I don’t know if little kids still pick the petals off from daisies to the alternating refrain “She loves me, she loves me not.”
There was really no way to game that exercise, as there was with the other old refrain “Eenie meenie miney moe,” as you never knew whether there was an even or odd number of petals.
As much as one daisy looked like the next and as much as they shared the same pedigree, you really couldn’t stake much on what you saw.
Forget about trying to analyze the situation. If your romantic fortunes were tied to that daisy, that itself seemed to be a product of such intricate organization and detail, you could have arrived at your destination much more quickly by flipping a coin.
As much as you may have thought that the particular daisy you hadpicked out from among others in the field was talking directly to you, it was a mistake to believe that what you thought it was saying was really what was being said.
But most of us want to be optimistic and most of us want to believe in what we see on the surface.
Somewhat predictably, disappointment was as likely as elation as the last petal was about to hit the ground. That disappointment, though, was often preceded by a sense of hope as the petals were dwindling down to their final numbers. Everytime you heard “she loves me” and saw that you were getting closer to that very last petal, you felt a sense of confidence only to find that the odds of that confidence being rewarded were illusory.
On the other hand, it was easy to be on the winning side of “Eenie, meenie, miney, moe,” especially if the people you were with didn’t recognize the constancy of the refrain and didn’t understand the application of basic division or modular arithmetic. You also had to be adaptable and willing to subtly change your position, but the process was conquerable.
“Eenie meenie miney moe,” if played to your advantage, was a good example of a data driven action. You could stake it all on what you saw if you analyzed and then processed the changing information around you.
Most of all, you could believe the information.
For much of the past few months we’ve been lead to believe that action from the FOMC would be data driven. However, increasingly during that time, as data often seemed conflicting and not supportive of action, members of the Federal Reserve spoke in concrete terms that had to make reasonable people wonder whether data really was going to have a major role.
What we were hearing, particularly the shift toward more hawkish tones, wasn’t what we were seeing. If the data wasn’t there, why the change in tone? How do you prepare when those who are dispassionately analytical begin to sound less so?
What that has created over the past year has been an environment in which “Eenie meenies” have been replaced by daisies. What Federal Reserve Governors and FOMC members often said were at odds with what was observed and then subsequently with what they did.
Or in the case of interest rates, didn’t do.
The ability to reasonably assess and position oneself has been deteriorating as the disconnect between words and actions and words and intentions have become more commonplace.
Understandably, perhaps, this has also been a year in which the market has gone back and forth in paroxysms of buying and selling.
Those paroxysms have simply been efforts to get better positioning as the two faces of those charged with making the decision that we’ve been awaiting ever since Janet Yellen assumed the reigns of the Federal Reserve, have continually confounded everyone.
Meanwhile, while traders may have believed that an “Eenie meenie” strategy was indicated, it really has been a case of a coin flip as may have been best demonstrated by this past week. Positioning yourself is worthless when the currency is a petal.
With lots of gyrations and lots of interesting comments this past week from Janet Yellen, numerous Federal Reserve Governors and Mario Draghi, of the ECB, the messages alternated between creating big disappointment and enormous hope.
With all of that, the market was virtually unchanged for the week, as has been the tale for all of 2015.
Friday’s strong Employment Situation Report may have finally put an end to the disconnect between words and actions. The market seemed to have embraced what it viewed as the last petal that could now lead to a period of more fundamental analysis ahead, rather than guessing what the FOMC will or won’t do.
Hopefully, when the FOMC meets in about 10 days, words and actions will finally be aligned and two faces will become one.
As usual, the week’s potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or “PEE” categories.
It’s always difficult to look at a coming week with an eye on trying to identify bargains for a potential short term trade when the market closed the previous week with a large gain.
Friday’s nearly 400 DJIA point gain and that seen in the S&P 500 bringing that index within about 2% of its all time high, makes you wonder just what was wrong with those companies that lagged behind.
WIth the FOMC meeting still a week away there may still be some opportunity this coming week, as the buying on the rumor kind of activity seen this past Friday could still have some time to run, as the news is still a bit away.
Of course, I’m not certain if I would want to be around if the expected news doesn’t materialize, but it seems almost impossible to imagine that being the case. By the same token, I’m not certain that I want to be around when the expected news does materialize if that leads to the typical “sell on the news” kind of activity.
With that in mind, I don’t expect to be very active this week, as I will be reluctant to add positions after Friday’s surge that could then be at risk for a typical profit taking binge when expectations for an interest rate hike become realized.
Best Buy (BBY) was one of those companies that lagged on Friday and is well below its recent highs, which of course finds it in the company of so many others, despite the market being within easy striking distance of creating more new highs.
