Category: Daily Market Update

Daily Market Update – October 21, 2014 (Close)

Yesterday was certainly a tale of two different indexes as for most of the day the DJIA was trading in negative territory while the S&P 500 actually had a very nice advance.

IBM’s really bad earnings and forward guidance that scuttled its famed “5 Year Plan” was enough to take as much as 105 points off of the DJIA at IBM’s lowest share price of the day. While it had some impact on the S&P 500, you’d never know it, because it is a relative speck in that index.

As a general rule every point move by a DJIA component is worth about 7 points in the index.

This morning there are 5 such components reporting and those results are mixed, but the early indication is for a mildly higher opening.

That mild opening took on a completely different character for no really obvious reason and ended 215 points higher.

Had IBM traded flat yesterday we would have been talking about yet another in a series of triple digit moves. It’s not everyday that you see a DJIA component move 7%. However, whenever you see any stock move that much, regardless of the direction, you really have to wonder how so many smart people, analysts and investors, could have gotten things so wrong.

Yet that happens all of the time. Maybe understandable with smaller and more speculative companies that aren’t followed by many, but IBM? Coca Cola?

If you would have excluded McDonalds, Coca Cola  and IBM, which had another abysmal dayfrom today’s DJIA, the climb would have been about another 70 points.

It’s funny how first IBM and now McDonalds and Coca Cola are all struggling as they lose market share in a changing world. Those were all once licenses to print money and aren’t going away in my lifetime, but they’re facing challenges that they never would have anticipated as one time market leaders.

What’s also worth realizing is how fortunate it was that IBM’s earnings were released yesterday morning to begin the week, rather than early last week.

While IBM is no longer the single stock that is able to change market tone and direction, it would have been really bad if it had come at a time that pessimism and selling was already the predominant sentiment and action. As bad as the early part of last week was, that IBM news would have greatly compounded the selling.

Pure luck, but that will never get recorded anywhere. IBM’s news, if having come last week, could easily have been the straw that broke the camel’s back a
nd taken us beyond that 10% threshold and made that correction become official.

Apple reported earnings yesterday afternoon and the spin is placing heavy emphasis on iPhone sales and what futures quarters will bring, although there may be quite a bit of uncertainty coming in those future quarters as they not only roll out Apple Pay, but also introduce that much awaited Apple Watch.

Apple’s post-earnings move was really muted as iPad and iTunes sales are dropping, with the increase in the Mac line of computers and laptops seemingly coming at the expense of tablets.

Not that you can project from a single quarter’s earnings, but the lessons from icons like IBM, McDonalds and Coca Cola is that the world moves on, with or without you and no one is ultimately immune to that basic reality.

This morning’s pre-open futures pointed to a mildly higher opening. While, I liked the idea of seeing another pop higher so that perhaps there might be a chance to sell more call contracts on uncovered positions, I really would have preferred a narrow trading range session. While that would lower volatility, it might offer some confidence that it may be the time to buy something.

That confidence comes from either seeing a runaway train or the building of qa base. Today’s gains were nice, but they still aren’t the real confidence builder needed. It’s still hard to lose sight of the reality that these moves occur in a big picture and that big picture is one of a declining market.

That kind of confidence may still take a little while to build so in the meantime I would love to have the opportunity to generate some returns from more of the call sales. As has been the case over the past few weeks while volatility was rising I’ll keep looking at forward week or even forward month contract expirations, as long as the volatility can keep those premiums appealing enough.

However, today’s gains really drained volatility and there were decreasing opportunities to find good trades in forward weeks. Instead it was a good day to just wash net asset value grow.

Hopefully the growth won’t get washed away anytime soon.

Daily Market Update – October 21, 2014 (9:00 AM)

Yesterday was certainly a tale of two different indexes as for most of the day the DJIA was trading in negative territory while the S&P 500 actually had a very nice advance.

IBM’s really bad earnings and forward guidance that scuttled its famed “5 Year Plan” was enough to take as much as 105 points off of the DJIA at IBM’s lowest share price of the day. While it had some impact on the S&P 500, you’d never know it, because it is a relative speck in that index.

