Weekend Update – June 5, 2016

While so many people are still confused over the “Transgender Bathroom” issue, the real confusion came from this week’s Employment Situation Report.

With the odds of an interest rate hike by the FOMC’s June meeting seemingly increasing every day, you would really have to believe that the FOMC knew what was going to be in the economic news cards.

The increasing hawkish talk all seemed to be preparing us for a rate hike in just 2 weeks. Judging by the previous week’s market performance you would certainly have been of the belief that traders were finally at personal peace with the certainty of that increase.

The concept of being at personal peace is confusing to some.

I’m personally confused as to how it could have taken so long to see the obvious, unless we’re talking about stocks, interest rates and investor’s reactions.

What I find ironic is that the proposal for all inclusive bathrooms is really age old, at least at the NYSE, when there was a recent time that there was only a need for a single sex bathroom, anyway.

Just like many of us know, what a great degree of certainty, which camp we belong to when nature beckons, the lines seemed to be increasingly drawn with regard to interest rates.

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Weekend Update – April 24, 2016

Most of us can recall a time when we were embarrassed, unless you need for denial is a stronger than your memory.

It’s probably much worse when there are a lot of people around as witnesses.

It may be even worse if your antics are under embargo, finally being released at 2 PM, say on a Wednesday, and then really called into question the following day with the planned release of the GDP.

There’s nothing like being under the spotlight, especially when purposefully bringing attention to yourself and then somehow messing up.

I imagine, that even as poised and calm as she appears as the Chairman of the Federal Reserve, a young Janet Yellen may have been as easily subject to embarrassment as a child as any of us.

Obviously, I also imagine that the hairdo hasn’t changed over the years.

Of course, it could be really helpful to know what the actual GDP statistic will be and having your performance altered to meet the demands of reality.

This coming week has an FOMC Statement release which is followed barely 20 hours later by news of the GDP for the first quarter of 2016.

As the FOMC meeting gets underway on Tuesday, there is no doubt awareness of the consensus calling for lackluster GDP growth and the Atlanta Federal Reserve’s own decreased estimate just a few weeks ago.

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Weekend Update – April 3, 2016

 I used to love comic books, but I was definitely never in the market for comic books based on great literature, unless a book report was due.

Normally engaged in less high brow reading pursuits, I knew enough to focus on key phrases found in the great works of literature. Those often held the theme and offered insight without having to commit to reading from cover to cover.

Unfortunately, sometimes those phrases from different comic books tended to coalesce and my graded book reports were often characterized by large red question marks.

Lyrics to a song may have no relationship to famous snippets from great works of literature, but this week reminded me of the “Talking Heads” always poignant question that one may find oneself asking:

“Well… How did I get here?”

It was really a week with no real direction, but it was the “Same As It Ever Was” and a perfect ending to the first quarter of 2016, which was truly a tale of two very different markets halves with much ado signifying nothing.

Despite there not being anything really different having occurred from one half of that quarter to the next half your head would have irreparably rolled had you succumbed to the temptation to cut loose, sell and run following the first 6 weeks.

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Weekend Update – March 20, 2016

Best laid plans often have a way of working out other than expected.

On slow days I make it a point to go and sit in anyone’s waiting room, even without an appointment, just to read stale issues of business and news magazines.

Eventually I get up and leave and feel better about my track record.

Doing that tends to reinforce the belief that the “experts” called upon to predict what awaits in the future are invariably wrong, even as self tying sneakers depicted in “Back to the Future” may now become somewhat of a reality.

Sometimes it’s the timing that’s all wrong and sometimes it’s the concept.

Unless you put much stock in a prediction, such as converting all of your assets to gold in anticipation of yet another Doomsday, they tend to be forgotten unless a dusty magazine is picked up.

The plan to be awash in the one true and universal currency might have seemed like a good idea until coming to the realization that it’s hard to spread on a slice of bread, even if you actually had a slice of bread.

While you can’t be very certain about the accuracy of a “futurists” predictions, you can be very certain that no self-respecting expert on the future keeps a complete scorecard and most would probably be advocates of having physician’s offices regularly rotate their stock of reading materials.

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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 – January 10, 2016

new year starts off with great promise.

If seems so strange that the stock market often takes on a completely different persona from one day to the next.

Often the same holds true for one year to the next. despite there being nothing magical nor mystical about the first trading day of the year to distinguish it from the last trading day of the previous year.

