Category Archives: Daily Market Update

Daily Market Update – February 26, 2014 (Close)

I recently had a comment on Seeking Alpha by someone who is absolutely convinced that Deckers, which reports earnings this week will be another Michael Kors in that regard. Specifically, he was as sure and as emotional as you could likely be that Deckers will blow out their numbers and equally certain that they’ll put forward great guidance. He then equated those two with shares going to $95, which would represent about a 12% gain.

He may very well be right. In fact, the option market almost agreed with that opinion, believing that shares could go to $93.

However, another part of the equation is a little less objective than the numbers. which arguably can themselves have some of their objectivity stripped away and modified as they’re being processed prior to reporting.

That part of the equation is the reaction of the market place.

No one ever has any clue how the market will react. Ever.

Just look at Monday’s nearly 200 point gain.

In fact, the market itself may not be monolithic. Now just look at Macys yesterday. It was down about 2% in the pre-open and then immediately turned around once the bell rang and was one of the strongest stocks for the day, up about 6%.

How could that be?

Doug Kass, a fairly well know investor who is often short the market, just bemoaned the fact that no one ever says “I don’t know.” It’s s if there’s some shame in admitting that there’s sometimes neither rhyme nor reason for that which we observe.

When it comes to retail, which has been an abysmal place to be as that part of the economy isn’t readily demonstrating much in the way of vitality, suddenly the message is that disappointing performance may be good. That’s essentially an aexample of “if you can’t beat them, join them,” at work.

That’s not too unusual, as we’ve certainly seen days when good news isn’t good enough or good news is met by choruses of “what have you done for me lately?”

I don’t mind a more accepting attitude, as I’d be happy to see some of my retail stocks get assigned or at least make back some of what they’ve lost. Certainly if you suffered when the attitude was not as accepting you feel as if you’re owed something.

For those that don’t have the patience that comes with having pretty much seen it all, you may never get the opportunity to see both sides of that sine curve that takes you through ups and downs, not only in price but in attitude and outlook.

I’m also reminded a little of some emotional reactions to some opinions regarding Facebook and Apple back in mid-2012. If you can recall where those two stocks were at that point, you can probably guess what the prevailing emotional opinions were at that time.

While you can always select out examples to prove or disprove a point, one thing that is certain is that certainty and the emotion that supports that certainty aren’t in your best interests when it comes to investing.

I can’t remember the  last time I was excited by a stock or the market. It undoubtedly goes back to the last time my broker tried to sell me on something, but that was a really long time ago.

I always said “yes” and almost always felt some remorse when we sold something at a loss, since I had the bad habit of continuing to follow the stock and watch that sine curve.

With the market still within easy striking reach of another new high it’s easy to get excited but I still can’t get excited about individual stocks. I still see them as utilitarian and helping to contribute to a larger mosaic rather than any one specific stock standing out as a superstar.

I really don’t know how analysts can do what they do. There was a recent story this week that spoke of how burned out they get and how quickly most leave the industry as they are constantly measured by their ability to hit the long ball, which most people are aware is well correlated with strike outs.

But everyone loves making the headlines.

I like staying below the radar and plugging away. Mid-week on the day before more Congressional testimony from Janet Yellen, I don’t know how much plugging away there will be today, probably not too much, but if the market wants to continue on a little ride higher today and maybe for the rest of the week, I still don’t mind being an observer and occasional participant in something new.

For the moment, this week is looking as quiet as last week was busy as far as trading is concerned. For now, my focus is on seeing a reasonable portion of this weeks’s expirations either being assigned or rolled over, although I’d like to add to the paltry three new positions for the week, if only something would excite me.

I was a little surprised by having made a few trades as the day unfolded, both adding new positions and finding some new cover in a day that really had no strong tone or conviction one way or another, but did demonstrate some continues resistance at the 1850 level on the S&P 500.

While previous attempts at a correction had no problems blasting through their respective highs and while I’ve been expecting the same to happen this time around, so far it’s proving to be a little different.

Tomorrow we get Janet Yellen, so we’ll see whether she can once again give the market a goose, as she did a couple of weeks ago in her second, albeit interrupted,  day of testimony. In the past, with both Greenspan and Bernanke, but especially Greenspan, when testimony was given over two consecutive days, we rarely saw the same market performance on both days. In fact, so often the net result was no impact, despite the frequent strong moves that ended up cancelling one another out.

This time, thanks to the two week weather induced break the result may be different.

That would be nice as the week and its contracts come to an end.