As a general rule every point move by a DJIA component is worth about 7 points in the index.

This morning there are 5 such components reporting and those results are mixed, but the early indication is for a mildly higher opening.

Had IBM traded flat yesterday we would have been talking about yet another in a series of triple digit moves. It’s not everyday that you see a DJIA component move 7%. However, whenever you see any stock move that much, regardless of the direction, you really have to wonder how so many smart peoplle, analysts and investors, could have gotten things so wrong.

Yet that happens all of the time. Maybe understandable with smaller and more speculative companies that aren’t followed by many, but IBM? Coca Cola?

It’s funny how first IBM and now McDonalds and Coca Cola are all struggling as they lose market share in a changing world. Those were all once licenses to print money and aren’t going away in my lifetime, but they’re facing challenges that they never would have anticipated as one time market leaders.

What’s also worth realizing is how fortunate it was that IBM’s earnings were released yesterday morning to begin the week, rather than early last week.

While IBM is no longer the single stock that is able to change market tone and direction, it would have been really bad if it had come at a time that pessimism and selling was already the predominant sentiment and action. As bad as the early part of last week was, that IBM news would have greatly compounded the selling.

Pure luck, but that will never get recorded anywhere. IBM’s news, if having come last week, could easily have been the straw that broke the camel’s back and taken us beyond that 10% threshold and made that correction become official.

Apple reported earnings yesterday afternoon and the spin is placing heavy emphasis on iPhone sales and what futures quarters will bring, although there may be quite a bit of uncertainty coming in those future quarters as they not only roll out Apple Pay, but also introduce that much awaited Apple Watch.

Apple’s post-earnings move was really muted as iPad and iTunes sales are dropping, with the increase in the Mac line of computers and laptops seemingly coming at the expense of tablets.

Not that you can project from a single quarter’s earnings, but the lessons from icons like IBM, McDonalds and Coca Cola is that the world moves on, with or without you and no one is ultimately immune to that basic reality.

This morning’s pre-open futures point to a mildly higher opening. While, I’d like to see another pop higher so that perhaps there might be a chance to sell more call contracts on uncovered positions, I wouldn’t mind that kind of narrow trading range session. While that would lower volatility, it might offer some confidence that it may be the time to buy something.

That kind of confidence may still take a little while to build so in the meantime I would love to have the opportunity to generate some returns from more of the call sales. As has been the case over the past few weeks while volatility was rising I’ll keep looking at forward week or even forward month contract expirations, as long as the volatility can keep those premiums appealing enough.

Daily Market Update – October 20, 2014 (Close)

There was a time when earnings reports like this morning’s delivered by IBM would have cast a pall on the market, especially coming before the opening bell on a Monday.

Luckily, it’s not your father’s IBM, anymore and it doesn’t have the same impact as it once did.

But still, we’re probably lucky these disappointing earnings weren’t unveiled last week, because they could easily have caused some harm, especially if in the earlier part of the week. At least by coming today we had the continuing good feelings left over from Friday, instead of coming on the heels of a few hundred points loss. 

You do have to wonder how the  company has seemed to lose its way and there certainly can be a new and better era ahead of it, but more importantly you have to wonder in this day and age how any company can ever maintain its predominance for very long.

With the DJIA being price weighted, IBM plays a big role in its calculation, although no quite as much at the moment. Still a lot, though, as it accounts for the entirety of the pre-open futures decline that at least temporarily puts a damper on Friday’s strong rally.

As a rule, each point of a DJIA component stock has a weighting of 7 times on the index, so when IBM was $15 lower, that was about 105 points. That fully explains the huge dichotomy between today’s closes on the DJIA and S&P 500 of about 0.8%.

Hopefully the week will see some kind of price stability in net terms, although I would love to see lots of intra-day movements. In an ideal market there’s minimal net movement but lots of activity. That inefficiency in net movement is great for premiums.

If you would have taken IBM out of today’s DJIA it would have closed the day with a gain of nearly 110 points.

Coming off last week and having finally gone a week without any new purchases, it may be easier to resist spending any money this week again. Certainly easier than the first time, as there’s still no reason to believe that any given day’s strength is the antidote to the past 4 weeks of declines.