For those that couldn’t wait to be finally done with 2015 out of the expectation conventional wisdom would hold and that the year following a flat performing year would be a well performing year, welcome to an unhappy New Year.

2015 was certainly a year in which there wasn’t much in the way of short term memory and the year was characterized by lots of ups and downs that took us absolutely nowhere as the market ended unchanged for the year.

While finishing unchanged should probably result in neither elation nor disgust, scratching beneath the surface and eliminating the stellar performance of a small handful of stocks could lead to a feeling of disgust.

Or you could simply look at your end of the portfolio year bottom line. Unless you put it all into the NASDAQ 100 (NDX) or the ProShares QQQ (NASDAQ:QQQ), which had no choice but to have positions in those big gainers, it wasn’t a very good year.

You don’t have to scratch very deeply beneath the surface to already have a sense of disgust about the way 2016 has gotten off to its start.

There are no shortage of people pointing out that this first week of 2016 was the worst start ever to a new year.

Ever.

That’s much more meaningful than saying that this is the worst start since 2019.

A nearly 7% decline in the first week of trading doesn’t necessarily mean that 2016 won’t be a good one for investors, but it is a big hole from which to have to emerge.

Of course a 7% decline for the week would look wonderful when compared to the situation in Shanghai, when a 7% loss was incurred to 2 different days during the week, as trading curbs were placed, markets closed and then trading curbs eliminated.

If you venture back to the June through August 2015 period, you might recall that our own correction during the latter portion of that period was preceded by two meltdowns in Shanghai that ultimately saw the Chinese government enact a number of policies to abridge the very essence of free markets. Of course, the implicit threat of the death penalty for those who may have knowingly contributed to that meltdown may have set the path for a relative period of calm until this past week when some of those policies and trading restrictions were lifted.

At the time China first attempted to control its markets, I believed that it would take a very short time for the debacle to resume, but these days, the 5 months since then are the equivalent of an eternity.

While China is again facing a crisis, the United States is back to the uncomfortable position of being the dog that is getting wagged by the tail.

US markets actually resisted the June 2015 initial plunge in China, but by the time the second of those plunges occurred in August, there was no further resistance.

For the most part the two markets have been in lock step since then.

Interestingly, when the US market had its August 2015 correction, falling from the S&P 500 2102 level, it had been flat on the year up to that point. Technicians will probably point to the fact that the market then rallied all the way back to 2102 by December 1, 2015 and that it has been nothing but a series of lower highs and lower lows since then, culminating in this week.

The decline from the recent S&P 500 peak at 2102 to 1922 downhill since then is its own 8.5%, putting us easily within a day’s worth of bad performance of another correction.

Having gone years without a traditional 10% correction, we’re now on the doorstep of the second such correction in 5 months.

While it would be easy to thank China for helping our slide, this past week was another of those perfect storms of international bad news ranging from Saudi-Iran conflict, North Korea’s nuclear ambitions and the further declining price of oil, even in the face of Saudi-Iran conflict.

Personally, I think the real kiss of death was news that 2015 saw near term record inflows into mutual funds and that the past 2 months were especially strong.

I’ve never been particularly good at timing, but there may be reason to believe that at the very least those putting their money into mutual funds aren’t very good at it either.

If I still had a shred of optimism left, I might say that the flow into mutual funds might reflect more and more people back in the workforce and contributing to workplace 401k plans.

If that’s true, I’m sure those participants would agree with me that it’s not a very happy start to the year. For those attributing end of the year weakness to the “January Effect” and anticipating some buying at bargain prices to drive stocks higher, that theory may have had yet another nail placed in its coffin.

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

2015 turned out to be my least active year for opening new positions since I’ve been keeping close track. Unfortunately, of those 107 new positions, 29 are still open and 15 of those are non-performing, as they await some opportunity to sell meaningful calls against them.

If you would have told me a year ago that I would not have rushed into to pick up bargains in the face of a precipitous 7% decline, I would have thought you to be insane.

While I did add one position last week, the past 2 months or so have been very tentative with regard to my willingness to ease the grip on cash and for the moment there’s not too much reason to suspect that 2016 will be more active than 2015.

With that said, though, volatility is now at a level that makes a little risk taking somewhat less of a risk.

While volatility has now come back to its October 2015 level, it is still far from its very brief peak in August 2015, despite the recent decline being almost at the same level as the decline seen in August.

Of course that 2% difference in those declines, could easily account for another 10 or so points of volatility. Even then, we would be quite a distance from the peak reached in 2011, when the market started a mid-year decline that saw it finish flat for the year.

