Weekend Update – November 20, 2016

You might be able to easily understand any reluctance that the FOMC has had in the past year or maybe even in the year ahead to raise interest rates.

To understand why those decision makers could be scarred, all you have to do is glance back to nearly a year ago.

At that time, after a 9 year period of not having had a single increase in interest rates, the FOMC did increase interest rates.

The data compelled them to do so, as the FOMC has professed to be data driven.

Presumably, they did more than just look in the rear view mirror, casting forward projections and interpreting what are sometimes conflicting pieces of the puzzle.

At the time, the conventional wisdom, no doubt guided somewhat by the FOMC’s own suggestions, was that the small increase was going to be the first and that we were likely to see a series of such increases in 2016.

Funny thing about that, though.

Data is not the same as a crystal ball. Data is backward looking and trends can stop on a dime, or if I were to factor in the future value of money based upon the increase in the 10 Year Treasury note ever since Election Day, considerably more than a dime.

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Weekend Update – September 4, 2016

These are sensitive times.

For the longest time the FOMC and investors were the closest of allies.

The FOMC gave investors what they craved.

With cheap money increasingly made available investors could do what they want to do the most.

Invest.

In return, if you believe in trickle down economics, the great wealth created by investors would then get re-invested into the economy, helping to fund the creation of jobs, which in turn would fuel increasing demand for consumer products.

That would result in a virtuous cycle that would grow the economy, with the FOMC carefully controlling growth to keep the 40 years’ worth of inflation fears soothed.

Surely that was a win – win scenario, in theory, at least.

Then came the rumors.

Those rumors were started, fueled and spread by the very FOMC that created good times for most everyone that had a discretionary dollar to invest.

The fear that those rumors of an interest rate increase coming soon, perhaps a series of them in 2016, would become reality, periodically sowed selling waves into the blackened hearts of investors.

With even the doves among the FOMC members beginning to utter tones spoken by hawks, investors knew that their glory days were numbered and began expressing some slow acceptance of an interest rate increase.

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Weekend Update – August 21, 2016

We are pretty much done with the most systemically important earnings reports for this most current earnings season.

To say that it has been a confusing mix of results and projections would be an understatement.

By the end of the week, we had our fourth consecutive week of almost no net change. Yet the market remained within easy striking distance of its all time closing highs.

Why it’s at those all time closing highs is another question, but for the past 2 months the climb higher, while confounding, hasn’t disappointed too many people even as it’s given no reason to really be hopeful for more to come.

However, technicians might say that the lack of large moves at these levels is a healthy thing as markets may be creating a sustainable support level. 

That is an expression of hope.

Others may say that the clear lack of clarity gives no signal for committed movement in any direction.

That is an expression of avoidance, so as to preclude disappointment with whatever happens next. If you have no great hopes, you can’t really have great disappointment.

I buy into both of those outlooks, but have had an extraordinarily difficult time in believing that there is anything at immediate hand to use whatever support level is being created as a springboard to even more new highs.

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Weekend Update – May 22, 2016

If you could really dodge a bullet, magicians from Harry Houdini to Penn and Teller would never have had to perfect the ability to catch them in their teeth.

Yet, we may have dodged a bullet this past week.

Forget about the fact that the stock market still seems to like the idea of higher oil prices. We’ve been dodging the impact of increasing oil prices through most of 2016. At some point, however, that will change. That bullet has been an incredibly slow moving one.

What we dodged was a second week of terrible retail earnings and continued over-reaction to the thought that a June 2016 interest rate hike was back on the table, as  Federal Reserve Governors are sounding increasingly hawkish.

Not that there wasn’t a reaction to the sense that such an increase was becoming more likely, but some decent earnings data coupled with increased inflation projections could have really fueled an exit for the doors.

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Weekend Update – January 24, 2016

With the early part of the Republican primaries having focused on one candidate’s hair, it reminded me of that old complaint that people sometimes made that their hair had a mind of its own.

For better or worse the political hair jokes have pretty much finally run their course as the days tick down to a more substantive measure of a candidate’s character and positions on more weighty matters.

While it was nice seeing some gains for the week and finally having some reason to not curse 2016, there’s no mistaking the reality that the stock market hasn’t had much of a mind of its own after the first 14 trading days of the new year.

Bad hair days would have been a lot easier to take than the bad market days that have characterized much of the past  6 weeks.

The combination of China and the price of oil have led the market down and up on a daily basis and sometimes made it do flips during the course of a single trading day.

With the price of oil having climbed about 23% during the week from its multi-year lows, the market did what it hadn’t been able to do in 2016 and actually put together back to back daily gains. Maybe it was entirely coincidental that the 48 hours that saw the resurgence in the price of crude oil were the same 48 hours that saw the market string consecutive gains, but if so, that coincidence is inescapable.

While that’s encouraging there’s not too much reason to believe that the spike in the price of oil was anything more than brave investors believing that oil was in a severely over-sold position and that its recent descent had been too fast and too deep.

That pretty much describes the stock market, as well, but what you haven’t seen in 2016 is the presence of those brave souls rushing in to pick up shares in the same belief.

Of the many “factoids” that were spun this week was that neither the DJIA nor the NASDAQ 100 had even a single stock that had been higher in 2016. That may have changed by Friday’s closing bell, but then the factoid would be far less fun to share.

Instead, oil has taken the fun out of things and has dictated the direction for stocks and the behavior of investors. If anything, stocks have been a trailing indicator instead of one that discounts the future as conventional wisdom still credits it for doing, despite having put that quality on hiatus for years.

That was back when the stock market actually did have a mind of its own. Now it’s more likely to hear the familiar refrain that many of us probably heard growing up as we discovered the concept of peer pressure.

“So, if your best friend is going to jump out of the window, is that what you’re going to do, too?”

With earnings not doing much yet to give buyers a reason to come out from hiding, the coming week has two very important upcoming events, but it’s really anyone’s guess how investors could react to the forthcoming news.

There is an FOMC announcement scheduled for Wednesday, assuming that the nation’s capital is able to dig out from under the blizzard’s drifts and then the week ends with a GDP release.

With a sudden shift in the belief that the economy was heading in one and only one direction following the FOMC’s decision to increase interest rates, uncertainty is again in the air.

What next week’s events may indicate is whether we are back to the bad news is bad news or the bad news is good news mindset.

It’s hard to even make a guess as to what the FOMC might say next week.

“My bad” may be an appropriate start with the economy not seeming to be showing any real signs of going anywhere. With corporate revenues and unadulterated earnings not being terribly impressive, the oil dividend still not materializing and retail sales weak, the suggestion by Blackrock’s (BLK) Larry Fink last week that there could be layoffs ahead would seem to be the kind of bad news that would be overwhelmingly greeted for what it would assuredly represent.

When the FOMC raised interest rates the market had finally come around to believing that a rise in rates was good news, as it had to reflect an improving economic situation. If the next realization is that the improving situation would last for only a month, you might think the reception would be less than effusive.

As usual, the week’s potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Last week was the first week since 2008 or 2009 that I made no trades at all and had no ex-dividend positions. No new positions were opened, nor were any call or put rollovers executed.

Other than a few ex-dividend positions this week, I’m not certain that it will be any different from last week. I haven’t opened very many new positions of late, having to go back nearly 2 months for a week with more than a single new position having been opened.