I did the resisting today, but there really wasn’t anything that compelling today anyway, so the resisting was pretty easy.

As tempting as so many stock prices look right now there have been so many reasons to avoid those temptations, but like most everything in life, it takes a good degree of hindsight to have some certainty about  that conclusion. Without a doubt, at some point in the future, hindsight will also question why those purchases weren’t made sooner, forgetting all that transpired before.

Last week, other than a f
ew new sales of option contracts on existing positions, was so devoid of activity. I don’t really want to repeat it, but at least there was an overall out-performance in a market that is still trending downward.

Imagine where that market would be if those explosively higher moves hadn’t occurred?

While those higher moves may have sucked people back into the market chasing new positions, even if they represent false promises, at least they have tempered the decline. Without those 200 and 300 point like moves higher we would have been looking at a 10% correction level from the wrong side of 10%.

So this week is another in which I don’t anticipate much in the way of new position additions.

Unlike last week, which was also the monthly cycle ending with the smallest number of expiring positions that I can recall in years, this week already has double the number of last week. I would just love to see some assignments from among that group, but would really be content if at least the opportunity to execute rollovers and make those new call contract sales came to being.

While volatility took a little decline on Friday’s straight climb higher, there may still be reasons to consider some longer term option sales if the forward week premiums show some evidence of that volatility. The two solitary trades for the day both looked to the November 2014 cycle, although Campbell Soup only offered a monthly option, anyway, but I did consider the December cycle.

The diversification by time that was re-initiated a few weeks ago as those premiums started to climb has already had some benefit by being able to lock in some of those premiums and to not be entirely at risk on any single day.

Given the kind of price movements that we’ve seen in the past month, any single day could fall on just the wrong day as it comes to risk of a contract going unassigned, so it is nice not to have all of those contracts subject to the whims of an irrationally adverse price decline.

For the week there may also continue to be opportunity and reason to pursue DOH Trades and attempt to squeeze whatever income is possible out of beaten down stocks, especially if receiving what may be a temporary bump higher.

Any little bit helps.

Daily Market Update – October 20, 2014 (9:00 AM)

There was a time when earnings reports like this morning’s delivered by IBM would have cast a pall on the market, especially coming before the opening bell on a Monday.

Luckily, it’s not your father’s IBM, anymore.

You do have to wonder how the  company has seemed to lose its way and there certainly can be a new and better era ahead of it, but more importantly you have to wonder in this day and age how any company can ever maintain its predominance.

With the DJIA being price weighted, IBM plays a big role in its calculation, although no quite as much at the moment. Still a lot, though, as it accounts for the entirety of the pre-open futures decline that at least temporarily puts a damper on Friday’s strong rally.

Hopefully the week will see some kind of price stability in net terms, although I would love to see lots of intra-day movements. In an ideal market there’s minimal net movement but lots of activity. That inefficiency in net movement is great for premiums.

Coming off last week and having finally gone a week without any new purchases, it may be easier to resist spending any money this week again. Certainly easier than the first time, as there’s still no reason to believe that any given day’s strength is the antidote to the past 4 weeks of declines.

As tempting as so many stock prices look right now there have been so many reasons to avoid those temptations, but like most everything in life, it takes a good degree of hindsight to have some certainty about  that conclusion. Without a doubt, at some point in the future, hindsight will also question why those purchases weren’t made sooner, forgetting all that transpired before.

Last week, other than a few new sales of option contracts on existing positions, was so devoid of activity. I don’t really want to repeat it, but at least there was an overall out-performance in a market that is still trending downward.

Imagine where that market would be if those explosively higher moves hadn’t occurred?

While those higher moves may have sucked people back into the market chasing new positions, even if they represent false promises, at least they have tempered the decline. Without those 200 and 300 point like moves higher we would have been looking at a 10% correction level from the wrong side of 10%.

So this week is another in which I don’t anticipate much in the way of new position additions.

Unlike last week, which was also the monthly cycle ending with the smallest number of expiring psotions that I can recall in years, this week already has double the number of last week. I would just love to see some assignments from among that group, but would really be content if at least the opportunity to execute rollovers and mak
e those new call contract sales came to being.