I thought about adding shares of Best Buy last week, but as it is ex-dividend this week, the rationale for finally relinquishing some cash in return for its option premium and dividend feels stronger as the potential return is very appealing, even if shares just tread water this week.
Historically, Best Buy has lagged during the final month of the year, even as other retailers have fared well. I don’t have much interest in adding to my existing Best Buy position with a longer term holding in mind, but I think a short term venture could be justified.
Macy’s (M) is another that lagged last week and had a 5 day performance similar to that of Best Buy. More importantly, it still hasn’t recovered from its earnings plunge last month and is an astonishing 46% lower in the past 5 months.
I purchased shares shortly after the earnings decline and am ready to add some more this week as those shares will also be ex-dividend. While my existing shares have calls written against them with a December 24th expiration, any additional shares purchased will most likely use a weekly expiration and may also be more likely to look at an out of the money strike, rather than the typical “Double Dip Dividend” approach that I prefer to use, in anticipation of some short term price appreciation.
Additionally, since the ex-dividend date is on a Friday, if the shares are likely to be assigned because their closing price on Thursday exceeds the strike price plus the amount of the dividend, I would consider rolling those shares over to the following week or beyond, in an effort to wring some additional premium out of the position in the event that there will then be an early assignment of the newly sold call options.
I was thinking about re-purchasing shares of Pfizer (PFE) last week in the hopes of an early week decline.
That decline came mid-week instead and I wasn’t very interested in adding any additional new positions for the week. Ultimately, Pfizer did as the market did for the week and ended unchanged.
My thinking hasn’t changed, though.
I would very strongly consider a re-purchase of recently assigned Pfizer shares on any weakness, particularly at the beginning of the week, as its premiums are still enhanced over the uncertainty surrounding the proposed tax inversion motivated merger with Ireland’s Allergan (AGN).
That process may be one that takes a while to play out and I don’t believe that there’s very much downside for Pfizer in the event that the deal can’t get done due to government rulings.
I wouldn’t mind collecting those premiums on a serial basis and would even consider rolling over positions that might otherwise be assigned if I was satisfied with my cash reserve position.
I’m not a huge fan of T-Mobile’s (TMUS) CEO, but you do have to admire someone who advocates for his company, even as he may be presiding over a company that he desperately wants to become part of a larger family, preferably one with very deep pockets or the right kind of assets.
Thanks to not paying a dividend, T-Mobile has been able to aggressively fund its activities to lure customers from others, while still leavingsufficent net earnings per share that are the envy of its competitors.
When your competitors have deeper pockets, though, that makes it hard to compete for very long, so I do wonder what additional surprises John Legere may have planned before those earnings begin to feel some pressure.
Shares have fallen about 17% in the past 10 weeks. While T-Mobile actually out-performed the market this past Friday, it did trail for the full week.
I’d be very interested in considering the sale of put options on shares if it gives up a meaningful portion of last Friday’s gain and actually wouldn’t mind the prospects of having to actively maintain that position by having to roll it over in sequential weeks in an effort to avoid assignment, while collecting premiums that are reflective of the risk.
Occasionally that can be a rewarding approach, although you sometimes have to be prepared for a longer term adverse price move.
Finally, that has exactly been the case with my favorite put sale of 2014, Twitter (TWTR), which has instead become a pariah in 2015.
With the experience of 2015 still needing to bring itself to a conclusion, I think that I am finally ready to add to the existing short put position.
At least with Twitter, the product, there isn’t enough space to speak out of both sides of your mouth, but there may be some hope that the companies executives, with a little more shell shocked experience under their belts may be better prepared to deal with investor expectations and won’t do so much to unnecessarily challenge those expectations as it gets prepared for earnings in January.
With those earnings being reported on January 26t, 2016, but the last extended weekly option expiration date on January 22, 2016, I would take an uncharacteristic position by going longer term and drawing a line in the sand at selling the $24 put. That premium is very attractive as many believe that the next stop for Twitter is $20.
With earnings the week after expiration of that contract, if selling that contract, you do have to be prepared to rollover before earnings and attempting to then take advantage of the earnings enhanced premiums in the hope that the brakes are finally applied and more carefully chosen words and messages are delivered during the ensuing conference call.
Hopefully, CEO Jack Dorsey will speak clearly and paint a vision that is more confident, but based on some kind of reality that we can all believe.
Traditional Stocks: Pfizer
Momentum Stocks: T-Mobile, Twitter
Double-Dip Dividend: Best Buy (12/8 $0.23), Macy’s (12/11 $0.36)
Premiums Enhanced by Earnings: None
Remember, these are just guidelines for the coming week. The above selections may become actionable – most often coupling a share purchase with call option sales or the sale of covered put contracts – in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week, with reduction of trading risk.