Unlike much of the past 6 years when market pullbacks just seemed like good times to get good stocks at better prices, the past few months have been offering good prices that just kept getting better and better.

If you had been a buyer, those better and better prices were only seen that way by the next series of prospective buyers, who themselves probably came to bemoan how less they could have paid if only they waited another day or two. 

The gains of the final two days of last week make me want to continue the passivity. Anyone having chased any of those precious few days higher lately has ended up as disappointed as those believing they had picked up a bargain.

At some point it will pay to chase stocks higher and at some point it will pay to run after value.

I’m just not convinced that two days of gains are enough to  signal that value is evaporating.

The biggest interests that I have for the week are both earnings related trades. Both Apple (AAPL) and Facebook (FB) report earnings this week.

If you’re looking for a stock in bear market correction over the past 6 months, you don’t have to go much further then Apple (AAPL). Along with some of his other holdings, Apple has punished Carl Icahn in the same manner as has been occurring to mere mortals.

Of course, that 21% decline is far better than the 27% decline fro just a few days ago before Apple joined the rest of the market in rally mode.

Interestingly, the option market doesn’t appear to be pricing in very much uncertainty with earnings upcoming this week, with an implied move of only 6.2%

Since a 1% ROI can only be achieved at a strike level that’s within that range, I wouldn’t be very excited in the sale of out of the money puts prior to earnings. The risk – reward proposition just isn’t compelling enough for me. However, if Apple does drop significantly after earnings then there may be reason to consider the sale of puts.

There is some support at $90 and then a few additional support levels down to $84, but then it does get precarious all the way down to $75.

Apple hasn’t been on everyone’s lips for quite a while and we may not get to find out just how little it has also been on people’s wrists. Regardless, if the support levels between $84 and $90 are tested after earnings the put premiums should still remain fairly high. If trying this strategy and then faced with possible assignment of shares, an eye has to be kept on the announcement of the ex-dividend date, which could be as early as the following week.

While Apple is almost 20% lower over the past 6 months, Facebook has been virtually unchanged, although it was almost 30% higher over the past year.

It;s implied move is 6.8% next week, but the risk – reward is somewhat better than with Apple, if considering the sale of puts prior to earnings, as a 1% ROI for the sale of a weekly option could be obtained outside of the range defined by the option market. As with Apple, however, the slide could be more precarious as the support levels reflect some quick and sharp gains over the past 2 years.

For those that have been pushing a short strategy for GameStop (GME), and it has long been one of the most heavily of shorted stocks for quite some time, the company has consistently befuddled those who have had very logical reasons for why GameStop was going to fall off the face of the earth.

Lately, though, they’ve had reason to smile as shares are 45% lower, although on a more positive note for others, it’s only trailing the S&P 500 by 2% in 2016. They’ve had some reasons to smile in the past, as well, as the most recent plunge mirrors one from 2 years ago.

As with Apple and Facebook, perhaps the way to think about any dalliance at this moment, as the trend is lower and as volatility is higher, is through the sale of put options and perhaps considering a longer time outlook.

A 4 week contract, for example, at a strike level 4.6% below this past Friday’s close, could still offer a 3% ROI. If going that route, it would be helpful to have strategies at hand to potentially deal with an ex-dividend date in the March 2016 cycle and earnings in the April 2016 cycle.

One of the companies that I own that is going ex-dividend this week is Fastenal (FAST). I’ve long liked this company, although I’m not enamored with my last purchase, which I still own and was purchased a year ago. As often as is the case, I consider adding shares of Fastenal right before the ex-dividend date and this week is no different.

What is different is its price and with a 2 day market rally that helped it successfully test its lows, I would be interested in considering adding an additional position.

With only monthly options available, Fastenal is among the earliest of earnings reporters each quarter, so there is some time until the next challenge. Fastenal does, however, occasionally pre-announce or alter its guidance shortly before earnings, so surprises do happen, which is one of the reasons I’m still holding shares after a full year has passed.

In the past 6 months Fastenal has started very closely tracking the performance of Home Depot (HD). While generally Fastenal has lagged, in the past 2 months it has out-performed Home Depot, which was one of a handful of meaningfully winning stocks in 2015.

Finally, Morgan Stanley (MS) is also ex-dividend this week.

Along with the rest of the financials, Morgan Stanley’s share price shows the disappointment over the concern that those interest rate hikes over the rest of the year that had been expected may never see the light of day.

This week’s FOMC and GDP news can be another blow to the hopes of banks, but if I was intent upon looking for a bargain this week among many depressed stocks, I may as well get the relationship started with a dividend and a company that I can at least identify the factors that may make it move higher or lower.

Not everything should be about oil and China.

 

Traditional Stocks: none

Momentum Stocks:  GameStop

Double-Dip Dividend: Fastenal (1/27 $0.30), Morgan Stanley ($0.15)

Premiums Enhanced by Earnings:  Apple (1/26 PM), Facebook (1/27 PM)

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.

 

Weekend Update – January 24, 2016

With the early part of the Republican primaries having focused on one candidate’s hair, it reminded me of that old complaint that people sometimes made that their hair had a mind of its own.

For better or worse the political hair jokes have pretty much finally run their course as the days tick down to a more substantive measure of a candidate’s character and positions on more weighty matters.

While it was nice seeing some gains for the week and finally having some reason to not curse 2016, there’s no mistaking the reality that the stock market hasn’t had much of a mind of its own after the first 14 trading days of the new year.

Bad hair days would have been a lot easier to take than the bad market days that have characterized much of the past  6 weeks.

The combination of China and the price of oil have led the market down and up on a daily basis and sometimes made it do flips during the course of a single trading day.

With the price of oil having climbed about 23% during the week from its multi-year lows, the market did what it hadn’t been able to do in 2016 and actually put together back to back daily gains. Maybe it was entirely coincidental that the 48 hours that saw the resurgence in the price of crude oil were the same 48 hours that saw the market string consecutive gains, but if so, that coincidence is inescapable.

While that’s encouraging there’s not too much reason to believe that the spike in the price of oil was anything more than brave investors believing that oil was in a severely over-sold position and that its recent descent had been too fast and too deep.

That pretty much describes the stock market, as well, but what you haven’t seen in 2016 is the presence of those brave souls rushing in to pick up shares in the same belief.

Of the many “factoids” that were spun this week was that neither the DJIA nor the NASDAQ 100 had even a single stock that had been higher in 2016. That may have changed by Friday’s closing bell, but then the factoid would be far less fun to share.

Instead, oil has taken the fun out of things and has dictated the direction for stocks and the behavior of investors. If anything, stocks have been a trailing indicator instead of one that discounts the future as conventional wisdom still credits it for doing, despite having put that quality on hiatus for years.

That was back when the stock market actually did have a mind of its own. Now it’s more likely to hear the familiar refrain that many of us probably heard growing up as we discovered the concept of peer pressure.

“So, if your best friend is going to jump out of the window, is that what you’re going to do, too?”

With earnings not doing much yet to give buyers a reason to come out from hiding, the coming week has two very important upcoming events, but it’s really anyone’s guess how investors could react to the forthcoming news.

There is an FOMC announcement scheduled for Wednesday, assuming that the nation’s capital is able to dig out from under the blizzard’s drifts and then the week ends with a GDP release.

With a sudden shift in the belief that the economy was heading in one and only one direction following the FOMC’s decision to increase interest rates, uncertainty is again in the air.