While volatility took a little decline on Friday’s straight climb higher, there may still be reasons to consider some longer term option sales if the forward week premiums show some evidence of that volatility.

The diversification by time that was re-initiated a few weeks ago as those premiums started to climb has already had some benefit by being able to lock in some of those premiums and to not be entirely at risk on any single day.

Given the kind of price movements that we’ve seen in the past month, any single day could fall on just the wrong day as it comes to risk of a contract going unassigned, so it is nice not to have all of those contracts subject to the whims of an irrationally adverse price decline.

For the week there may also continue to be opportunity and reason to pursue DOH Trades and attempt to squeeze whatever income is possible out of beaten down stocks, especially if receiving what may be a temporary bump higher.

Any little bit helps.

Daily Market Update – October 17, 2014 (8:00 AM)

The Weekend in Review will be posted by Saturday 10 AM and the Weekend Update will be posted by 8 AM on Monday. The usual schedule will resume next week, as this weekend we celebrate my oldest son’s wedding.

The following outcomes are possible during this week’s final trading day:

Assignments:   none

Rollovers:        none

Expirations:    CPB, CY, FAST, TMUS

The following positions were ex-dividend this week: none

The following position will be ex-dividend next week:

While no rollovers are expected this week, particularly as three of the positions are monthly contracts and are too expensive to buy back, hopefully there will be some continued opportunity to make some call sales on uncovered positions and continue to diversify the dates of expiration among holdings

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

Daily Market Update – October 16, 2014 (Close)

Yesterday morning began with these words:

“Despite yesterday’s decent closing action and despite somewhat positive results from Intel, the market is back to its recent ways and is headed sharply lower this morning.”

This morning you could say almost the exact same thing:

“Despite yesterday’s decent closing action and despite positive results from Goldman Sachs, the market is back to its recent ways and is headed sharply lower this morning.”

At some point that has to get discouraging, but the discouragement should be delayed until there is reason to believe that this correction will go beyond the 10% that was once a fairly common and not overly frightening phenomenon.

Once you get beyond that 10% level the natural concern becomes where the floor will be. Right now, if looking at a chart of the S&P 500 you would look for support levels, which exist at 1816, 1792 and 1742.

At that 1742 level we would be looking at a 13% decline, while the 1816 level is just about a 10% decline from the S&P 500 high point.

The 7% decline in the S&P 500 heading into this morning was just about near the mid-way point between what we’ve become accustomed to and what we used to be accustomed to. What’s strange is seeing interest rates, oil and gold all so low at the same time, as if there are no viable alternatives for people to invest their money.

Yesterday was a really wild ride and today my early thought was that today might be the same as the futures had already shown quite a bit of movement, but paled compared to the movement in the 10 Year Treasury Note yesterday, which actually sank below a 2% level before bouncing about 5% higher by the close of its trading.

As it would turn out there was quite a bit of movement today, but at least the bad part of the movement didn’t last very long. It turned out to be a day with lots of volatility but without real price erosion.

As the day was getting ready to begin it didn’t seem as if there would really be much to do for the morning and perhaps for the rest of the week. Fortunately, that changed and some DOH trades could finally be made.

Even with today’s reasonably steady performance it’s certainly becoming easier to ignore what at first have appeared to be bargains as they took on a different appearance with just a little bit of time passage. That has been a consistent theme for nearly 4 weeks. What looks appealing has consistently been a place where money goes to die.

With only 4 positions set to expire this Friday and at their current pricing, there’s not too much likelihood of rollovers, particularly since 3 of those are monthly contracts and are generally too expensive to buy back if denominated in $0.05 increments.

As the morning was getting ready to start there was even less likelihood of adding any new positions this week, but I continued to hold out hope of being able to sell call contracts on existing positions, despite having been thwarted a number of times earlier in the week as there had been very little call buying activity, as the options market hasn’t been a hotbed of speculation regarding prices moving higher and there has been a much wider than usual gap between bid and ask prices on positions that normally don’t have wide bids.

