Daily Market Update – May 27, 2014 (9:00 AM)
While I don’t like the smaller premiums that are generated on these 4 day trading weeks, I no longer dislike Monday holidays.
There was a time that I harbored some resentment for the market being closed on those Mondays. That was back in the days when such a holiday coincided wiith a day off for me and could have been used to hone some skills back when I couldn’t spend as much time as I wanted glued to the screen and ticker.
These days I can and suddenly, maybe not so surprisingly I like those shortened weeks and actually, on a day like Memorial Day, get a chance to understand and appreciate the reason for the holiday.
So now it’s Tuesday and inexplicably the market starts at another new high. What seems so unusual is that you really don’t see or hear a chorus of people gloating about their returns. The other day it was mentioned that some 70-80% of hedge funds were trailing the S&P 500. While that’s easy to understand if the market is going straight higher, it’s not easy to understand when the market is going lower or bouncing around.
My guess is that lots of hedge funds, after trailing the market in 2013 stopped hedging in anticipation of the need for protection and instead doubled up on the bullish end of things.
Bad timing if that’s the case and it is likely accuate to some degree. It’s not much different fromt the individual investor who waits until the start of the new year to get into last year’s hottest mutual fund.
While normally there would be some degree of euphoria here’s something that should be cause for concern:
That is that while the S&P 500 is going higher the number of new highs is going lower.
That’s just not the way things are supposed to work.
What that indicates is that the advance is really pretty narrow and there just isn’t a lot of participation.
Normally in a market making new highs over and over again everyone is happy because just about everything is moving higher getting swept by a rising tide.
Now, there’s a tide but it’s not doing too much sweeping and only taking a lucky few along for the ride.
I start this week with replenished cash from a decent number of assignments and having sold more new cover last week than in recent memory. On a personal note that leaves me happy, but I’m not overly anxious to plow even the full amount of the regenerated cash back into the market this week.
Oart of that reqason is that the reward is reduced as there are only 4 days worth of premiums this week. However, beyond that is that after 2 previous weeks of not seeing much in the way of assignments and some decidely negative trading, I’m not entirely convinced that least week’s positive trading patterns are here to stay.
My initial sense is that the optimism that may be borne of last week’s trading may be for fools.
Of course, like most everything, I’m not fully willing to base everything on that belief that may end up being wrong. So I anticipate making some trades this week in an effort to open some new positions, but I would still prefer to see uncovered positions find coverage and make my weekly income in that manner rather than having to spend very much to generate that income.
As always, we’ll see.
We’ll see if the pre-open futures have any predictive capability for the rest of the day and whether any barains may pop up to cause me to rethink the thriftiness I have planned for the week.