What next week’s events may indicate is whether we are back to the bad news is bad news or the bad news is good news mindset.

It’s hard to even make a guess as to what the FOMC might say next week.

“My bad” may be an appropriate start with the economy not seeming to be showing any real signs of going anywhere. With corporate revenues and unadulterated earnings not being terribly impressive, the oil dividend still not materializing and retail sales weak, the suggestion by Blackrock’s (BLK) Larry Fink last week that there could be layoffs ahead would seem to be the kind of bad news that would be overwhelmingly greeted for what it would assuredly represent.

When the FOMC raised interest rates the market had finally come around to believing that a rise in rates was good news, as it had to reflect an improving economic situation. If the next realization is that the improving situation would last for only a month, you might think the reception would be less than effusive.

As usual, the week’s potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Last week was the first week since 2008 or 2009 that I made no trades at all and had no ex-dividend positions. No new positions were opened, nor were any call or put rollovers executed.

Other than a few ex-dividend positions this week, I’m not certain that it will be any different from last week. I haven’t opened very many new positions of late, having to go back nearly 2 months for a week with more than a single new position having been opened.

Unlike much of the past 6 years when market pullbacks just seemed like good times to get good stocks at better prices, the past few months have been offering good prices that just kept getting better and better.

If you had been a buyer, those better and better prices were only seen that way by the next series of prospective buyers, who themselves probably came to bemoan how less they could have paid if only they waited another day or two. 

The gains of the final two days of last week make me want to continue the passivity. Anyone having chased any of those precious few days higher lately has ended up as disappointed as those believing they had picked up a bargain.

At some point it will pay to chase stocks higher and at some point it will pay to run after value.

I’m just not convinced that two days of gains are enough to  signal that value is evaporating.

The biggest interests that I have for the week are both earnings related trades. Both Apple (AAPL) and Facebook (FB) report earnings this week.

If you’re looking for a stock in bear market correction over the past 6 months, you don’t have to go much further then Apple (AAPL). Along with some of his other holdings, Apple has punished Carl Icahn in the same manner as has been occurring to mere mortals.

Of course, that 21% decline is far better than the 27% decline fro just a few days ago before Apple joined the rest of the market in rally mode.

Interestingly, the option market doesn’t appear to be pricing in very much uncertainty with earnings upcoming this week, with an implied move of only 6.2%

Since a 1% ROI can only be achieved at a strike level that’s within that range, I wouldn’t be very excited in the sale of out of the money puts prior to earnings. The risk – reward proposition just isn’t compelling enough for me. However, if Apple does drop significantly after earnings then there may be reason to consider the sale of puts.

There is some support at $90 and then a few additional support levels down to $84, but then it does get precarious all the way down to $75.

Apple hasn’t been on everyone’s lips for quite a while and we may not get to find out just how little it has also been on people’s wrists. Regardless, if the support levels between $84 and $90 are tested after earnings the put premiums should still remain fairly high. If trying this strategy and then faced with possible assignment of shares, an eye has to be kept on the announcement of the ex-dividend date, which could be as early as the following week.

While Apple is almost 20% lower over the past 6 months, Facebook has been virtually unchanged, although it was almost 30% higher over the past year.

It;s implied move is 6.8% next week, but the risk – reward is somewhat better than with Apple, if considering the sale of puts prior to earnings, as a 1% ROI for the sale of a weekly option could be obtained outside of the range defined by the option market. As with Apple, however, the slide could be more precarious as the support levels reflect some quick and sharp gains over the past 2 years.

For those that have been pushing a short strategy for GameStop (GME), and it has long been one of the most heavily of shorted stocks for quite some time, the company has consistently befuddled those who have had very logical reasons for why GameStop was going to fall off the face of the earth.

Lately, though, they’ve had reason to smile as shares are 45% lower, although on a more positive note for others, it’s only trailing the S&P 500 by 2% in 2016. They’ve had some reasons to smile in the past, as well, as the most recent plunge mirrors one from 2 years ago.

As with Apple and Facebook, perhaps the way to think about any dalliance at this moment, as the trend is lower and as volatility is higher, is through the sale of put options and perhaps considering a longer time outlook.

A 4 week contract, for example, at a strike level 4.6% below this past Friday’s close, could still offer a 3% ROI. If going that route, it would be helpful to have strategies at hand to potentially deal with an ex-dividend date in the March 2016 cycle and earnings in the April 2016 cycle.

One of the companies that I own that is going ex-dividend this week is Fastenal (FAST). I’ve long liked this company, although I’m not enamored with my last purchase, which I still own and was purchased a year ago. As often as is the case, I consider adding shares of Fastenal right before the ex-dividend date and this week is no different.

What is different is its price and with a 2 day market rally that helped it successfully test its lows, I would be interested in considering adding an additional position.

With only monthly options available, Fastenal is among the earliest of earnings reporters each quarter, so there is some time until the next challenge. Fastenal does, however, occasionally pre-announce or alter its guidance shortly before earnings, so surprises do happen, which is one of the reasons I’m still holding shares after a full year has passed.

In the past 6 months Fastenal has started very closely tracking the performance of Home Depot (HD). While generally Fastenal has lagged, in the past 2 months it has out-performed Home Depot, which was one of a handful of meaningfully winning stocks in 2015.

Finally, Morgan Stanley (MS) is also ex-dividend this week.

Along with the rest of the financials, Morgan Stanley’s share price shows the disappointment over the concern that those interest rate hikes over the rest of the year that had been expected may never see the light of day.

This week’s FOMC and GDP news can be another blow to the hopes of banks, but if I was intent upon looking for a bargain this week among many depressed stocks, I may as well get the relationship started with a dividend and a company that I can at least identify the factors that may make it move higher or lower.

Not everything should be about oil and China.

 

Traditional Stocks: none

Momentum Stocks:  GameStop

Double-Dip Dividend: Fastenal (1/27 $0.30), Morgan Stanley ($0.15)

Premiums Enhanced by Earnings:  Apple (1/26 PM), Facebook (1/27 PM)

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.

 

Weekend Update – November 15, 2015

Back in March 2015, when writing the article “It’s As Clear As Mud,” there was no reason to suspect that there would be a reason for a Part 2.

After all, the handwriting seemed to be fairly clear at that time and the interest rate hawks seemed to be getting their footing while laying out the ground rules for an interest rate increase that had already been expected for months prior.

In fact, back in July 2015, I wrote another article inadvertently also entitled “It’s As Clear As Mud,” but in my defense the reason for the confusion back then had nothing to do with the FOMC or the domestic US economy, so it wasn’t really a Part 2.

It was simply a case of more confusion abounding, but for an entirely different reason.

Not that the FOMC hadn’t continued their policy of obfuscation.

But here we are, 8 months after the first article and the FOMC is back at the center of confusion that’s reigning over the market as messages are mixed, economic data is perplexing and the intent of the FOMC seems to be going counter to events on the ground.

While most understand that extraordinarily low interest rates have some appeal and can also be stimulatory, there’s also the recognition that prolonged low interest rates are a reflection of a moribund economy.

While individuals may someday arrive at a point in their lives that they’re not interested in or seeking personal growth, economies always have to be in pursuit of growth unless their populations are shrinking or aging along with the individual.

Like Japan.

Most would agree that when it comes to the economy, we don’t want to be like the Japan we’ve come to know over the past generation.