The strategy frequently followed during periods of high volatility is to considering rolling over positions even if they are otherwise destined for assignment.

The reason for that is because the increasing uncertainty extends into forward weeks and drives those premiums relatively higher than the current week’s expiring premiums. During periods of low volatility, the further out in time you go to sell a contract, the lower the marginal increase in premium, as a reflection of less uncertainty.

For me, that is an ideal time and the short term outlook taken during a period of accelerating share prices is replaced by a longer term outlook and accumulation of greater premium and less active pursuit of new positions.

The old saying “when you’re a hammer, everything looks like a nail,” has some applicability following last weeks broad and sharp declines. If you have free cash, everything looks like a bargain.

While no one can predict that prices will continue to go lower as they do during the days after the Christmas shopping season, I’m in no rush to run out and pay today’s prices because of a fear that inventory at those prices will be depleted.

The one position that I did open last week was Morgan Stanley (NYSE:MS) and for a brief few hours it looked like a good decision as shares moved higher from its Monday lows when I made the purchase, even as the market went lower.

That didn’t last too long, though, as those shares ultimately were even weaker than the S&P 500 for the week.

While I already own 2 lots of Bank of America (NYSE:BAC), the declines in the financial sector seem extraordinarily overdone, even as the decline in the broader market may still have some more downside.

As is typically the case, that uncertainty brings an enhanced premium.

In Bank of America’s case, the premium for selling a near the money weekly option has been in the 1.1% vicinity of late. However, in the coming week, the ROI, including the potential for share appreciation is an unusually high 3.3%, as the $15.50 strike level offers a $0.19 premium, even as shares closed at $15.19.

With earnings coming up the following week, if those shares are not assigned, I would consider rolling those contracts over to January 29, 2016 or later.

At this point, most everyone expects that Blackstone (NYSE:BX) will have to slash its dividend. As a publicly traded company, it started its life as an over-hyped IPO and then a prolonged disappointment to those who rushed into buy shares in the after-market.

However, up until mid-year in 2015, it had been on a 3 year climb higher and has been a consistently good consideration for a buy/write strategy, if you didn’t mind chasing its price higher.

I generally don’t like to do that, so have only owned it on 3 occasions during that time period.

Since having gone public its dividend has been a consistently moving target, reflecting its operating fortunes. With it’s next ex-dividend date as yet unannounced, but expected sometime in early February, it reports earnings on January 28, 2015.

That presents considerable uncertainty and risk if considering a position. I don’t believe, however, that the announcement of a decreased dividend will be an adverse event, as it is both expected and has been part of the company’s history. WHat will likely be more germane is the health of its operating units and the degree of leverage to which Blackstone is exposed.

If willing to accept the risk, the premium reward can be significant, even if attenuating the risk by either selling deep in the money calls or selling equally out of the money put contracts.

I’m already deep under water with Bed Bath and Beyond (NASDAQ:BBBY), but after what had been characterized as disappointing earnings last week, it actually traded fairly well, despite the overall tone of the market.

It is now trading near a multi-year low and befitting that uncertainty it’s option premiums are extraordinarily generous, despite having a low beta,

As is often the case during periods of heightened volatility, consideration can be given to the sale of puts options rather than executing a buy/write.

However, given its declines, I would be inclined to consider the buy/write approach and utilize an out of the money option in the hopes of accumulating share appreciation and dividend.

If selling puts, I would sell an out of the money put and settle for a lower ROI in return for perhaps being able to sleep more soundly at night.

During downturns, I like to place some additional focus on dividends, but there aren’t very many good prospects in the coming week.

One ex-dividend position that does get my attention is AbbVie (NYSE:ABBV).

As it is, I’m under-invested in the healthcare sector and AbbVie is currently trading right at one support level and has some additional support below that, before being in jeopardy of approaching $46.50, a level to which it gapped down and then gapped higher.

It has a $0.57 dividend, which means that it is greater than the units in which its strike levels are defined. While earnings aren’t due to be reported until the end of the month, its premium is more robust than is usually the case and you can even consider selling a deep in the money call in an effort to see the shares assigned early. For what would amount to a 2 day holding, doing so could result in a 1.2% ROI, based upon Friday’s closing prices and a $55 strike level.

Finally, retail was especially dichotomous last week as there were some very strong days even during overall market weakness and then some very weak days, as well.