In those cases that’s a reflection of a seller who is looking at a realistic selling price and a buyer who feels that the realistic is unrealistic and there has been very little effort to bridge their positions.

As a seller I understand the reluctance to give in to the buyer right now particularly since you can easily have a large surge higher at a moment’s notice. Even if that surge is reversed the next trading day, it may be a day too late if your expiration date was the day of the surge.

While “DOH” trades may make sense in an environment of increasing volatility, it may not make sense when there may be reason to suspect that the volatility will move against you.

So while this morning it seemed as if it was right back to that usual pattern of sitting and watching and hoping for some opportunity to sell something on any sign of market strength or individual stock strength, it actually lived up to that hope.

It all started with Chesapeake Energy, as it announced the sale of some assets.

That is a good example, though of the surges that can take place, as I had tried to get a weekly DOH trade for Chesapeake earlier in the week at a $19.50 strike when shares were at their weekly high of $18.22 for an $0.11 premium.

As Chesapeake was trading in the pre-open at $19.55, up $1.78 it is testament to how quickly things can move and necessitate offsetting action under a ticking clock, as contracts expire tomorrow.

On the other hand, how much higher will Chesapeake go on the basis of an asset sale? There’s not too much reason to think that the sale would propel it too much more, so there may still be a quick opportunity there, but even then, too few, far too few of those opportunities this week.

But don’t get me wrong. I was grateful for each and every one.

Daily Market Update – October 16, 2014 (8:45 AM)

Yesterday morning began with these words:

“Despite yesterday’s decent closing action and despite somewhat positive results from Intel, the market is back to its recent ways and is headed sharply lower this morning.”

This morning you could say almost the exact same thing:

“Despite yesterday’s decent closing action and despite positive results from Goldman Sachs, the market is back to its recent ways and is headed sharply lower this morning.”

At some point that has to get discouraging, but the discouragement should be delayed until there is reason to believe that this correction will go beyond the 10% that was once a fairly common and not overly frightening phenomenon.

Once you get beyond that 10% level the natural concern becomes where the floor will be. Right now, if looking at a chart of the S&P 500 you would look for support levels, which exist at 1816, 1792 and 1742.

At that 1742 level we would be looking at a 13% decline, while the 1816 level is just about a 10% decline from the S&P 500 high point.

The 7% decline in the S&P 500 heading into this morning is just about near the mid-way point between what we’ve become accustomed to and what we used to be accustomed to. What’s strange is seeing interest rates, oil and gold all so low at the same time, as if there are no viable alternatives for people to invest their money.

Yesterday was a really wild ride and today may be the same as the futures had already shown quite a bit of movement, but paled compared to the movement in the 10 Year Treasury Note yesterday, which actually sank below a 2% level before bouncing about 5% higher by the close of its trading.

There’s really not much to do this morning and perhaps for the rest of the week.

It’s certainly becoming easier to ignore what at first appeared to be bargains as they took on a different appearance with just a little bit of time passage. That has been a consistent theme for nearly 4 weeks.

With only 4 positions set to expire this Friday and at their current pricing, there’s not too much likelihood of rollovers, particula
rly since 3 of those are monthly contracts and are generally too expensive to buy back if denominated in $0.05 increments.

At the moment, there’s even less likelihood of adding any new positions this week, but I continue to hold out hope of being able to sell call contracts on existing positions. There have been a couple of opportunities this week to have put in trade offers but there has been very little call buying activity, as the options market hasn’t been a hotbed of speculation regarding prices moving higher and there has been a much wider than usual gap between bid and ask prices on positions that normally don’t have wide bids.

In those cases that’s a reflection of a seller who is looking at a realistic selling price and a buyer who feels that the realistic is unrealistic and there has been very little effort to bridge their positions.

As a seller I understand the reluctance to give in to the buyer right now particularly since you can easily have a large surge higher at a moment’s notice. Even if that surge is reversed the next trading day, it may be a day too late if your expiration date was the day of the surge.

While “DOH” trades may make sense in an environment of increasing volatility, it may not make sense when there may be reason to suspect that the volatility will move against you.