So despite the stock market being unable to decide whether an increase in interest rates would be a good thing for it, an unbiased view, one that doesn’t directly benefit from cheap money, might think that the early phase of interest rate increases would simply be a reflection of good news.

Growth is good, stagnation is not.

However, the FOMC has now long maintained that it will be data driven, but what may be becoming clear is that they maintain the right to move the needle when it comes to deciding where thresholds may be on the data they evaluate.

After years of regularly being disappointed by monthly employment gains below 200,000, October 2015’s Employment Situation Report gave us a number that was below 150,000. While that was surprising, the real surprise may have come a few weeks later when the FOMC indicated that 150,000 was a number sufficiently high to justify that rate increase.

The October 2015 Employment Situation report came at a time that traders had a brief period of mental clarity. They had been looking at negative economic news as something being bad and had been sending the market lower from mid-August until the morning of the release, when it sent the market into a tailspin for an hour or so.

Then began a very impressive month long rally that was based on nothing more than an expectation that the poor employment statistics would mean further delay in interest rate hikes.

But then the came more and more hawkish talk from Federal Reserve Governors, an ensuing outstanding Employment Situation Report and terrible guidance from national retailers.

With a year of low energy prices, more and more people going back to work and minimum wage increases you would have good reason to think that retailers would be rejoicing and in a position to apply that basic law of supply and demand on the wares they sale.

But the demand part of that equation isn’t showing up in the top line, yet the hawkish FOMC tone continues.

The much discussed 0.25% increase isn’t very much and should do absolutely nothing to stifle an economy. While I’d love to see us get over being held hostage by the fear of such an increase by finally getting that increase, it’s increasingly difficult to understand the FOMC, which seems itself to be held hostage by itself.

Difficulty in understanding the FOMC was par for the course during the tenure of Alan Greenspan, but during the plain talk eras of Ben Bernanke and Janet Yellen the words are more clear, it’s just that there seems to be so much indecisiveness.

That’s odd, as Janet Yellen and Stanley Fischer are really brilliant, but may be finding themselves faced with an economy that just makes little sense and isn’t necessarily following the rules of the road.

We may find out some more of the details next week as the FOMC minutes are released, but if they’re confused, what chance do any of the rest of us have?

As usual, the week’s potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Last week was just a miserable week. I was probably more active in adding new positions than I should have been and took little solace in having them out-perform the market for the week, as they were losers, too.

This week has more potentially bad news coming from retail, at a time when I really expected some positive news, at least with regard to forward guidance.

But with Abercrombie and Fitch (NYSE:ANF) having fallen about 12% last week after having picked up a little strength in the previous week, I’m ready to look at it again as it reports earnings this week.

I am sitting on a far more expensive lot of Abercrombie and Fitch, although if looking for a little of that solace, I can find some in having also owned it on 6 other occasions in 2015 and 21 other times in the past 3 years.

Despite that one lot that I’m not currently on speaking terms with, this has been a stock that I’ve longed loved to trade.

It has been range-bound for much of the past 8 months, although the next real support level is about 20% below Friday’s closing price.

With that in mind, the option market is implying about a 13.3% price move next week. A 1% ROI could potentially be obtained by selling puts nearly 22% below that close.

A stock that I like to trade, but don’t do often enough has just come off a very bad single day’s performance. GameStop (NYSE:GME) received a downgrade this past week and fell 16.5%

The downgrade was of some significance because it came from a firm that has had a reasonably good record on GameStop, since first downgrading it in 2008 and then upgrading in 2015.

GameStop has probably been written off for dead more than any stock that I can recall and has long been a favorite for those inclined to short stocks.

Meanwhile, the options market is implying a 5.5% move next week, even though earnings aren’t to be reported until Monday morning of the following week.

A 1% ROI could possibly be achieved by selling a put contract at a strike level 5.8% below Friday’s close, but if doing that and faced with possible assignment resulting in ownership of shares, you need to be nimble enough to roll over the put contracts to the following or some other week in order to add greater downside protection.

For the following week the implied move is 12.5%, but part of that is also additional time value. However, the option market clearly still expects some additional possibility of large moves.

If you’re a glutton for more excitement, salesforce.com (NYSE:CRM) reports earnings this week and is no stranger to large price movements with or without earnings at hand.

Depending upon your perspective, salesforce.com is either an incredible example of great ingenuity or a house of cards as its accounting practices have been questioned for more than a decade.

The basic belief is that salesforce.com’s practice of stock based compensation will continue to work well for everyone as long as that share price is healthy, but being paid partially in the stock of a company whose share price is declining may seem like receiving your paycheck back in the days of Hungarian hyper-inflation.

Let’s hope it doesn’t come to that this week, as shares already did fall 4.6% last week.

The share price of salesforce.com has held up well even as rumors of a buyout from Microsoft (NASDAQ:MSFT) have gone away. The option market is implying a share price move of 8.1% next week and a 1% ROI might possibly be obtained if selling puts at a strike level 9.4% below Friday’s close.

Microsoft itself is ex-dividend this week and is one of those handful of stocks that has helped to create the illusion of a healthy broader market.

That’s because Microsoft, a member of both the DJIA and the S&P 500 is up nearly 14% for the year and is one of those few well performing companies that has helped

to absorb much of the shock that’s being experienced by so many other index components that are in correction or bear territory.

In fact, coming off its market correction lows in August, Microsoft shares are some 30% higher and is only about 5% below its recent high.

While that could be interpreted by some as its shares being a prime candidate for a decline in order to catch up with a flailing market, sometimes in times of weakness it may just pay to go with the prevailing strength.

While I’d rather consider its share purchase after a price decline and before its ex-dividend date, Microsoft’s ability to withstand some of the market’s stresses adds to its appeal right now.

On the other hand, Intel’s (NASDAQ:INTC) 5.1% decline last week and its 6.5% decline from its recent ex-dividend date when some of my shares were assigned away from me early, makes it appealing.

Despite a large differential in comparative performance between Microsoft and Intel in 2015, they have actually tracked one another very well through the year if you exclude two spikes higher in Microsoft shares in the past year.

With that in mind, in a week that I like the idea of adding Microsoft for its dividend, I also like the idea of adding more Intel, just for the sake of adding Intel and capturing a reasonably generous option premium, in the hopes that it keeps up with Microsoft.

Finally, also going ex-dividend in the coming week are Dunkin Brands (NASDAQ:DNKN) and Johnson & Johnson (NYSE:JNJ).

The former probably sells something that can help you if you’ve over-indulged in the former for far too long of a time.

Dunkin Brands only has monthly dividends, but this being the final week of the monthly cycle, some consideration can be given to using it as a quick vehicle in an attempt to capture both premium and dividend, or perhaps a longer term commitment in an attempt to also secure some meaningful gain from the shares.

Those shares are actually nearly 30% lower in the past 4 months and are within easy reach of a 22 year low.

I’m currently undecided about whether to look at the short term play or a longer term, but I am also considering using a longer term contract, but rather than looking for share appreciation, perhaps using an in the money option in the hopes of being assigned shares early and then moving on to another potential target with the recycled cash.

Johnson & Johnson is not one of those companies that has helped to create the illusion of a healthy market. If you factor in dividends, Johnson & Johnson has essentially mirrored the DJIA.

Over the past 5 years, with a very notable exception of the last quarter, Johnson & Johnson has tended to trade well in the few weeks after having gone ex-dividend.