For those with a strong stomach, Abercrombie and Fitch (NYSE:ANF) is well off from its recent lows, but it did get hit hard on Friday, along with the retail sector and everything else.

As with AbbVie, the risk is that while shares are now resting at a support level, the next level below represents an area where there was a gap higher, so there is really no place to rest on the way down to $20.

The approach that I would consider for an Abercrombie and Fitch position to sell out of the money puts, where even a 6% decline in share price could still provide a return in excess of 1% for the week.

When selling puts, however, I generally like to avoid or delay assignment, if possible, so it is helpful to be able to watch the position in the event that a rollover is necessary if shares do fall 6% or more as the contract is running out.

Traditional Stocks: Bank of America, Bed Bath and Beyond

Momentum Stocks: Abercrombie and Fitch, Blackstone

Double-Dip Dividend: AbbVie (1/13 $0.57)

Premiums Enhanced by Earnings: none

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 1, 2015

The recently deceased Hall of Fame catcher, Yogi Berra, had many quotes attributed to him, some of which he admitted were uttered by him.

One of those allegedly genuine quotes had Yogi Berra giving directions to his home, ending with the words “when you get to the fork in the road, take it.”

People have likely written PhD dissertations on the many levels of meaning that could be contained in that expression in the belief that there was something more deep to it when it was originally uttered.

We’ll probably never know whether the original expression had an underlying depth to it or was simply an incomplete thought that took on a life of its own.

Nearly each month during the Janet Yellen reign as Chairman of the Federal Reserve we’ve been wondering what path the FOMC would take when faced with a potential decision.

Each month it seems that investors felt that they were being faced with a fork in the road and there was neither much in the way of data to decide which way to go, just as the FOMC was itself looking for the data that justifies taking action.

While that decision process hasn’t really taken on a life of its own, the various and inconsistent market responses to the decisions all resulting in a lack of action have taken on a life of their own.

Over much of Yellen’s tenure the market has rallied in the day or days leading up to the FOMC Statement release and I had been expecting the same this past week, until having seen that surge in the final days of the week prior.

Once that week ending surge took place it was hard to imagine that there would still be such unbridled enthusiasm prior to the release of the FOMC’s decision. It was just too much to believe that the market would risk even more on what could only be a roll of the dice.

Last week the market stood at the fork in the road on Monday and Tuesday and finally made a decision prior to the FOMC release, only to reverse that decision and then reverse it again.

I don’t think that’s what Yogi Berra had in mind.

With the FOMC’s non-decision now out of the way and in all likelihood no further decision until at least December, the market is now really standing at that fork in the road.

With retail earnings beginning the week after next we could begin seeing the first real clues of the long awaited increase in consumer spending that could be just the data that the FOMC has been craving to justify what it increasingly wants to do.

The real issue is what road will the market take if those retail earnings do show anything striking at all. Will the market take the “good news is bad news” road or the “good news is good news” path?

Trying to figure that out is probably about as fruitless as trying to understand what Yogi Berra really meant.

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

When it comes to stocks, I’m often at my happiest when I can go in and out of the same stocks on a serial basis.

While it may be more exciting to discover a new stock or two every week to trust with your money, when it comes to making a choice, I’d much rather take the boring path at the fork.

For those inclined to believe that Yogi Berra meant to tell his prospective guests that they shouldn’t worry when they got to the fork in the road, because both paths could lead to his home, I’m inclined to believe that the boring path will have fewer bumps in its road.

After 2 successive weeks of being in and out of Morgan Stanley (NYSE:MS) and Seagate Technology (NASDAQ:STX), I’m ready to do each or both again in the coming week.

Morgan Stanley, which was ex-dividend last week, has now recovered about half of what it lost when it reported earnings earlier in the month. Its decline this past Friday and hopefully a little more as the new week gets set to begin, would again make it an attractive stock to (“re”)-consider.

While volatility has been declining, Morgan Stanley’s premium still continues elevated, even though there’s little reason to believe that there will be any near term reason for downward price pressure. In fact, a somewhat hawkish FOMC statement might give reason to suspect that the financial sector’s prospects may be brighter in the coming quarter than they were in this quarter past.

Seagate Technology, w

hich reported earnings last week is ex-dividend this week and I would like to take advantage of either the very generous dividend, the call option premium or both.

For the past 2 weeks I had sold puts, but was prepared to take assignment rather than rolling over the short put option position in the event of an adverse price movement.

