow trading days.

And so it was today.

The morning’s futures seemed to be on course to follow the same path as yesterday, as that day’s listless opening was the pattern throughout the day and served as today’s templet, as well.

The only thing of note yesterday was the marked reversal in energy prices in the late morning which eliminated the sizeable gains in the sector with moderate losses. Insofar as energy is a significant portion of the S&P 500 it again limited those gains. Since the slide in energy started sometime in July 2014, the DJIA and S&P 500 have performed identically, gaining 3.1%, with the S&P 500 being held back due to its heavier energy representation.

In the meantime, any benefit to be gained from lower energy prices won’t really become apparent until the next quarter’s earnings are reported.

For now, ever since Goldman Sachs’ call for $75 crude, the markets have been relatively stable and I think may have bottomed, although there are further calls going as low as $50.

As an unusually early start to winter begins to sweep across parts of the nation the excess supply over demand may shift a little bit, but at these prices there is also bound to be those seeking bargain pricing and speculating on an eventual rebound.

Ordinarily, the thinking would be that low energy prices would spur other businesses to ramp up their activity, seeing it as a perfect time to be able to increase their margins.

That would usually lead to incre
ased employment, increased spending and increased earnings.

But that doesn’t appear to be happening yet.

Maybe businesses are skeptical of low energy prices remaining low and continue to be cautious, but the reality is that the markets and the economy tend to do better when oil prices are increasing, as long as that increase is demand driven.

Maybe they just don’t see consumer demand increasing for discretionary items.

Now, we’re in the unusual position of having too much energy and not enough demand. Hopefully, whatever is saved in gas prices and heating prices will become part of an increase in discretionary spending.

We’ll find out later this week whether retailers have received any benefit at all from the increasing employment statistics over the past 3 months, but despite good numbers for the past year, there has continued to be a reluctance to spend.

Something is just qualitatively different about this recovery and the typical patterns just aren’t materializing or are just taking much longer to become evident.

Hopefully retail will bring some good news this week and energy pricing will moderate as consumer demand leads to greater overall economic activity.

With Macys and JC Penney reporting after today’s close maybe we’ll get something to bring some life into the market this week. With next week being the last week of the cycle it’s never too late to sell any options if the market can find a reason to move suddenly higher.

Daily Market Update – November 11, 2014 (9:00 AM)

Yesterday, in what is otherwise a slow week, so much attention was placed on the Alibaba manufactured holiday called “Singles Day.”

It’s a day that single people are supposed to take the time and present a gift to themselves. Of course there are those who might believe that being single is gift enough, but nonetheless, it is a perfectly materialistic occasion that would have the leaders of the 1948 Revolution apoplectic.Having actually celebrated a 30th wedding anniversary yesterday, coinciding with Singles Day, somehow I didn’t receive anything for my troubles, so maybe I should have just following the crowd and gifted myself.

Today, in the United States, it is Veterans Day, where we honor those who gave the gift of freedom rather than honoring ourselves with a gift.

I’m not quite certain why stock markets are open, as the bond markets and banks are closed.

But they are and on those few days a year that the credit markets are closed and stocks do trade, those are usually fairly slow trading days.

The morning’s futures seem to be following the same path as yesterday’s, as that listless opening was the pattern throughout the day.

The only thing of note yesterday was the marked reversal in energy prices in the late morning which eliminated the sizeable gains in the sector with moderate losses. Insofar as energy is a significant portion of the S&P 500 it again limited those gains. Since the slide in energy started sometime in July 2014, the DJIA and S&P 500 have performed identically, gaining 3.1%, with the S&P 500 being held back due to its heavier energy representation.

In the meantime, any benefit to be gained from lower energy prices won’t really become apparent until the next quarter’s earnings are reported.

For now, ever since Goldman Sachs’ call for $75 crude, the markets have been relatively stable and I think may have bottomed, although there are further calls going as low as $50.

As an unusually early start to winter begins to sweep across parts of the nation the excess supply over demand may shift a little bit, but at these prices there is also bound to be those seeking bargain pricing and speculating on an eventual rebound.

Ordinarily, the thinking would be that low energy prices would spur other businesses to ramp up their activity, seeing it as a perfect time to be able to increase their margins.

That would usually lead to increased employment, increased spending and increased earnings.

But that doesn’t appear
to be happening yet.

Maybe businesses are skeptical of low energy prices remaining low and continue to be cautious, but the reality is that the markets and the economy tend to do better when oil prices are increasing, as long as that increase is demand driven.

Maybe they just don’t see consumer demand increasing for discretionary items.

Now, we’re in the unusual position of having too much energy and not enough demand. Hopefully, whatever is saved in gas prices and heating prices will become part of an increase in discretionary spending.

We’ll find out later this week whether retailers have received any benefit at all from the increasing employment statistics over the past 3 months, but despite good numbers for the past year, there has continued to be a reluctance to spend.

Something is just qualitatively different about this recovery and the typical patterns just aren’t materializing or are just taking much longer to become evident.

Hopefully retail will bring some good news this week and energy pricing will moderate as consumer demand leads to greater overall economic activity.