For that reason I may look at the possibility of selling calls dated for the following week, or perhaps even the week after Thanksgiving and also thinking about some capital gains on shares in addition to its generous dividend, but somewhat lower out of the money premium.’

While thinking about what to do in the coming week, I may find myself munching on some Dunkin Donuts. That tends to bring me clarity and happiness.

Maybe I could have some delivered to the FOMC for their next meeting.

It couldn’t hurt.

Traditional Stocks:Intel

Momentum Stocks: GameStop

Double-Dip Dividend: Dunkin Donuts (11/19 $0.26), Johnson & Johnson (11/20 $0.75). Microsoft (11/17 $0.36)

Premiums Enhanced by Earnings: Abercrombie and Fitch (11/20 AM), 11/18 PM)

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.

Weekend Update – August 23, 2015

It wasn’t too long ago that China did what it continues to believe that it does best.

It dictated and restricted behavior.

You really can’t blame them, as for the past 67 years the government has done a very good job of controlling everything within its borders and rarely had to give up much in return.

This time it believed that it could control natural market forces with edicts and with the imposition of a very market un-natural prohibition against selling shares in a large number of stocks.

In the immediate aftermath of that decision nearly 2 months ago, the Shanghai Index had actually fared quite well, especially when you consider that in the month prior that index had taken a free fall and dropped 30% over the course of 27 days.

A subsequent 21% rebound over 15 days after the introduction of new “rules” to inactivate gravitational pull, likely re-inforced the belief that the government was omnipotent and emboldened it as it went forth with a series of rapid and significant currency devaluations, even while sending confusing signals when it moved in to support its currency.

I’ve often wondered about people who engage in risky behaviors, such as free fall jumping. What goes on in their mind, besides the obvious thrill, that tells them they can battle nature and natural laws and be on the winning side?

As with lots of things in life, we have the tendency to project in a very optimistic way. A single victory against all odds suddenly becomes the expected outcome in the future, as if nature and its forces had never heard of the expression “fool me once, shame on me….”

Given China’s track record in getting what it wants they can’t be blamed for believing that they are bigger than the laws that govern markets.

When you believe that you are right or invincible, you don’t really think about such pesky matters as consistency and the likelihood that things will eventually catch up with you.

While it may not be unusual to place some restrictions on trading when things are looking dire, the breadth of the Chinese stock trading restrictions was really broad. The suggestion that those responsible for rampant speculation and “malicious” short selling might suffer anirreversible form of punishment simply sought to ensure that any remaining miscreants severed their alliance with their normal behavior.

But when you’re on a streak and no one questions you, what reason is there to not continue in the same path that got you there? It’s just like not selling your stock positions and pocketing the gains.

Since those restrictions were imposed the Shanghai Index has actually gone 1% higher, which is considerably better than our own S&P 500 which has declined 5% after today’s free fall.

So clearly erecting a dam, even if on the wrong side of the natural flow, has helped and the score is Chinese Government 1, Natural Forces 0.

Except of course if you drill down to the past few days and see a drop of about 13%, while the S&P 500 has gone down 6%.

When the dam breaks, it’s not just the baby in the bath water that’s going to get wet, but more on that, later. That downdraft that we felt on our shores blew in from China as we got sucked in by the vacuum created from their free fall.

As with other instances of trying to do battle with nature there may be the appearance of a victory if you have a very, very short timeframe, but at some point the dam is going to burst and only time can really get things back under control enough to allow an opportunity to rebuild.

This past week was the worst in over 4 years as the S&P 500 fell 5.8%. At this point people are looking at individual stocks and are no longer marveling about how many are in correction territory, but rather how many are approaching or are in bear territory.

I haven’t kept track, but 2015 has been a year in which it seems that the most uttered phrase has been “and the markets have now given up all of their gains for the year.”

While I don’t spend too much time staring at charts and thinking about technical factors, you would have had a very difficult time escaping the barrage of comments about the market having dipped below its 200 Day Moving Average.

The level that I had been keeping my eye on as support was the 2045 level on the S&P 500 and that was breached in the final hour of trading on Thursday, leaving the 2000 level the next likely stop.

That too was left behind in the dust, as is the usual case when in free fall.

As mentioned earlier in the month, those technicals were showing a series of lower highs and higher
lows, which is often interpreted as meaning that a break-out is looming, but gives no clue as to the direction.

Now we know the direction, not that it helps any after the fact.

While the DJIA ended the week down a bit more than 10% off from its all time highs, allowing this to now be called a “correction,” the broader S&p 500 is only 7.8% lower. While many elected to sell on their way out in the final hour of the week, I wasn’t, but don’t expect to be very actively buying next week, without some sign of a functioning parachute or at least some very soft land at the bottom.

Buying is something that I will probably leave to those people who are more daring than I tend to be.

However, even they seem to have been a little more careful as this most recent sell-off hasn’t shown much in the way of enticing dare devils to buy on the substantial dips.

Even people prone to enjoying the thrill of a nice free fall are exercising some abundance of caution. While I prefer not to join them on the way down, I don’t mind keeping their company for now.

As usual, the week’s potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or “PEE” categories.

I succumbed a little to the sell off late in the week on Thursday and purchased some shares of Bank of America (NYSE:BAC) in the final hour, right before another leg downward in a market that at that point was already down nearly 300 points.

That simply was a lesson in the issue that faces us all when prices seem to be so irrationally low. Distinguishing between a value priced stock and one that is there to simply suck money out of your pocket isn’t terribly easy to do.

As the sell off continued the following day to bring the August 2015 option cycle to its end the financial sector continued to be hit very hard as interest rates continued their decline.

It wasn’t very long ago that the 10 Year Treasury was ready to hit 2.5% and many were looking at that as being the proverbial “hand writing on the wall,” but in the past month those rates have fallen more than 40% and suddenly that wall is as clean as that baby that is continually mentioned as having been thrown out with the bath water, which coincidentally may be the second most uttered phrase of late.

After committing some money to Bank of America, I’m actually considering adding more financial sector positions in the expectation that the decline in interest rates will be coming to an end very soon as there’s some reason to believe that the FOMC’s dependence on data may be lip service.

Generally, the association between interest rates and the performance of stocks in the financial sector is reasonably straight forward. With some limitations, an increasing interest rate environment increases the margins that such companies can achieve when they put their own money to work.

MetLife (NYSE:MET) is a good example of that relationship and its share price has certainly followed interest rates lower in the past few weeks, just as it dutifully followed those rates higher.

The decline in its shares has been swift and has finally brought them back to the mid-point of the range of the past dozen purchases. While that decline has been swift, the range has been fairly consistent and as the lower end of that range is approached there’s reason to consider braving some of the prevailing winds.

With the swiftness of the decline and with the broader market exhibiting volatility, the option premiums now associated with MetLife are recapturing some of the life that they had earlier in this year and all throughout 2014.

I often like to consider adding shares of MetLife right before an ex-dividend date, but I find the current stock price level to be compelling reason enough to consider a position and perhaps consider a longer term option contract to ride out any storm that may continue to be ahead.

Blackstone (NYSE:BX) hasn’t exactly followed that general rule, but lately it has fallen back in line with that very general rule, as it has plunged in share price since its earnings report and news of some insider selling.

As an example of how easy it has been to be too early in expressing optimism, I thought that Blackstone might be ready for a purchase just 2 weeks ago, but since then it has fallen 12%, although having had nothing but positive analyst comments directed toward it during those weeks. It, too, seems to have been caught in a significant downdraft and continued uncertainty in its near term fortunes are reflected in the very rich option premiums it’s now offering.

My major concern with Blackstone at the moment is whether its dividend, now at an 8.4% yield, can be sustained.

At a time when uncertainty is the prevailing mood, there’s some comfort that could come from having dividends accrue, as long as those dividends are safe.

While it’s dividend isn’t huge, at 2.5% and very safe, Sinclair Broadcasting (NASDAQ:SBGI) again looks inviting as it followed other media companies lower this week and is now at a very appealing part of its trading range.

They have no worries about exchange rates, the Chinese economy or any of those “stories du jour” that have everyone’s attention.

Having reached an agreement with DISH Network earlier in the week to allow retransmission of its signal it saw shares plummet the following day.

Sinclair Broadcasting is ubiquitous around the nation but not exactly a household name, even in its home turf in the Mid-Atlantic. It offers only monthly options and has generally been a longer holding for me, having owned shares on six occasions in the past 15 months.

Lexmark (NYSE:LXK) was one of the early and very pronounced casualties of this most recent earnings season and it has shown no sign of recovery. The market didn’t even cheer as Lexmark announced workforce reductions.

What Lexmark has done since earnings hasn’t been encouraging as its total decline has been in excess of 30%, with a substantial portion of that coming after the initial wave of selling upon earnings being released.

Lexmark also only offers monthly options and it has a dividend yield that’s both enticing and unnerving. The good news is that expected earnings for the next quarter are sufficient to cover the dividend, but there has to be some concern going forward, as Lexmark has found itself in the same situation as its one time parent IBM (NYSE:IBM) having pivoted from its core business and perhaps needing to do so again.

With virtually no exposure to China you might have thought that Deere (NYSE:DE) would have had somewhat of an easier time of things as reporting its earnings for the past quarter.

If so, you would have been wrong, but getting it right hasn’t been the norm of late, regardless of what company is being considered.

The drop seen in Deere shares definitely came as a surprise to the options markets and to most everyone else as they became yet another to beat on earnings, but to miss on revenues.

As is the general theme, as volatility is climbing, at nearly its highest level in 3 years, the premiums are welcoming greater risk taking, even as they provide some cushion to risk.

Following its loss on Friday, even Starbucks (NASDAQ:SBUX) is now among those in correction, having sustained that decline over the past 2 weeks. With some significant exposure in China it may be understandable why Starbucks was a full participant in the market’s weakness.

Like many other stocks, the sudden decline in the context of a market decline that has led to a surge in volatility, option premiums are beginning to look better and better.

As volatility increases, which itself is a reflection of increasing risk, there is the seeming paradox of more of that risk being mollified through the sale of in the money options. The cushion provided by those in the money options increases as the volatility increases, so that the relative risk is reduced more than an upward moving market.

Starbucks, after a prolonged period of very mediocre option premiums is now beginning to show some of the reason why option sellers prefer high volatility. It’s not only for the increased premium, but also for the premium on that premium which allows greater reward even when willing to see shares assigned at a loss.

As an example, at Starbuck’s closing price of $52.84, the weekly $52 option sale would have delivered a premium of $1.64, which would net $0.80, a 1.5% yield, if shares were assigned, even if those shares fell 1.6%.

Those kind of risk and reward end points on otherwise low risk stocks haven’t been seen in a few years and is very exciting for those who do sell options on a regular basis.

Finally, not many companies have had their obituaries prepared for release as frequently as GameStop (NYSE:GME) has had to endure for many years.

Somehow, though, even as we think that the model for gaming distribution is changing there exists a strong core of those still yearning for physicality, even if in a virtual world.

GameStop reports earnings this week and it is no stranger to strong moves. The option market, however is implying only an 8.8% move, which seems substantial, but as this most recent earnings season will attest, may be under-stated.

For those bold enough to consider the sale of puts before earnings, a 1% ROI can be achieved if shares fall less than 12.1%.

As with a number of other earnings related trades over the past few months, I’m not so bold as to consider the trade in advance of earnings, but might consider selling puts after earnings in the event of a large move downward.

Lately, that has been a better formula for balancing reward and risk, although it may result in some lost opportunities in the event that shares don’t plummet beyond the strike prices implied by the option market. That, however, can be a small price to pay when the moves have so frequently been out-sized in their magnitude and offering a reward that ends up being dwarfed by the risk.

Considering that GameStop has fallen only 4.6% from its highs, it may be under additional pressure in the event of even a mild disappointment or less than optimistic guidance.

While it may be premature to begin the flow of tears and recount the good memories of GameStop and a youth wasted, I would be cautious about discounting the concerns entirely as far as the market’s reaction may be concerned.

Traditional Stock: Blackstone, Deere, General Electric, MetLife, Starbucks

Momentum Stock: none

Double-Dip Dividend: Lexmark (8/26 $0.36), Sinclair Broadcasting (8/28 $0.16)

Premiums Enhanced by Earnings: GameStop (8/27 PM)

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.

Weekend Update – May 24, 2015

There was a time, a long time ago, that people actually made telephone calls and the ones on the receiving end didn’t have Caller ID to screen those calls.

Back in those days, without any screening device, there were lots of wrong numbers. Sometimes, if it got to the point that you actually began to recognize the voice on the other end, those wrong numbers could become annoying. Of course, the time of the day also played a role in just how annoying those wrong numbers could be and they always seemed to come at the worst of times.

For example, just imagine how bad the timing might be if you discovered that the wrong GDP numbers had played a role, maybe a major role, in helping stock markets move higher in the belief that interest rate increases weren’t going to be imminent.

Somehow, that’s not as funny as the intentionally wrong number prank phone calls made by Bart Simpson.

Although anyone could make the honest mistake of dialing a wrong number, in the back of your mind you always wondered what kind of an idiot doesn’t know how to dial? After all, it was just a simple question of transposing numbers into action.

Otherwise, numbers were a thing of beauty and simply reflected the genius of mankind in their recognition and manipulations.

For many years I loved arithmetic and then I learned to really enjoy mathematics. The concept that “numbers don’t lie” had lots of meaning to me until I learned about interpretative statistics and came to realize that numbers may not lie, but people can coerce them into compromising themselves to the point that the numbers themselves are blamed.

As we’ve all been on an FOMC watch trying to predict when a data driven Federal Reserve would begin the process of increasing rates it’s a little disconcerting to learn that one of the key input numbers, the GDP, may not have been terribly accurate.

In other words, the numbers themselves may have lied.

As those GDP reports had been coming in over the past few months and had been consistently disappointing to our expectations, many wondered how they could possibly be reflecting a reality that seemed to be so opposite to what logic had suggested would be the case.

But faced with the sanctity of numbers it seemed a worthless exercise to question the illogical.

While many of us are wary of economic statistics that we see coming from overseas, particularly what may be self-serving numbers from China, there’s basically been a sense that official US government reports, while subject to revision, are at least consistent in their accuracy or inaccuracy, as the methodology is non-discriminatory and applied equally.

It really comes as a blow to confidence when the discovery is made that the methodology itself may be flawed and that it may not be a consistently applied flaw.

The word for that, one that we heard all week long, was “seasonality.”

The realization that the first quarter GDP was inaccurate puts last month’s FOMC minutes released this past week in a completely different light. While the FOMC Governors may not have been inclined to increase rates as early as this upcoming June’s meeting, that inclination may at least have been partially based upon erroneous data. That erroneous data, although perhaps isolated to a particular time of the year, therefore, may also impact the rate of change observed in subsequent periods. Those projected trends are the logical extension of discrete data points and may also contribute to policy decisions.

But not so readily once you find that you may have been living a lie.

Next week, a holiday shortened trading week, ends with the release of the GDP and may leave us with the question of just what to do with that data.

This past Friday, Federal Reserve Chairman Janet Yellen gave an address and didn’t offer any new insights into the thoughts of the FOMC, particularly as the issue of the integrity of data was concerned.

With the S&P 500 resting for the week at what may either be a resistance level or a support level, what she also didn’t do was to offer stock market bulls a reason to believe that a dovish FOMC would take a June interest rate increase off the table to offer a launching pad.

As the market sits right below its record closing highs and with earnings season begin to wind down, taking those always questionable numbers away with them until the next earnings season begins in less than 2 months, all we have left is the trust in the consistency and accuracy of economic reports. However, taking a look at both the Shanghai and Hang Seng Indexes, maybe questionable numbers isn’t such a bad thing, after all.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Coach (NYSE:COH) and Michael Kors (NYSE:KORS) have been very much linked in people’s minds ever since Coach’s very disappointing sales and earnings report in July 2013. At that time the storyline was that Coach was staid and uninteresting and had been supplanted in all ways by Kors.

To a large degree that mindset still continues, despite Kors steep descent from its highs of 2014. What has gone unnoticed, however, is that other than for the 6 month period after that disastrous earnings report in 2013, Coach shares have actually out-performed Kors through most of the time thereafter.

Coach didn’t fare terribly well after its most recent earnings report and its price has since returned back to where it had built a comfortable base. With an ex-dividend date upcoming the following week I think that I’m ready to add shares to a more expensive pre-existing lot that has been waiting for more than a year to be assigned and the past 8 months to be joined by another lot to help alleviate its misery.

With that upcoming dividend and with this week being a shortened trading week and offering lessened option premiums, I would likely consider a purchase of Coach shares and the sale of an extended weekly option, probably also seeking some capital gains on shares by using an out of the money strike price.

Kors on the other hand is reporting earnings this week and the option market is implying a 7.5% price movement. While not a very big differential, a 1% ROI may be achieved with the sale of a weekly put option if the shares fall less than 8.3% next week. If willing to add an additional week to the put contract expiration that would allow a fall of almost 10% before being at risk of assignment of shares.

Normally I don’t like to go more than a week at a time on a put sale unless needing to rollover a put that is deep in the money in order to prevent or delay assignment. However, the premiums this week are somewhat lower because of the holiday and that means that risk is a little bit higher if selling puts with a particular ROI as a goal in mind.

While Coach has been resistant to being buried and cast away, it’s hard to find a company that has had more requiems written for it than GameStop (NYSE:GME).

With game makers having done well of late there may be reason to delay a public performance of any requiem for yet another quarter as GameStop continues to confound investors who have long made it a very popular short position.

Unlike Kors, which pays no dividend, I do factor a dividend into the equation if selling puts in advance or after earnings are reported. GameStop reports earnings this week and will be ex-dividend sometime during the June 2015 option cycle.

With the option market having an implied price move of 6.2% as earnings are released, a 1% ROI can be achieved with the sale of a weekly put if shares don’t fall more than 6.8%. However, if faced with assignment, I would try to rollover the put options unless the ex-dividend date is announced and it is in the coming week. In that event, I would take assignment and consider the sale of calls with the added goal of also capturing the dividend.

I’ve been waiting a long time to re-purchase shares of Baxter International (NYSE:BAX) and always seem drawn to it as it is about to go ex-dividend. This week’s ex-dividend date arrives at a time when shares are approaching their yearly low point. I tend to like that combination particularly when occurring in a company that is otherwise not terribly volatile nor prone to surprises.

As with some other trades this week I might consider bypassing the weekly option and looking at an extended weekly option to try to offset some of the relatively higher transaction costs occurring in a holiday shortened week.

Qualcomm (NASDAQ:QCOM) is also ex-dividend this week and seems to have found stability after some tumultuous trading after its January 2015 earnings report. With some upcoming technology and telecom conferences over the next 2 weeks there may be some comments or observations to shake up that stability between now and its next earnings report. However, if open to that risk, shares do offer both an attractive option premium and dividend.

With shares currently situated closer to its yearly low than its high it is another position that I would consider selling an extended weekly option and seeking to also get some capital gains on shares by using an out of the money strike price.

Finally, retail hasn’t necessarily been a shining beacon of light and whatever suspicions may surround the GDP, there’s not too much question that retailers haven’t posted the kind of revenues that would support a consumer led expansion of the economy, although strangely shoes may be exception.

One of the more volatile of the shoe companies has been Deckers Outdoor (NYSE:DECK) and if the option market is any judge, it is again expected to be volatile as it rep

orts earnings this week.

The option market is implying a 10.5% price move in one direction or another this coming week as earnings are released and guidance provided.

Meanwhile, a 1% ROI could potentially be achieved from the sale of a put option if the shares don’t fall more than 15.4%. That’s quite a differential and may be enough to mitigate the risk in the shares of a company that are very prone to significant ups and downs.

As with Kors, there is no dividend to factor into any decision if faced with the need to either embrace or avoid assignment. In that event, I would likely try to roll the put options over to a forward week in an attempt to outlast any decline in share price and wait out price recovery, while still generating premium income.

That sounds good on paper and when it does work out that way, adding up all of those premiums on a piece of paper reminds you how beautiful simple numbers can still be.

Traditional Stocks: none

Momentum Stocks: Coach

Double Dip Dividend: Baxter International (5/28), Qualcomm (6/1)

Premiums Enhanced by Earnings: Deckers (5/28), GameStop (5/28 PM), Kors (5/27 AM)

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.

Weekend Update – March 29, 2015

Fresh off of his estate’s victory in a copyright infringement suit, Marvin Gaye comes to my mind this week as I can’t help but wonder what’s going on.

With the Passover holiday approaching this week, I’m also reminded that much of the basis of re-telling the story of the exodus from Egypt is in response to the questions asked by children.

Among the classes of children traditionally described are the wise child, the evil child, the simple one and the one who doesn’t even know how to ask a question.

When it comes to trying to understand the past week I’m feeling a bit more like one of the latter two of those categories, although I still retain the option of holding onto my evil persona.

The week started with the Vice-Chair of the Federal Reserve, who coincidentally had been the Governor of the Bank of Israel many years after the exodus, getting some laughs with jokes that maybe only economists would appreciate. However, to his credit he was able to tone down his hawkish sentiments while still staying true to his tenets, but without frightening markets. That was nice to see, as it was his comments just 2 days after Janet Yellen’s congressional testimony that brought an end to the February rally and, perhaps coincidentally, set us on the path for March.

That hasn’t been a very good path for most investors and with only 2 days of trading remaining in the quarter has it threatening to be the first losing quarter in quite a while as we learned that the most recent quarterly corporate profits over the same time period fell for the first time since 2008.

Yet that news didn’t seem to bother markets this morning as they had a rare session ending with a higher close.

With Stanley Fischer putting everyone into a good mood from a dose of Federal Reserve humor all went pretty well to start the week, with Monday looking like it would mark the first time of having two consecutive days higher in over a month. That was the case until the final 15 minutes of trading and then the market just continued in that downward path throughout most of the rest of the week.

But why? Someone, somewhere had to be asking the obvious question that 3 out of 4 categories of children are capable of asking.

What’s going on?

Friday’s GDP data for the 4th Quarter of 2014 showed no change with the economy growing at an annual 2.2% rate. That’s considerably less than projections based upon lower energy prices fueling a resurgence of consumer activity in the coming year, even recognizing that those perceived benefits were theoretically in only their very nascent stages in late 2014.

While the GDP data is certainly backward looking there’s been nothing happening to support that consumer led growth that we’ve all believed was coming.

Corporate profits are falling, retail sales are flat and home sales aren’t exactly setting the economy on fire, all as energy prices are well off their earlier eye popping lows.

So you might think that would all add an arrow to the quiver of interest rate doves, but the market hasn’t been embracing the idea of continuing low interest rates as much as it’s been fearing the prospects of increasing interest rates.

But this week had nothing to fear. Even the most influential of the hawks seemed and sounded accommodating, but the market wasn’t buying it.

This past week, like recent weeks, has made little sense no matter how much you try to explain it. Just like it’s hard to explain how the defendant’s weren’t aware of the existence of Marvin Gaye’s “Got to Give It Up” or that somehow pestilence, boils and locusts rained down upon the Pharoahs.

No matter how you look at it reason is not reigning.

Even a child who doesn’t know how to ask knows when something is going on.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

I purchased some American Express (NYSE:AXP) shares a few weeks ago shortly after the news of their loss of Costco (NASDAQ:COST) as a co-branding partner. Coincidentally that decision came at the same time as both my wife and I had individual issues with American Express customer service.

With a combined history of more than 65 years of using American Express as our primary personal and business cards, we’ve done so largely for their customer service. My wife, after speaking to almost 15 representatives is ready to give her card the boot and she reminded me that she’s had that card longer than she’s had me, so I should be on notice.

Coming as no surprise, American Express just announced workforce cutbacks that will only serve to weaken what really distinguished them from the rest, but that may be what it takes to start making shares look attractive again as the company substitutes cost savings for revenues.

Fortunately, my shares from a few weeks ago were quickly assigned and now it looks as if another opportunity may be at hand as it has re-traced its bounce from the sizable drop it took when the Costco news was made known. It’s upcoming ex-dividend date this week adds to the attraction as the company is wasting no time in taking steps to offset what are now expected to be significant revenue losses beginning in 2016.

Who knew to ever ask just how important Costco was to American Express?

I purchased shares of Dow Chemical last week in order to capture the dividend. What I wasn’t expecting was the announcement coming Friday morning of their plans to merge a portion of the company with Olin Corporation (NYSE:OLN) while becoming a majority owner of Olin.

Fortunately that announcement waited until Friday morning so that I was able to retain the dividend. Had it come after Thursday’s close and based on the initial price reaction, those shares would have been assigned early.

While Dow Chemical has been somewhat phlegmatic lately as it tracks energy prices, the sale to Olin appears to be responsive to activist Dan Loeb’s desire to shed low margin businesses. This deal looks to be a great one for Dow Chemical and may also demonstrate that it is serious about improving margins.

GameStop (NYSE:GME) reported earnings this past Friday and recovered significantly from its preliminary decline. I was amazed that it did so after watching what appeared to be a very wooden and canned performance by its CFO during an interview before trading began that didn’t seem very convincing. However, shortly after trading did begin shares climbed significantly.

I like considering adding shares of GameStop after a decline, as there is a long history of people predicting its coming demise and offering very rational and compelling reasons of why they are correct, only to see shares have a mind of their own.

I had shares assigned just a week earlier and was happy to see that assignment come right after its ex-dividend date but before earnings. Now at a lower price it looks tempting again, although I would probably hold out for a little bit more of a decline, perhaps approaching Friday morning’s opening lows.

While GameStop has a reasonably low beta you wouldn’t know it if you owned shares, but fortunately the options market knows it and typically offers premiums that reflect the sudden moves shares are very capable of taking.

Up until about 30 minutes before Friday’s close it hadn’t been a very good week to be in the semiconductor business. That may have changed, at least for a moment or two, as it was announced that Intel (NASDAQ:INTC) was in talks to purchase Altera (NASDAQ:ALTR).

Among those stocks benefiting from that late news was Micron Technology (NASDAQ:MU), which has fallen even more than Intel in 2015.

Micron Technology reports earnings this week and is no stranger to large earnings related moves. The options market, however is implying only a 5.5% price move next week. While I normally look for a strike level that’s outside of the range defined by the implied move that offers at least a 1% ROI for the week, this coming week is a bit odd.

That’s because Micron Technology reports earnings after the market’s close on Thursday, yet the market will be closed for trading on Good Friday.

For that reason I would consider looking at the possibility of selling puts for the following week, but would like to see shares give up some of the gains made in response to the Intel news.

While Intel’s late news helped to rescue it from having sunk below $30 for the first time in 9 months, it did nothing for Oracle (NYSE:ORCL) nor Cisco (NASDAQ:CSCO). They, along with Intel had been significantly under-performing the S&P 500 this week and for the year to date.

Both Cisco and Oracle are ex-dividend this week and following their drops this past week both are beginning to have appeal once again.

With a holiday shortened week and also going ex-dividend the expectation is that option premiums would be noticeably lower, However, both Cisco and Oracle are offering a compelling combination of option premiums and dividends along with some chance of recovering some of their recent losses.

The real challenge for each may be related to currency exchange and how it will impact earnings. However, barring early earnings warnings, Cisco won’t report earnings for another 7 weeks and Oracle not for another 12 weeks, so hopefully that would allow plenty of time to extricate from a position before the added risk of earnings comes into play.

Finally, I came close to buying shares of SanDisk (NASDAQ:SNDK) just a couple of days ago, looking to replace shares that were assigned just 2 weeks earlier.

It’s not often that you see a company give earnings warnings twice within the space of about 2 months, but SanDisk now has that distinction and has plunged on both of those occasions.

What SanDisk may have discovered is what so many others have, in that being an Apple (NASDAQ:AAPL) supplier may be very much a mixed blessing or curse, depending on your perspective at the moment.

While its revenues are certainly being squeezed I’m reminded of a period about 10 years ago when SanDisk was essentially written off by just about everyone as flash memory was becoming to be considered as nothing more than a commodity.

In that time anyone with a little daring would have done very well in that time period with shares nearly doubling the S&P 500 performance.

With a nearly 25% drop over the past few days, even as a commodity or a revenue stressed company, SanDisk may have some opportunity as it approaches its 18 month lows.

As with many other stocks that have taken large falls, I would consider entering a new position through the sale of put options and if faced with the possibility of assignment would try to roll the position over to a forward week in an attempt to delay or preclude assignment while still collecting a premium.

Traditional Stocks: Dow Chemical

Momentum Stocks: GameStop, SanDisk

Double Dip Dividend: American Express (3/31), Cisco (3/31), Oracle (4/2)

Premiums Enhanced by Earnings: Micron Technology (4/2 PM)

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.