That was due to the upcoming ex-dividend date and an unwillingness as a put seller to receive a lower premium than would ordinarily be the case if no dividend was in the equation. Just as call buyers often pay a greater premium than they should when a stock is going ex-dividend, put sellers frequently receive a lower premium when selling in advance of an ex-dividend date.

I would rather be on the long end of a pricing inefficiency.

But as Seagate Technology does go ex-dividend and while its volatility remains elevated there are a number of potential combinations, all of which could give satisfactory returns if Seagate spends another week trading in a defined range.

Based upon its Friday closing price a decision to sell a near the money $38 weekly contract, $37.50 or $37 contract can be made depending on the balance between return and certainty of assignment that one desires.

For me, the sweet spot is the $37.50 contract, which if assigned early could still offer a net 1.2% ROI for a 2 day holding period.

I would trade away the dividend for that kind of return. However, if the dividend is captured, there is still sufficient time left on a weekly contract for some recovery in price to either have the position assigned or perhaps have the option rolled over to add to the return.

MetLife (NYSE:MET) is ex-dividend this week and then reports earnings after the closing bell on that same day.

Like Morgan Stanley, it stands to benefit in the event that an interest rate increase comes sooner rather than later.

Since the decision to exercise early has to be made on the day prior to earnings being announced this may also be a situation in which a number of different strike prices may be considered for the sale of calls, depending on the certainty with which one wants to enter and exit the position, relative top what one considers an acceptable ROI for what could be as little as a 2 day position.

Since MetLife has moved about 5% higher in the past 2 weeks, I’d be much more interested in opening a position in advance of the ex-dividend date and subsequent earnings announcement if shares fell a bit more to open the week.

If you have a portfolio that’s heavy in energy positions, as I do, it’s hard to think about adding another energy position.

Even as I sit on a lot of British Petroleum (NYSE:BP) that is not hedged with calls written against those shares, I am considering adding more shares this week as British Petroleum will be ex-dividend.

Unlike Seagate Technology and perhaps even MetLife, the British Petroleum position is one that I would consider because I want to retain the dividend and would also hope to be in a position to participate in some upside potential in shares.

That latter hope is one that has been dashed many times over the past year if you’ve owned many energy positions, but there have certainly been times to add new positions over that same past year. If anything has been clear, though, is that the decision to add new energy positions shouldn’t have been with a buy and hold mentality as any gains have been regularly erased.

With much of its litigation and civil suit woes behind it, British Petroleum may once again be like any other energy company these days, except for the fact that it pays a 6.7% dividend.

If not too greedy over the selection of a strike price in the hopes of participating in any upside potential, it may be possible to accumulate some premiums and dividends, before someone in a position to change their mind, decides to do so regarding offering that 6.7% dividend.

Finally, if there’s any company that has reached a fork in the road, it’s Lexmark (NYSE:LXK).

A few years ago Lexmark re-invented itself, just as its one time parent, International Business Machines (NYSE:IBM), did some years earlier.

The days about being all about hardware are long gone for both, but now there’s reason to be circumspect about being all about services, as well, as Lexmark is considering strategic alternatives to its continued existence.

I have often liked owning shares of Lexmark following a sharp drop and in advance of its ex-dividend date. It

won’t be ex-dividend until early in the December 2015 cycle and there may be some question as to whether it can afford to continue that dividend.

However, in this case, there may be some advantage to dropping or even eliminating the dividend. It’s not too likely that Lexmark’s remaining investor base is there for the dividend nor would flee if the dividend was sacrificed, but that move to hold on to its cash could make Lexmark more appealing to a potential suitor.

With an eye toward Lexmark being re-invented yet again, I may consider the purchase of shares following this week’s downgrade to a “Strong Sell” and looking at a December 2015 contract with an out of the money strike price and with a hope of getting out of the position before the time for re-invention has passed.

In Lexmark’s case, waiting too long may be an issue of sticking a fork in it to see if its finally done.

Traditional Stocks: Morgan Stanley

Momentum Stocks: Lexmark

Double-Dip Dividend: British Petroleum (11/4 $0.60), MetLife (11/4 $0.38), Seagate Technology (11/4 $0.63)

Premiums Enhanced by Earnings: MetLife (11/4 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 – April 12, 2015

This was one of those rare weeks where there wasn’t really any kind of theme to guide or move markets.

The week started with some nervousness about where the opening would take us after the previous Friday’s very disappointing Employment Situation Report statistics. On that day some were obliged to even suggest that it was a conspiracy that the report was released on Good Friday, as the markets were conveniently closed for what was supposedly known in advance to be a report that would have otherwise sent markets tumbling.