Daily Market Update – November 10, 2014 (Close)

Last week there was plenty of reason to believe that the market would do something to make either bulls or bears happy.

There were potentially 3 big stories for the week, each of which could have moved the market in a big way. As it would turn out the market didn’t care very much and did little of anything, other than acted a little surprised by the election results that were very widely expected.

This week there’s very little on the economic calendar that could potentially move markets and as unpredictable as the world has always been, there doesn’t appear to be any particular flash point this week, as some signals being sent on Friday regarding a Russian incursion into Ukraine haven’t been validated.

So, logic might suggest that this morning’s listless futures trading would characterize the week ahead, but that kind of logic didn’t fare too well last week and there’s not much reason to ever expect that quiet futures trading has any great predictive power.

For now, that doesn’t really matter too much.

Ultimately, what forms action is the availability of cash, the need to raise cash or the need to preserve cash.

The reality is that the market is still at new highs and the momentum has clearly been in a single direction for the past 3 weeks, although it did slow down just a little bit last week. Historically, the last 2 months of the year outperform the preceding 10 months, especially in years that hedge funds are likely to be trailing the broad market, as they are again this year.

Today would end up just adding to those new highs. Not by much, but still, a little higher than ever before.

With little to lose, especially if investing other people’s money and not their own,  I expect that hedge funds may fuel that momentum, just as I think they have been already causing the options market to see less volume, as they take hedges off in an effort to go for the fences.

With some more cash in hand after some assignments last week I’m not  opposed to adding new positions in order to take advantage of any potential continuation of the upward momentum, but I would still like to be able to generate whatever income possible from additional call sales, despite the realization that it may continue being more difficult to rollover positions as sellers are fewer or asking relatively exorbitant premiums as trying to close out positions near the week’s end.

With a few positions scheduled to expire this and the same next, the low volatility makes it unlikely that I would be looking at expanded weekly options unless there is an earnings report or a dividend involved.

That was definitely the case with the purchase of Mattel today and the use of the December and may be reason to rollover the additional Sinclair Broadcasting option sold today on the new shares picked up.

I expect this week to be relatively light in personal trading, but fortunately there are some dividends this week as well. One of those, International Paper, may be at risk for early assignment, but is also a potential choice for addition of a new position this week. I may look at opportunities to roll that existing position over in order to keep the dividend, but like Intel the previous week the traders just weren’t there to make a deal. With International Paper there will still be two more days to try and get a trade done, but the participants are few and far between as are the spreads.

As long as it takes 2 parties to complete a trade that’s an obstacle that I hope won’t last very long.

Daily Market Update – November 10, 2014 (8:45 AM)

Last week there was plenty of reason to believe that the market would do something to make either bulls or bears happy.

There were potentially 3 big stories for the week, each of which could have moved the market in a big way. As it would turn out the market didn’t care very much and did little of anything, other than acted a little surprised by the election results that were very widely expected.

This week there’s very little on the economic calendar that could potentially move markets and as unpredictable as the world has always been, there doesn’t appear to be any particular flash point this week, as some signals being sent on Friday regarding a Russian incursion into Ukraine haven’t been validated.

So, logic might suggest that this morning’s listless futures trading would characterize the week ahead, but that kind of logic didn’t fare too well last week and there’s not much reason to ever expect that quiet futures trading has any great predictive power.

For now, that doesn’t really matter too much.

Ultimately, what forms action is the availability of cash, the need to raise cash or the need to preserve cash.

The reality is that the market is still at new highs and the momentum has clearly been in a single direction for the past 3 weeks, although it did slow down just a little bit last week. Historically, the last 2 months of the year outperform the preceding 10 months, especially in years that hedge funds are likely to be trailing the broad market, as they are again this year.

With little to lose, especially if investing other people’s money and not their own,  I expect that hedge funds may fuel that momentum, just as I think they have been already causing the options market to see less volume, as they take hedges off in an effort to go for the fences.

With some more cash in hand after some assignments last week I’m not  opposed to adding new positions in order to take advantage of any potential continuation of the upward momentum, but I would still like to be able to generate whatever income possible from additional call sales, despite the realization that it may continue being more difficult to rollover positions as sellers are fewer or asking relatively exorbitant premiums as trying to close out positions near the week’s end.

With a few positions scheduled to expire this and the same next, the low volatility makes it unlikely that I would be looking at expanded weekly options unless there is an earnings report or a dividend involved.

I expect this week to be relatively light in personal trading, but fortunately there are some dividends this week as well. One of those, International Paper, may be at risk for early assignment, but is also a potential choice for addition of a new position this week. I may look at opportunities to roll that existing position over in order to keep the dividend, but like Intel the previous week the traders just weren’t there to make a deal.

As long as it takes 2 parties to complete a trade that’s an obstacle that I hope won’t last very long.

Daily Market Update – November 7, 2014 (8:00 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:  Ford, Whole Foods

Rollovers:  British Petroleum, Lorillard

Expirations: Abercrombie and Fitch, Las Vegas Sands, Twitter (puts)

The following stocks were ex-dividend this week:  British Petroleum (11/5 $0.60), Walter Energy (11/6 $0.01)

The following stocks will be ex-dividend next week: Cliffs Natural Resources (11/12 $0.15), International Paper (11/13 $0.40), Transocean (11/12 $0.75)

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

Daily Market Update – November 6, 2014 (Close)

Yesterday was one of those days that had some post-election spillover, but no real enthusiasm. Still the market hit more new highs.