Daily Market Update – February 26, 2014 (9:30 AM)

I recently had a comment on Seeking Alpha by someone who is absolutely convinced that Deckers, which reports earnings this week will be another Michael Kors in that regard. Specifically, he was as sure and as emotional as you could likely be that Deckers will blow out their numbers and equally certain that they’ll put forward great guidance. He then equated those two with shares going to $95, which would represent about a 12% gain.

He may very well be right. In fact, the option market almost agreed with that opinion, believing that shares could go to $93.

However, another part of the equation is a little less objective than the numbers. which arguably can themselves have some of their objectivity stripped away and modified as they’re being processed prior to reporting.

That part of the equation is the reaction of the market place.

No one ever has any clue how the market will react. Ever.

Just look at Monday’s nearly 200 point gain.

In fact, the market itself may not be monolithic. Now just look at Macys yesterday. It was down about 2% in the pre-open and then immediately turned around once the bell rang and was one of the strongest stocks for the day, up about 6%.

When it comes to retail, which has been an abysmal place to be as that part of the economy isn’t readily demonstrating much in the way of vitality, suddenly the message is that disappointing performance may be good.

That’s not too unusual, as we’ve certainly seen days when good news isn’t good enough or good news is met by choruses of “what have you done for me lately?”

I don’t mind a more accepting attitude, as I’d be happy to see some of my retail stocks get assigned or at least make back some of what they’ve lost. Certainly if you suffered when the attitude was not as accepting you feel as if you’re owed something.

For those that don’t have the patience that comes with having pretty much seen it all, you may never get the opportunity to see both sides of that sine curve that takes you through ups and downs, not only in price but in attitude and outlook.

I’m also reminded a little of some emotional reactions to some opinions regarding Facebook and Apple back in mid-2012. If you can recall where those two stocks were at that point, you can probably guess what the prevailing emotional opinions were at that time.

While you can always select out examples to prove or disprove a point, one thing that is certain is that certainty and the emotion that supports that certainty aren’t in your best interests when it comes to investing.

I can’t remember the  last time I was excited by a stock or the market. It undoubtedly goes back to the last time my broker tried to sell me on something, but that was a really long time ago.

I always said “yes” and almost always felt some remorse when we sold something at a loss, since I had the bad habit of continuing to follow the stock and watch that sine curve.

With the market still within easy striking reach of another new high it’s easy to get excited but I still can’t get excited about individual stocks. I still see them as utilitarian and helping to contribute to a larger mosaic rather than any one specific stock standing out as a superstar.

I really don’t know how analysts can do what they do. There was a recent story this week that spoke of how burned out they get and how quickly most leave the industry as they are constantly measured by their ability to hit the long ball, which most people are aware is well correlated with strike outs.

But everyone loves making the headlines.

I like staying below the radar and plugging away. Mid-week on the day before more Congressional testimony from Janet Yellen, I don’t know how much plugging away there will be today, probably not too much, but if the market wants to continue on a little ride higher today and maybe for the rest of the week, I still don’t mind being an observer and occasional participant in something new.

For the moment, this week is looking as quiet as last week was busy as far as trading is concerned. For now, my focus is on seeing a reasonable portion of this weeks’s expirations either being assigned or rolled over, although I’d like to add to the paltry three new positions for the week, if only something would excite me.

Daily Market Update – February 25, 2014 (Close)

This morning appears to be a repeat of the signs coming from yesterday’s pre-open, albeit in the opposite direction.

By the closing bell it distinguished itself from yesterday by actually following the early tone and never making any attempt to stray

This morning all signs pointed to a listless open with no catalyst in sight to propel the market convincingly in either direction, but we all know what happened yesterday. Same absence of catalyst, but very different outcome in magnitude and direction.

While yesterday’s market was nearly 200 points higher in the mid-afternoon, most people would have still been content with a market closing 103 points higher.

Except for the technicians.

They are the ones who believe that they have the answer for why the market went so much higher yesterday. It all had to do with the S&P 500 exceeding its previous intra-day high and setting off buy programs. Others speculated that a short squeeze was going on, as well.

Since the algorithms that start these buying programs are written by mere mortals someone, at every firm that utilizes such algorithms, knows whether that S&P 500 level was, in fact, the tripping point to begin systemic buying, while we’re left to speculate, because it’s a crime to suggest that you just don’t know what caused a significant move.

However, there was never any kind of frenzy or “Fear of Missing Out” (FOMO) that characterizes real short squeezes. Also, short squeezes usually don’t just wither away in the trading session, as did half of yesterday’s gain. Short squeezes tend to pick up steam going into the close because no one wants to be left short going into a relative vacuum.

A quick look at the previous recoveries after attempted corrections does show that there was typically a strong push forward as  the market climbed back to the previous high point from which the correction attempt began. So on this one the technicians may have the real answer to yesterday’s market.

That’s the good news. At least if we have another correction attempt that shows signs of a quick recovery, there’s reason to aggressively participate in anticipation of that move beyond the highs.

The bad thing is that those same technicians express concern about the market being unable to hold those highs going into yesterday’s close, which saw the market drop nearly 100 points and in an accelerating manner in the final 20 minutes of trading.

Like most strategies or approaches to investing, it’s usually a bad idea to pick and choose what aspects of the strategy to use and which signals to ignore. That’s no discipline at all.

Since I’m not a big advocate of technical analysis, as the successes are widely publicized, but the false positives and false negatives are forever buried and lost, yesterday’s late session turnaround is just something that gets filed away, it’s meaning, if any to be determined later.

Yesterday didn’t offer too many opportunities to spend money unless you were interested in chasing stocks. There was some limited chance to establish cover, but by and large it was another day that I enjoyed being an observer, as it is nice seeing your holdings move higher, especially when there’s no real reason that anyone can identify.

Today, the money was still there to be spent, although there was a little bit of a pessimistic overhang from the technical perspective and the pre-open mildly reflected that pessimism. Unfortunately, as the day went on there really weren’t any new opportunities to be found.

Anyway, while the market did give back much of the gain yesterday, what we have not seen in the past 20 months or so is a market that quickly gives back the ground that it had regained following a correction attempt. Instead, it has, for the most part been a march forward, punctuated by some correction attempts along the way. If you look at the chart for the past year, it has almost been like clockwork. Every two months a relative low and then a rebound and back to a relative low. If that pattern continues, our next relative low should be sometime in late March 2014 or early April.

Do I wholeheartedly believe that?

No, but it does serve as some guidance and comfort.

Daily Market Update – February 25, 2014 (9:30 AM)

This morning appears to be a repeat of the signs coming from yesterday’s pre-open, albeit in the opposite direction.

That is a listless open with no catalyst in sight to propel the market convincingly in either direction, but we all know what happened yesterday.

While the market was nearly 200 points higher in the mid-afternoon, most people would still be content with a market closing 103 points higher.

Except for the technicians.

They are the ones who believe that they have the answer for why the market went so much higher yesterday. It all had to do with the S&P 500 exceeding its previous intra-day high and setting off buy programs. Others speculated that a short squeeze was going on, as well.

Since the algorithms that start these buying programs are written by mere mortals someone, at every firm that utilizes such algorithms, knows whether that S&P 500 level was, in fact, the tripping point to begin systemic buying.

However, there was never any kind of frenzy or “Fear of Missing Out” (FOMO) that characterizes real short squeezes. Also, short squeezes usually don’t just wither away in the trading session, as did half of yesterday’s gain.

A quick look at the previous recoveries after attempted corrections does show that there was typically a strong push forward as  the market climbed back to the previous high point from which the correction attempt began. So on this one the technicians may have the real answer to yesterday’s market.

That’s the good news. At least if we have another correction attempt that shows signs of a quick recovery, there’s reason to aggressively participate in anticipation of that move beyond the highs.

The bad thing is that those same technicians express concern about the market being unable to hold those highs going into yesterday’s close, which saw the market drop nearly 100 points and in an accelerating manner in the final 20 minutes of trading.

Like most strategies or approaches to investing, it’s usually a bad idea to pick and choose what aspects of the strategy to use and which signals to ignore. That’s no discipline at all.

Since I’m not a big advocate of technical analysis, as the successes are widely publicized, but the false positives and false negatives are forever buried and lost, yesterday’s late session turnaround is just something that gets filed away, it’s meaning, if any to be determined later.

Yesterday didn’t offer too many opportunities to spend money unless you were interested in chasing stocks. There was some limited chance to establish cover, but by and large it was another day that I enjoyed being an observer, as it is nice seeing your holdings move higher, especially when there’s no real reason that anyone can identify.

Today, the money is still there to be spent, although there is a little bit of a pessimistic overhang from the technical perspective and the pre-open may be mildly reflecting that pessimism.

While the market did give back much of the gain yesterday, what we have not seen in the past 20 months or so is a market that quickly gives back the ground that it had regained following a correction attempt. Instead, it has, for the most part been a march forward, punctuated by some correction attempts along the way. If you look at the chart for the past year, it has almost been like clockwork. Every two months a relative low and then a rebound and back to a relative low. If that pattern continues, our next relative low should be sometime in late March 2014 or early April.