How convenient. Talk about a fairy tale.

That was as rational an outlook as was the response of the futures and bond markets trading, as they remained opened for holiday abbreviated sessions. Futures did go tumbling and interest rates plunged, leaving a gap for markets to deal with 3 days later.

But by then, after the mandatory initial response to those S&P 500 levels as the market opened, rational thought returned and the market had a very impressive turnaround beginning within minutes of the open.

Some brave souls may have remembered the market’s out-sized response to the previous month’s extraordinarily strong Employment Situation Report data that took the market down for the month to follow, only to see revisions to the data a month later. The 3 days off may have given them enough presence of mind to wonder whether the same outlandish response was really justified again.

One thing that the initial futures response did show us is that the market may be poised to be at risk regardless of what news is coming our way. One month the market views too many jobs as being extremely negative and the next month it views too few jobs as being just as negative.

Somewhere right in the middle may be the real sweet spot that represents the “No News is Good News” sentiment that may be the only safe place to be.

That is the true essence of a Goldilocks stock market, no matter what the accepted definition may be. It is a market where only the mediocre may be without risk. However, the question of whether mediocrity will be enough to continue to propel markets to new heights is usually easily answered.

It isn’t.

After a while warm porridge loses its appeal and something is needed to spice things up to keep Goldilocks returning. U.S. traded stocks have plenty of asset class competition in the event that they become mediocre or unpredictable.

The coming week may be just the thing to make or break the current malaise, that despite having the S&P 500 within about 0.7% of its all time high from just a month ago, is only 2.1% higher for 2015.

Granted that on an annualized basis that would bill respectable, but if the 2015 pattern of alternating monthly advances and declines continues we would end the year far from that annualized rate.

The catalyst could be this new earnings season which begins in earnest next week as the big banks report and then in the weeks to follow. Where the catalyst may arise is from our lowered expectations encountering a better reality than anticipated, as we’ve come to be prepared for some degree of lowered earnings due to currency considerations.

The real wild card will be the balance between currency losses and lower input costs from declining energy prices, as well as the impact, if any from currency hedges that may have been created. Much like the hedging of oil that some airlines were able to successfully implement before it became apparent how prescient that strategy would be, there may be some real currency winners, at least in relative terms.

I actually don’t really remember how the story of Goldilocks ended, but I think there were lots of variations to the story,depending on whether parents wanted to soothe or scare.

The real lesson is that you have to be prepared for either possibility.

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

WIth General Electric (NYSE:GE) getting most everyone’s attention this past Friday morning with plans to divest itself of most of its non-industrial assets, that may leave us with one fewer “systemically important” financial institution.

Too bad, for MetLife (NYSE:MET), which might find it would be less miserable with that proposed assignment if it had more company. It’s easy to understand why financial institutions would want to rid themselves of the yoke they perceive, however, it may be difficult to imagine how MetLife’s desire to avoid that designation can become reality. That is unless the battle goes a very long distance, which in turn could jeopardize a good deal of whatever confidence exists over the restraints that are intended to prevent another financial meltdown.

I believe that the eventuality of those restraints and capital requirements impacting MetLife’s assets is already factored into its share price. If so, MetLife is simply just a proxy for the direction of interest rates, which continue to be volatile as there is still uncertainty over when the eventual interest rate increases will be coming from the FOMC.

While waiting for that to happen MetLife has been trading in a fairly tight range and offering an attractive option premium and dividend. I’ve already owned shares on 3 occasions in 2015 and look forward to more opportunities while waiting to figure out if the economy is too hot or not hot enough or just right.

With the coming week being dominated by bank earnings, one that isn’t reporting until the following week is Morgan Stanley (NYSE:MS). Thus far 2015 hasn’t been especially kind to the money center banks, but it has held Morgan Stanley in particular low regard.

With its well respected CFO heading to warmer pastures it still has a fairly young CEO and lots of depth, with key people continually being exposed to different parts of the company, thereby lessening dependence on any one individual.

With earnings from other banks coming this week the option premiums on Morgan Stanley are a little higher than usual. However, since they report their own earnings before the market opens on Monday of the following week, it would be a good idea to attempt to rollover weekly contracts if not likely to be assigned or to simply sell extended weekly contracts to encompass the additionally enhanced premiums for both this week and the next

Bed Bath and Beyond (NASDAQ:BBBY) is no stranger to significant earnings related price drops. It did so again last week and the options market correctly created the price range in which the stock price varied.

While Bed Bath and Beyond is no stranger to those kind of drops, it does tend to have another common characteristic in that it frequently recovers from those price drops fairly quickly. That’s one reason that when suggesting that consideration be given to selling puts on it last week prior to earnings, I suggested that if threatened with assignment I would rather accept that than to try and rollover the put contracts.

Now that the damage has been done I think it’s safe to come back and consider another look at its shares. If recent history holds true then a purchase could be considered with the idea of seeking some capital gains from shares in addition to the option premiums received for the call sales.

SanDisk (NASDAQ:SNDK) reports earnings this week and has been on quite a wild ride of late. It has the rare distinction of scaring off investors on two occasions in advance of this week’s upcoming earnings. Despite an 11% price climb over the past week, it is still down nearly 20% in the past 2 weeks.

The option market is implying a relatively small 6.8% move in the coming week which is on the low side, perhaps in the belief that there can’t possibly be another shoe to be dropped.

Normally, when considering the sale of puts in advance of earnings I like to look for a strike price that’s outside of the range defined by the options market that will return at least a 1% ROI for the week. However, that strike level is only 7.1% lower, which doesn’t provide too much of a safety cushion.

However, I would be very interested in the possibility of selling puts on SanDisk shares after earnings in the event of a sharp drop or prior to earnings in the event of significant price erosion before the event.

Fastenal (NASDAQ:FAST) also reports earnings this coming week and didn’t change its guidance or offer earnings warnings as it occasionally does in the weeks in advance of the release.

It actually had a nice report last quarter and initially went higher, although a few weeks later, without any tangible news, it nose-dived, along with some of its competitors.

What makes Fastenal interesting is that it is almost entirely US based and so will have very little currency risk. The risk, however, is that it is currently trading near its 2 year lows, so if considering an earnings related trade, I’m thinking of a buy/write and using a May 2015 expiration, to both provide some time to recover from any further decline and to also have a chance at collecting the dividend at the end of April.

With a much more expensive lot of shares of Abercrombie and Fitch (NYSE:ANF) long awaiting an opportunity to sell some calls upon, I’m finally ready to consider adding more shares. The primary goal is to start whittling down some of the losses on those shares and Abercrombie is finally showing some signs of making a floor, at least until the next earnings report at the end of May.

With its dysfunction hopefully all behind it now with the departure of its past CEO it still has a long way to go to reclaim lost ground ceded to others in the fickle adolescent retail market. The reasonable price stability of the past month offers some reason to believe that the time to add shares or open a new position may have finally arrived. Alternatively, however, put sales may be considered, especially if shares open on a lower note to begin the week.

Finally, I don’t know why I keep buying The Gap (NYSE:GPS), except that it never really seems to go anywhere. It does have a decent dividend, but it’s premiums are nothing really spectacular.

What appeals to me about The Gap, however, is that it’s one of those few stocks that is continually under the microscope as it reports monthly sales statistics and as a result it regularly has some enhanced premiums and it tends to alternate rapidly between disappointing and upbeat same store sales.

All in all, that makes it a really good stock to consider for a covered option strategy. It’s especially nice to see a stock that does trade in a fairly tight range, even while it may have occasional hiccoughs that are fairly predictable as to when they will occur, just as their direction isn’t at all predictable.

The Gap reported those same store sales last week and this time they disappointed. That actually marked the second consecutive month of disappointment, which is somewhat unusual, but in having done so, it still hasn’t violated that comfortable range.

I already own some shares and in expectation of a better than expected report for the following month, my inclination is to add shares, but rather than write contracts expiring this week will look at those expiring on either May 8 or May 15, 2015, taking advantage of the added uncertainty coming along with the next scheduled same store sales report. In doing so I would likely think about using an out of the money strike, rather than a near the money strike in anticipation of finally getting some good news and getting back on track at The Gap.

Traditional Stocks: Bed Bath and Beyond, MetLife, Morgan Stanley, The Gap

Momentum Stocks: Abercrombie and Fitch

Double Dip Dividend: none

Premiums Enhanced by Earnings: Fastenal (4/14 AM), SanDisk (4/15 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 11, 2014

 A few hundred years ago Sir Isaac Newton is widely credited with formulating the Law of Universal Gravitation.