So this morning it’s right back to that usual pattern of sitting and watching and hoping for some opportunity to sell something on any sign of market strength or individual stock strength, such as with Chesapeake Energy this morning, as it announced the sale of some assets.

That is a good example, though of the surges that can take place, as I had tried to get a weekly DOH trade for Chesapeake earlier in the week at a $19.50 strike when shares were at their weekly high of $18.22 for an $0.11 premium.

As Chesapeake is trading in the pre-open at $19.55, up $1.78 it is testament to how quickly things can move and necessitate offsetting action under a ticking clock, as contracts expire tomorrow.

On the other hand, how much hire will Chesapeake go on the basis of an asset sale? There’s not too much reason to think that the sale would propel it too much more, so there may still be a quick opportunity tehre, but even then, too few, far too few this week.

Daily Market Update – October 15, 2014 (Close)

Despite yesterday’s decent closing action and despite somewhat positive results from Intel, the market is back to its recent ways and is headed sharply lower this morning.

What those futures didn’t foretell is what a wild ride today would turn out to be.

It has probably been 5 years or more that I’ve entered a week and got to a Wednesday not having made any trades. Today didn’t look as if it was going to offer any change from that path as there was still no reason to believe that a floor was being made.

In response to some questions today, this didn’t have the feeling of a capitulation even as we were at the depths approaching a 500 point drop, because it was still fairly orderly and you didn’t see rapidly changing declining numbers.

There were really a fair number of credible attempts to claw back through the day.

While yesterday’s strength looked promising and while the market did at least finish in the positive, it wasn’t the kind of day that offered good news or any opportunities.

Instead, all it did was to not offer any bad news. Today was a bad news day, but it really didn’t offer bad news for tomorrow.

But why is all of this happening now? What caused us to get to about a 9% drop on an intra-day basis?

With oil going sharply lower, there are concerns that it may be demand driven, just as much as from increasing supply. Everything we thought to be true is sudden;y not the case. Interest rates aren’t going higher and lower oil prices are not fueling anything that would otherwise grow an economy.

With continuing uncertainty in the world, now fueled by Ebola, rather than geo-political concerns, there are worries of a SARS like impact on global economies and stock markets that have to be quelled before markets can return to business as usual.

With the market down about 6.8% from its high as it was getting ready to start this morning looked as if it would take it that much closer to the 10% figure that represents the correction that we’ve been waiting for and have done so for more than 2 years, so the ensuing trading didn’t really disappoint in that regard.

It’s just not clear where anything stops or what causes it to stop.

But just as the 200 dma may have been a catalysts for some program selling at the 1905 level, so too may technical factors play a role in any buying as support points always get people’s attention.

The next level of support seems to be at about 1816 on the S&P 500 and we definitely showed an ability to bounce as we started approaching that level, which coincidentally is 10% below the rec
ord high.

I imagined that today would just be a continuation of the beginning of the week, as there was little anticipation of doing anything other than to watch and wait for an end to uncertainty and for some brave souls to make a statement that prices have just gotten too low.

Unfortunately, today was the third successive day in being unable to even get DOH trades made, although I didn’t put in any new ones today, having failed at attempts to get trades on CHK, HAL,JOY, LVS and TMUS done on Monday and Tuesday during the market’s uptrend periods.

For the remainder of the week there’s still lots of earnings news that could conceivably lead the way, but the Intel news was already unable to do so, although its results do suggest that certain key components of the economy are better than we may have believed.

For now, it’s just a battle between uncertainty and the fear it creates and the confidence that economic growth is occurring as we wait for calmer heads to prevail.

MONDAY:  A generally quiet week, but lately words have been mopre meaningful than actual data. Strong earnings reports starting this week with banks could be the thing the markets need.

TUESDAY:     A very disappointing market day yesterday and, as a result, not a single trade to show for the effort. The effort to move higher lasted about 20 minutes and quickly gave way to uncertainty, before completely falling apart in the final hour. This morning seems tentative, at best.

WEDNESDAY: Despite yesterday’s decent finish to trading and Intel’s decent earning’s report, the market looks to be back to the path it had established nearly 4 weeks ago and is headed toward another triple digit down day, based on the opening futures.

THURSDAY:

FRIDAY: