Daily Market Update – August 19, 2015 (Close)
Yesterday was a pretty boring day as far as markets go, despite having two DJIA component companies report their earnings.
If those two had gone in the same direction it might have become more interesting, but they basically offset one another both in the price weighted DJIA and market capitalization weighted S&P 500, so the day was pretty much a draw every where you looked.
Although the market was boring, there was some opportunity to get some trading done. Some of it was of a preventive nature, trying to get some more premium out of a position that had a large fall yesterday, a week before reporting earnings. Abercrombie and Fitch’s announcement that they were bringing in 6 outside executives in a re-structuring was basically sending the message to the market that next week’s earnings are going to reflect a need to restructure and the market interpreted it just that way, forcing a big sell-off before next week’s stampede.
Another rollover, Holly Frontier, was to try and still get the dividend on a stock that’s very likely to get assigned early for its dividend, by rolling it over, collecting the premium, while still being in decent position to have shares get assigned early.
The final trade, was the one that I was hoping to make on Monday, in order to capture a nice premium in exchange for giving up the dividend. That was Cablevision, and I thought that selling the well in the money call would result in shares being assigned. But this morning those shares are still in the account, although, as usual, I’ll do the tally to see if that was the general experience.
With all of that happening on an otherwise boring day, I would have been very happy to see the rest of the week just coast until the end, trying to keep a few positions in contention for either rollover or assignment.
But not today.
It definitely wasn’t boring today. Not only a reversal, but a reversal to the reversal.
Although there were some major retailers reporting earnings today, Lowes and Target, as well as a specialty retailer, L Brands, after the close, it should have been a relatively quiet day.
That wasn’t the case, as the market headed for a triple digit loss fairly quickly as the futures deteriorated heading into the open.
But the real excitement came after the premature release of the FOMC minutes from last month. That caused people to trip all over one another in trying to interpret what was going on in the minds of its members.
The initial reaction was to wipe out a 175 point decline, but then the next reaction was to bring most of that decline right back.
Although not an FOMC member and soon to be departing as a Federal Reserve Governor, Narayana Kocherlakota came out this morning saying that it would be a mistake to raise interest rates in September. That’s not too much of a surprise, since he has generally been dovish, although a few months ago he gave some indication that the time for a rate increase was nearing.
While we may have been on the path to see those rates get increased in September, it’s very possible that the FOMC members didn’t believe that anything so substantial would be happening in China while they were on their vacations, so they may have some second thoughts.
That might be good for the markets, although I’m still of the belief that a small increase would be welcome. Not only would it offer a chance for a relief gasp, but it could also make it easier to have a smooth series of small increases, rather than having to take quantum leaps, which could be more unsettling.
For today, the market appeared as if it was going to get off to a negative start, but gave no indication of just how negative it would be. Futures continue having a fairly poor record of predicting what the market will do during the course of the regular trading day, but today it was more a problem of predicting the magnitude and not the direction.
Maybe tomorrow the market can reach deep down to find something good to celebrate, even as Lowes and Target failed to excite today.
Note: I had a couple of people ask today why the rollover of Holly Frontier, which has September 18, 2015 $50 calls written on both outstanding lots. Since Holly Frontier is now about $3.25 above the strike and shares go ex-dividend on August 31st, for $0.33, I expect early assignment if shares stay at this level.
So in a pre-emptive move in an effort to get the equivalent of the dividend if assigned early, I decided to rollover an got a $0.35 premium. If shares are assigned early on August 30th, then you still have that extra premium which is a tiny bit more than the dividend itself. Better yet, you then get the proceeds from the assignment and the opportunity to re-invest or add to cash reserves, without having to wait an additional 3 weeks for assignment.