Daily Market Update – September 30, 2014 (Close)
Yesterday was an interesting day, to say the least.
With the opening futures pointing to a sharply lower open that went just as planned and nearly all of that reversed at one point, it was a day to fairly painlessly see the volatility increase.
While the volatility march higher continues, it’s not really much of a march in the underlying market and not even in the volatility index itself. While so many cite the percentage climb and those numbers sound so impressive, the volatility is still at ridiculously low levels as the past 24 months have really been fairly unprecedented in the absence of any meaningful correction.
When there’s no uncertainty, there’s no volatility.
Of course, we’re now at the point that everyone is again talking about volatility. The last time that happened marked the peak of the short term climb in volatility, that coincided with the late July 5% market decline.
If all of the chatter is a contrarian indicator then we could look for the market to begin showing strength again soon. That would also certainly be in line with the pattern of mini-corrections that we’ve experienced over the past two years that seem to have come along every two months, or so.
This time seems a little different, though. Firstly, there really hasn’t been much of a decline.
So far, the S&P 500 is barely down 1.7% from its high point and the decline hasn’t been in a straight line, as has been the case in those previous pullbacks.
Back in July it was a straight line decline that lead to an increase in volatility. This time around, at least for now, the increase in volatility is due to the zigzags that are taking place, not just from day to day, but also as yesterday shows, on an intra-day basis.
Again, all of that smacks of 2011 and we really haven’t seen anything like that since, although a single week isn’t the best of data points to use to make any strong assertion of that being the case.
While yesterday was an interesting one, today was not, although it was another day that saw volatility rise. This time, however, the market was slightly lower and the range of trading was fairly tight, but the movements back and forth were going on all through the trading session.
While the ending net change was small the back and forths today really did add up as today was a perfect day to illustrate indecision.
This morning showed a mildly higher market in the pre-open trading and another day with precious metals deterioration. Unfortunately, that early market advance was showing signs of weakness and declining into the opening bell, which is usually not a good sign if you’re hoping for strength to have lasting power or develop through the trading day.
Whatever strength the market did show as it traded through the session was routinely sapped. Also not a very good sign.
Unrest in Hong Kong should give some reason for markets to be nervous, but so far there’s no real indication of that, with lots of people commenting on the restraint shown by officials and the police, who have pulled back from the scene.
For those who remember, those were the same words and thoughts expressed some 25 years ago, when the military pulled back from the Tiananmen square protestors.
For the rest of the week there is an ECB meeting on Thursday that could conceivably give a bump to European markets if there’s any tangible hint of their version of Quantitative Easing. That’s followed the next day by our Employment Situation Report.
That left us with today and tomorrow and now we are just left with tomorrow.
For one, I’m happy to have heard of this morning’s news on the forthcoming spinoff of PayPal by eBay,
Although that means that the $53.50 strike shares expiring this week will fetch only $53.50 if assigned, the good news is that they will be assigned and I would really like to see as many of those occurring this week as possible.
Whereas I normally like to see a fairly even mix of assignments and rollovers, if I could write the script, I would put my preferences on the assignment end of things, as I would really like to add to a dwindling cash reserve.
For the rest of the week I don’t anticipate adding too many new positions but would always have a hard time ignoring anything that looks like a screaming bargain. The only problem is that if everything heads lower as part of a broad market move you run into the old conundrum of “value versus value trap,” and caution becomes a good companion.