Do I wholeheartedly believe that?

No, but it does serve as some guidance.

Daily Market Update – February 24, 2014 (Close)

There didn’t seem to be much lurking around the corner that might either serve to spook or excite the markets this week and maybe even less so today.

Yet, for no reason that anyone could really identify, other than perhaps the S&P 500 crossing its all time intra-day high and setting off buy programs, the market just went straight higher once trading started for keeps.

While I prefer a market that has little net movement, I like the kind of market that has lots of intermediate swings in both directions that help to create a large trading range. If I can’t have both, then I’d go for the former, because even with lower premiums the opportunity to repeatedly sell calls on the same positions that are essentially moving nowhere is a pretty stress free way to go about a profitable existence.

The sources of excitement this week appear to be limited. While there are still some earnings reports to come and some merger stories are heating up, it looks to be a quiet week unless something is injected into the system to shake things up.

I continue to have a short term optimistic view, solely related to past history when coming back from attempts at a correction. Given that each of those have seen an overshooting of the previous high there’s not too much reason to suspect that this will be otherwise.

Although maybe the fact that there’s not too much reason to suspect otherwise is, itself, reason enough to suspect otherwise.

This contrarian thing can get carried away.

Given the way today ended up working out it continues to keep that pattern established in 2012 alive and well.

At the very least, even a flat market, comprised of lots of flat stocks, can be a great victory.

The market appeared to be ready to open the week mildly on the upside, but for the past month or so the first hour hasn’t been very reliable in setting overall tone. While the first hour is often called “amateur hour,” I don’t think that’s really consistently the case, although lately it hasn’t been the most opportune time to open new positions.

Today, however, it would have been the best time to get stocks at their lowest price.

Once again, this week, I’d like to see some additional positions picking up their own cover and contributing to the income streams that most of us want to see and seeing either rollovers or assignments of the 10 positions set to expire this week.

For the first time in a few months I don’t have a distribution of expirations over the weeks intermediate between the current week and the end of the monthly cycle, as the lowered volatility has made that a less desirable strategy. As long as the market continues either treading water or going higher there’s no particular advantage, perhaps even a detriment to that kind of  staggering, but I still may be looking for some opportunities to populate some intermediate weeks.

With cash back up to levels that I’m comfortable pursuing a buying spree and still having enough left over for a rainy day, I don’t mind spending the money this week and have a little less hesitancy than just a few weeks ago.

With cash at about 42% I’m not resistant to getting down to the 25% range, which would equate to about 7 new positions, if they are there to be had. While today saw some relative bargain like appearances in Verizon and Starbucks there were few and far between as the day went on and on.

Still, as the market has again moved higher comes that challenge of locating what may be relative bargains and looking for downside protection at the same time. As with so many opportunities in the past that may simply mean looking to familiar names, either down on their luck or not having shared as much in the recent good fortune the market has exhibited.

With the consideration of more familiar names also comes the consideration of once again looking to rollover in the money positions, as opposed to allowing assignment. That was a strategy opportune during the latter part of 2012 and early 2013. In a rising market it continues to capitalize on strength and minimizes the need to discover an increasing number of new opportunities for the coming week. Additionally, as volatility is low, the cost to repurchase those in the money contracts is relatively lower than when volatility is high, as the added “premium” of being in the money quickly erodes when the clock is ticking away and expiration rapidly approaching.

 

Daily Market Update – February 24, 2014 (9:00 AM)

There doesn’t seem to be much lurking around the corner that may either serve to spook or excite the markets this week and maybe even less so today.

While I prefer a market that has little net movement, I like the kind of market that has lots of intermediate swings in both directions that help to create a large trading range. If I can’t have both, then I’d go for the former, because even with lower premiums the opportunity to repeatedly sell calls on the same positions that are essentially moving nowhere is a pretty stress free way to go about a profitable existence.

The sources of excitement this week appear to be limited. While there are still some earnings reports to come and some merger stories are heating up, it looks to be a quiet week unless something is injected into the system to shake things up.

I continue to have a short term optimistic view, solely related to past history when coming back from attempts at a correction. Given that each of those have seen an overshooting of the previous high there’s not too much reason to suspect that this will be otherwise. At the very least, even a flat market, comprised of lots of flat stocks, can be a great victory.

Although maybe the fact that there’s not too much reason to suspect otherwise is, itself, reason enough to suspect otherwise.

This contrarian thing can get carried away.

The market appears to be ready to open the week mildly on the upside, but for the past month or so the first hour hasn’t been very reliable in setting overall tone. While the first hour is often called “amateur hour,” I don’t think that’s really consistently the case, although lately it hasn‘t been the most opportune time to open new positions.

Once again, this week, I’d like to see some additional positions picking up their own cover and contributing to the income streams that most of us want to see and seeing either rollovers or assignments of the 10 positions set to expire this week.

For the first time in a few months I don’t have a distribution of expirations over the weeks intermediate between the current week and the end of the monthly cycle, as the lowered volatility has made that a less desirable strategy. As long as the market continues either treading water or going higher there’s no particular advantage, perhaps even a detriment to that kind of  staggering, but I still may be looking for some opportunities to populate some intermediate weeks.

With cash back up to levels that I’m comfortable pursuing a buying spree and still having enough left over for a rainy day, I don’t mind spending the money this week and have a little less hesitancy than just a few weeks ago.

With cash at about 42% I’m not resistant to getting down to the 25% range, which would equate to about 7 new positions, if they are there to be had.

Still, as the market has again moved higher comes the challenge of locating what may be relative bargains and looking for downside protection at the same time. As with so many opportunities in the past that may simply mean looking to familiar names, either down on their luck or not having shared as much in the recent good fortune the market has exhibited.

With the consideration of more familiar names also comes the consideration of once again looking to rollover in the money positions, as opposed to allowing assignment. That was a strategy opportune during the latter part of 2012 and early 2013. In a rising market it continues to capitalize on strength and minimizes the need to discover an increasing number of new opportunities for the coming week. Additionally, as volatility is low, the cost to repurchase those in the money contracts is relatively lower than when volatility is high, as the added “premium” of being in the money quickly erodes when the clock is ticking away and expiration rapidly approaching.

Daily Market Update – February 21, 2014 (Close)

The Week in Review is now posted and the Weekend Update will be posted by noon on Sunday.

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

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

The possible trades for today include:

Assignment:  CPB, CHK, FAST ($45), GPS, VZ

Rollover:  INTC, LOW, MA, YUM

Expiration: CLF, FAST ($47), FCX, WY

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

Daily Market Update – February 20, 2014 (Close)

When Wal-Mart can’t deliver good earnings and then gives some dour guidance, what chance does anyone else have?

If you believe that retail is a reflection of the health of the consumer then it’s important to see that sector performing well, even if their share prices don’t follow.

Further, there are those that use the various retailers’ performances as reflection of various segments of society and how those segments are sharing in the economy.

When Wal-Mart isn’t doing well, the possibilities are that people are moving to a different, perhaps more upscale retailer such as Target or to a lower level retailer, such as Family Dollar Store.

Assuming that you weren’t an investor in any of those companies, which would you rather see happening? Which do you think is happening?

With some slight increase in jobless claims and a couple of months of disappointing employment numbers, given the already weakened state of retail, Wal-Mart’s earnings and outlook aren’t very encouraging for an economy that still isn’t setting the world on fire.

On the other hand, Wal-Mart has made a habit lately of being off on their own guidance and under-performing. Perhaps a part of the story is just their own inability to forecast in addition to what is going on in the marketplace. During the past few quarters the market has had very muted response to Wal-Mart’s own earnings and guidance issues, other than a very brief and quick drop when Wal-Mart released some rising inventory data that was interpreted as a very bad sign for the economy, until a Wal-Mart spokesperson clarified the limited meaning of those numbers.

Speaking of fires, the market is more likely to place emphasis on disappointments from the world’s largest retailer than it is to rejoice over Tesla’s numbers or even make illusions of a bubble in the making as Facebook pays $16 B for a company that most people have never heard about, despite nearly 500 million users.

While Tesla and Facebook may have both been profitable investments they’re not going to have much trickle down elsewhere and they certainly aren’t going to sustain or charge an economy.

The remainder of this week is not likely to have any real leadership or theme so there will likely be lots of discussion about the three big stories of the day; Wal-Mart, Tesla and Facebook.

Unless I have direct ownership or am thinking of ownership, I tend to block out those kind of stories, as their relevance is extremely limited. If the market isn’t overly concerned about Wal-Mart, why should I be?

After yesterday’s turnaround and nearly triple digit loss and this morning’s early turnaround in the pre-open market from negative to positive, there’s at least some hope that the week to end the monthly cycle may finish on an up note and help to achieve an acceptable assortment or assignments, rollovers and expirations.

As I look out the window and watch the snow quickly melting as we enjoyed a Sochi-like kind of day yesterday and again today, it reminds me that the excuse of weather will soon run its course.

While it’s true that there may be some pent up buying ready to explode once people can find their way to the stores, as many analysts have been saying, those seasonal purchases that were delayed will remain that way for a year. While that should impact on the next quarter of earnings the stock market game is very much built on expectations and guidance.

Our expectations going forward are going to be low as we’re still freshly reminded of the difficult winter. The reality, even if only matching our lowered expectations may be seen as a positive.

For the moment that encourages me as the March 2014 cycle is getting ready to begin. Cash and optimism can either be a dangerous combination or one of opportunity.

I think opportunity awaits.

For today, anyway, that sense of optimism was warranted, although no one will ever know why the market simply thumbed its nose at yesterday. There really was no good news to warrant the strong performance that was even a little muted due to Wal-Marts performance. Even the Philadelphia Fed Survey and the PMI Index had nothing that gave hope to optimists, yet they didn’t need additional hope.

I do. But I’m always willing to go along for this kind of a ride.

Daily Market Update – February 20, 2014 (9:30 AM)

When Wal-Mart can’t deliver good earnings and then gives some dour guidance, what chance does anyone else have?

If you believe that retail is a reflection of the health of the consumer then it’s important to see that sector performing well, even if their share prices don’t follow.

Further, there are those that use the various retailers’ performances as reflection of various segments of society and how those segments are sharing in the economy.

When Wal-Mart isn’t doing well, the possibilities are that people are moving to a different, perhaps more upscale retailer such as Target or to a lower level retailer, such as Family Dollar Store.

Assuming that you weren’t an investor in any of those companies, which would you rather see happening? Which do you think is happening?

With some slight increase in jobless claims and a couple of months of disappointing employment numbers, given the already weakened state of retail, Wal-Mart’s earnings and outlook aren’t very encouraging for an economy that still isn’t setting the world on fire.

On the other hand, Wal-Mart has made a habit lately of being off on their own guidance and under-performing. Perhaps a part of the story is just their own inability to forecast in addition to what is going on in the marketplace. During the past few quarters the market has had very muted response to Wal-Mart’s own earnings and guidance issues, other than a very brief and quick drop when Wal-Mart released some rising inventory data that was interpreted as a very bad sign for the economy, until a Wal-Mart spokesperson clarified the limited meaning of those numbers.

Speaking of fires, the market is more likely to place emphasis on disappointments from the world’s largest retailer than it is to rejoice over Tesla’s numbers or even make illusions of a bubble in the making as Facebook pays $16 B for a company that most people have never heard about, despite nearly 500 million users.

While Tesla and Facebook may have both been profitable investments they’re not going to have much trickle down elsewhere and they certainly aren’t going to sustain or charge an economy.

The remainder of this week is not likely to have any real leadership or theme so there will likely be lots of discussion about the three big stories of the day; Wal-Mart, Tesla and Facebook.

Unless I have direct ownership or am thinking of ownership, I tend to block out those kind of stories, as their relevance is extremely limited. If the market isn’t overly concerned about Wal-Mart, why should I be?

After yesterday’s turnaround and nearly triple digit loss and this morning’s early turnaround in the pre-open market from negative to positive, there’s at least some hope that the week to end the monthly cycle may finish on an up note and help to achieve an acceptable assortment or assignments, rollovers and expirations.

As I look out the window and watch the snow quickly melting as we enjoyed a Sochi-like kind of day yesterday and again today, it reminds me that the excuse of weather will soon run its course.

While it’s true that there may be some pent up buying ready to explode once people can find their way to the stores, as many analysts have been saying, those seasonal purchases that were delayed will remain that way for a year. While that should impact on the next quarter of earnings the stock market game is very much built on expectations and guidance.

Our expectations going forward are going to be low as we’re still freshly reminded of the difficult winter. The reality, even if only matching our lowered expectations may be seen as a positive.

For the moment that encourages me as the March 2014 cycle is getting ready to begin. Cash and optimism can either be a dangerous combination or one of opportunity.

I think opportunity awaits.

Daily Market Update – February 19, 2014 (Close)

Well, that was quite a turnaround.

The final 50 minutes of the day saw a completely different day unfold and no one was really certain what was the root cause.

What it wasn’t was the Federal Reserve.

Today marked the release of the first FOMC meeting presided over by the new Chairman of the Federal Reserve, Janet Yellen.