Today the market awaited some word from the ECB as to whether, or when, it will take a walk down the same path as the Federal Reserve had taken the US.

If any suggestion of that would have come today, and there was no expectation of it, our markets would likely have gone significantly higher. There’s no expectation of it, however, because they had previously existed and went unanswered on a couple of occasions.

But it didn’t matter, because after some wavering it was another day of record highs.

The market had been in an early holding mode until some word would come from across the ocean. It was fairly widely expected that if there was nothing new, there wouldn’t likely be a negative reaction, with everyone instead probably preparing for tomorrow’s Employment Situation Report.

There shouldn’t be too much of a surprise in that either, but for well over a year the pattern has been that the market celebrates the entire week of the report and usually celebrates on the day of the report, as well.

So far, this week is living up to that pattern, but still has now just one potentially big tests ahead, having passed today’s test.

I wasn’t expecting much of anything to occur between this morning and the week’s end, but the momentum just kept carrying most everything along.

Earnings reports are now going to slow down, although retailers are still ahead and may give reasons to believe that the economy is moving forward on the basis of increased consumer spending. You would expect that at some point the fall in the unemployment rate would result in greater levels of discretionary spending and at some point that would have to translate to the bottom line.

The warning from Kohls a couple of weeks ago would seem to argue against the belief that the middle of the pack consumer is coming back, but there’s no accounting for what may make a single retailer lose or gain favor with consumers at any moment in time. It’s entirely possible that at the moment people may favor one retailer over another and could easily switch back.

As those numbers come in a final catalyst may exist to push markets even higher.

What is increasingly clear is that companies that don’t deliver on earnings or that give the slightest hesitancy in their guidance are being hit very, very hard and are not recovering in the same time frames as in past years. Most every day during earnings season there are so many large cap companies, that can’t be considered momentum kind of stock trades, that are feeling the wrath of disappointed investors. O
n the other hand, large jumps higher, in quantum leaps, aren’t as frequent as are the quantum leap plunges.

The new highs have come methodically, while the lows have come suddenly.

As has been the case for a while, I hoped today would offer some opportunity to sell something, but the indication wasn’t appearing in the morning’s futures trading, although some opportunities did present. What is still strikingly clear is that there are very few call option buyers around unless there is some anticipated news. The volume in everyday kind of trades is really drying up.

While the week may again see an assignment or two, any rollovers or call sales would be appreciated and I would look to add to the list of those expiring next week and at the end of the monthly option cycle.

For now, it’s just more of sitting back and seeing where things take us after tomorrow morning’s news.

Hopefully even higher.

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

Yesterday was one of those days that had some post-election spillover, but no real enthusiasm. Still the market hit more new highs.

Today the market awaits some word from the ECB as to whether, or when, it will take a walk down the same path as the Federal Reserve had taken the US.

If any suggestion of that comes today, and there is no expectation of it, our markets would likely go significantly higher. There’s no expectation of it, however, because they had previously existed and went unanswered on a couple of occasions.

But the market is in a holding mode until some word comes from across the ocean and then, if there is nothing new, won’t likely react negatively, instead will probably prepare itself for tomorrow’s Employment Situation Report.

There shouldn’t be too much of a surprise in that either, but for well over a year the pattern has been that the market celebrates the entire week of the report and usually celebrates on the day of the report, as well.

So far, this week is living up to that pattern, but still has potentially big tests ahead.

I’m not expecting much of anything to occur between now and the week’s end.

Earnings reports are now going to slow down, although retailers are still ahead and may give reasons to believe that the economy is moving forward on the basis of increased consumer spending. You would expect that at some point the fall in the unemployment rate would result in greater levels of discretionary spending and at some point that would have to translate to the bottom line.

The warning from Kohls a couple of weeks ago would seem to argue against the belief that the middle of the pack consumer is coming back, but there’s no accounting for what may make a single retailer lose or gain favor with consumers at any moment in time. It’s entirely possible that at the moment people may favor one retailer over another and could easily switch back.

As those numbers come in a final catalyst may exist to push markets even higher.

What is increasingly clear is that companies that don’t deliver on earnings or that give the slightest hesitancy in their guidance are being hit very, very hard and are not recovering in the same time frames as in past years. Most every day during earnings season there are so many large cap companies, that can’t be considered momentum kind of stock trades, that are feeling the wrath of disappointed investors. On the other hand, large jumps higher, in quantum leaps, aren’t as frequent as are the quantum leap plunges.

The new highs have come methodically, while the lows have come suddenly.

As has been the case for a while, I hope today offers some opportunity to sell something, but the indication isn’t appearing in the morning’s futures trading.

While the week may again see an assignment or two, any rollovers or call sales would be appreciated and I would look to add to the list of those expiring next week and at the end of the monthly option cycle.

For now, it’s just more of sitting back and seeing where things take us.