Given that the path seems well set there doesn’t seem to be much discussion, much less any excitement about how the market might react to its release.

For the most part the previous three releases have held no surprises, yet somehow traders found a way or reason to react to the lack of news. In hindsight, someday people may realize that Bernanke’s program of Quantitative Easing created significant wealth at a time that it was greatly needed and his strategy to taper the Federal Reserve’s infusion of cash into the Treasury markets in an orderly fashion was the key to breaking the market’s addiction.

If all goes as planned the Federal Reserve will likely have completed its Treasury purchase program by summertime and we’ll just keep going merrily on our way, almost like learning to ride a two wheeler.

This morning the pre-open market was weak, but probably for no reason other than lack of any spark. The release of minutes may provide that spark even if devoid of surprises. There’s never any way to predict how the reactions will line up once all the words are parsed and the nuances are interpreted.

The real surprise, which should also probably not be a surprise is that the market is sitting just 0.6% below its high and now with the majority of earnings season behind it. Additionally, with each passing day the weather is becoming less likely to be a factor in company earnings and future guidance.

I like the current market condition and am glad to have some cash reserves to take advantage of some upward movement, but am likely to parse it out rather than going all in.

I’m optimistic, but not that optimistic.

With that optimism, however, still comes a desire to seek dividends, where possible and avoid overly volatile positions

If the market will be going higher that will also mean that volatility will stay low or even go lower, taking premiums down for the ride. That would confirm the  strategy to stay with positions that will support themselves, but with a lesser risk profile.

It was probably a good idea to not get used to the higher volatility that we had for a couple of weeks as the market headed lower, but you can’t blame someone for wishing and hoping.

PS: For those with shares of L Brands that were purchased yesterday and then had contracts rolled over to the March 22, 2014 $55 contract, your contract has now been re-set to $54 to reflect yesterday’s $1 Special Dividend, in addition to the regular $0.34 dividend.

The CBOE regulations require that the strike price be adjusted whenever the special dividend is greater than $0.125 per share. Because of the re-setting, there is no option strategy that can take advantage of the Special Dividend. However, the reason many investors like Special Dividends is that the stocks that do offer them very frequently recover the special dividend in their share price.

Daily Market Update – February 19, 2014 (9:30 AM)

Today marks the release of the first FOMC meeting presided over by the new Chairman of the Federal Reserve, Janet Yellen.

Given that the path seems well set there doesn’t seem to be much discussion, much less any excitement about how the market might react to its release.

For the most part the previous three releases have held no surprises, yet somehow traders found a way or reason to react to the lack of news. In hindsight, someday people may realize that Bernanke’s program of Quantitative Easing created significant wealth at a time that it was greatly needed and his strategy to taper the Federal Reserve’s infusion of cash into the Treasury markets in an orderly fashion was the key to breaking the market’s addiction.

If all goes as planned the Federal Reserve will likely have completed its Treasury purchase program by summertime and we’ll just keep going merrily on our way, almost like learning to ride a two wheeler.

This morning the pre-open market was weak, but probably for no reason other than lack of any spark. The release of minutes may provide that spark even if devoid of surprises. There’s never any way to predict how the reactions will line up once all the words are parsed and the nuances are interpreted.

The real surprise, which should also probably not be a surprise is that the market is sitting just 0.6% below its high and now with the majority of earnings season behind it. Additionally, with each passing day the weather is becoming less likely to be a factor in company earnings and future guidance.

I like the current market condition and am glad to have some cash reserves to take advantage of some upward movement, but am likely to parse it out rather than going all in.

I’m optimistic, but not that optimistic.

With that optimism, however, still comes a desire to seek dividends, where possible and avoid overly volatile positions

If the market will be going higher that will also mean that volatility will stay low or even go lower, taking premiums down for the ride. That would confirm the  strategy to stay with positions that will support themselves, but with a lesser risk profile.

It was probably a good idea to not get used to the higher volatility that we had for a couple of weeks as the market headed lower, but you can’t blame someone for wishing and hoping.

PS: For those with shares of L Brands that were purchased yesterday and then had contracts rolled over to the March 22, 2014 $55 contract, your contract has now been re-set to $54 to reflect yesterday’s $1 Special Dividend, in addition to the regular $0.34 dividend.

The CBOE regulations require that the strike price be adjusted whenever the special dividend is greater than $0.125 per share. Because of the re-setting, there is no option strategy that can take advantage of the Special Dividend. However, the reason many investors like Special Dividends is that the stocks that do offer them very frequently recover the special dividend in their share price.

Daily Market Update – February 18, 2014 (Close)

Starting this shortened trading week less than 1% below the recent S&P 500 high there’s not much reason to believe that recent history won’t repeat itself.

That history has been about 10 occasions of a 3% or more decline followed by climbing to new highs in the past 20 months.

In the past year there have now been 4 attempts to reach a 5% decline and the result has been the same. The market just keeps wanting to climb higher and higher and has now been doing so almost interrupted for any substantive period of time for about 16 months.

With cash back up to the 40% level that I’ve been very comfortable starting each week with, I’m willing to get down to about 25% again, but also recognize that the option premiums this week will be  a little on the low side due to the decreased volatility, but especially due to the loss of a trading day’s worth of time value.

With lots of positions having contracts expiring this Friday I’m not overly anxious to add to that list but the low volatility makes it a little harder to justify longer term time frames, other than to diversify in time. At the moment I don’t anticipate going too far out in time, although some of this week’s potential dividend trades offer only monthly options, so there is a chance of going the March 2014 route on those, but most likely others will be contained to either the February 22 or 28 expirations.

This morning’s flat pre-open is the kind of market that is preferable to a sharp climb higher to start the week when you have cash in hand. I don’t think that the market is simply sending a message that it wants to wait for the release of tomorrow’s FOMC minutes, as it’s unlikely that there will be any great surprise.

That lack of surprise, however, doesn’t mean a lack of reaction, as we saw at the last FOMC minutes release when it really wasn’t clear why there was any noticeable change in direction at all.

Given that kind of unpredictability you really can’t predicate your actions on a market that has shown that kind of behavior. While any one day may see an unexpected reaction in one direction, it’s equally likely that on the occasion of the next event that reaction can be in completely the opposite direction. So why fight or why put all of your faith in any given event or the reaction to that event?

Instead, I’m apt to believe that the over-riding sentiment is that the market tried for a correction and just like all of the previous times in the past year has gotten it out of its system. That will be a more likely theme going forward until the next challenge.

Of course, with that said, I’m not crazy and will still exercise some caution.

However, for those that do have a bullish feeling that would be the time to consider using the AC/DC strategy, selling calls on only a portion of holdings in a particular stock or using different strikes on portions of the holding.

Last week I was content to simply watch prices move higher, especially insofar as it helped some depressed prices. This week, while I do have more to invest, I’m not adverse to the same possibility and would especially like to see existing positions continue to go higher and hopefully create opportunities to gain cover and some additional income. That would certainly go along with the goal of wanting to reduce the total number of holdings, which has been difficult to accomplish while simultaneously adding new positions in a market that was headed lower.

With the turnaround of the past 7 trading sessions there is opportunity to make progress in all aspects of that short term playlist. Hopefully this week will end on the same strong note as have each of the past two weeks and provide good opportunity to approach the March 2014 cycle.

What I wasn’t expecting was to have seen the two dividend purchases this morning abruptly change direction and take themselves out of contention for collecting the dividend.

With Walgreen last week and for most people, Microsoft being assigned early, I’m getting greedy and want more dividends, despite the fact that this option cycle is winding up to be the best month for dividend collection that I can recall. Right now it’s running at about a 3.2% annual rate and helps a little to offset some of the lower premiums and uncovered positions.

But that desire explains why I eventually decided to try and rollover the very trades made this morning. Doing so added some earnings enhanced premiums to the dividend that is now fairly certain to remain where it belongs, for two stocks that are already down enough before their earnings next week. However, the nice thing was that even in the event of an earnings drop, there will be a month to recover and maybe do it all over again.

It was, otherwise, an entirely forgettable and boring day with almost no trading range. Despite that, this was one of the busiest days I think I’ve ever had as far as text messages and emails.

One of the reasons was related to tomorrow’s special dividend for L Brands. Lots of questions regarding how that works.

As far as being an option trader goes there is no relevance to special dividends in excess of $0.125/share.

Anything greater than that requires the strike prices to be adjusted to reflect the special dividend distribution. If, for example there is a $1 special dividend and you sold a $55 option it becomes a $54 option to reflect the fact that you just got a $1 in special dividends.

In the event of early assignment you would have gotten the full $55, but no one in their right mind will exercise early to capture a special dividend. Personally, I don’t understand why anyone likes them, other than as a matter of principle, for those that believe they should share in a stock’s good fortune. You really receive nothing other than an early tax liability, potentially.

Then, there are always those who are not in their right mind. For anyone that did the rollovers and you do get assigned, you should send them a nice “Thank You” card.