In hindsight, that “discovery” shouldn’t really be as momentous as the discovery more than a century earlier that the sun didn’t revolve around the earth. It doesn’t seem as if it would take an esteemed mathematician to let the would know that objects fall rather than spontaneously rise. Of course, the Law is much more complex than that, but we tend to view things in their most simplistic terms.

Up until recently, the Law of Gravity seemed to have no practical implications for the stock market because prices only went higher, just as the sun revolved around the earth until proven otherwise. Additionally, unlike the very well defined formula that describe the acceleration that accompanies a falling object, there are no such ways to describe how stocks can drop, plunge or go into free fall.

For those that remember the “Great Stockbroker Fallout of 1987,” back then young stockbrokers could have gone 5 years without realizing that what goes up will come down, fled the industry en masse upon realizing  the practical application of Newton’s genius in foretelling the ultimate direction of every stock and stock markets.

The 2014 market has been more like a bouncing ball as the past 10 weeks have seen alternating rises and falls of the S&P 500. Only a mad man or a genius could have predicted that to become the case. It’s unlikely that even a genius like Newton could have described the laws governing such behavior, although even the least insightful of physics students knows that the energy contained in that bouncing ball is continually diminished.

As in the old world when people believed that the world was flat and that its exploration might lead one to fall off the edge, I can’t help but wonder what will happen to that bouncing ball in this flat market as it deceptively has come within a whisker of even more records on the DJIA and S&P 500. Even while moving higher it seems like there is some sort of precipice ahead that some momentum stocks have already discovered while functioning as advance scouts for the rest of the market.

With earnings season nearing its end the catalyst to continue sapping the energy out of the market may need to come from elsewhere although I would gladly embrace any force that would forestall gravity’s inevitable power.

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

As a past customer, I was never enamored of Comcast (CMCSA) and jumped at the first opportunity to switch providers. But while there may be some disdain for the product and especially the service, memories of which won’t easily be erased by visions of a commercial showing a comedian riding along in a service truck, you do have to admire the company’s shares. 

Having spent the past 6 months trading above $49 it has recently been range bound and that is where the appeal for me starts. It’s history of annual dividend increases, good option premiums and price stability adds to that appeal. While there is much back story at present in the world of cable providers and Comcast’s proposed purchase of Time Warner Cable (TWC) may still have some obstacles ahead, the core business shouldn’t be adversely impacted by regulatory decisions.

Also, as a one time frequent customer of Best Buy (BBY), I don’t get into their stores very often anymore. Once they switched from a perpendicular grid store layout to a diagonal one they lost me. Other people blame it on Amazon (AMZN), but for me it was all about the floor plan. But while I don’t shop there very much anymore it’s stock has been a delight trading at the $26 level.

Having had shares assigned for the fourth time in the past two months I would like to see a little bit of a price drop after Friday’s gain before buying shares again. However, with earnings coming up during the first week of the June 2014 option cycle you do have to be prepared for nasty surprises as are often delivered. There’s still more time for someone to blame cold weather on performance and this may be the retailer to do so. WIth that in mind, Best Buy may possibly be better approached through the sale of put options this week with the intent of rolling over if in jeopardy of being assigned shares prior to the earnings release.

There’s barely a week that I don’t consider buying or adding shares of Coach. I currently own shares purchased too soon after recent earnings and that still have a significant climb ahead of them to break even. However, with an upcoming dividend during the June 2014 cycle and shares trading near the yearly low point, I may be content with settling in with a monthly option contract, collecting the premium and dividend and just waiting for shares to do what they have done so reliably over the past two years and returning to and beyond their pre-earnings report level.

Mosaic (MOS) is another one of those companies that I’ve owned on many occasions over the years. Most recently I’ve been a serial purchaser of shares as its share price plunged following announcement of a crack in the potash cartel. Still owning some more expensive shares those serial purchases have helped to offset the paper losses on the more expensive shares. Following a recent price pullback after earnings I’m ready to again add shares as I expect Mosaic to soon surpass the $50 level and stay above there.

Dow Chemical (DOW) is also a company whose shares I’ve owned with frequency over the years, but less so as it moved from $42 to $50. Having recently decided that $48 was a reasonable new re-entry point that may receive some support from the presence of activist investors, the combination of premiums, dividends and opportunity for share appreciation is compelling.

Holly Frontier (HFC) has become a recent favorite replacing Phillips 66 (PSX) which has just appreciated too much and too fast. While waiting for Phillips 66 to return to more reasonable levels, Holly Frontier has been an excellent combination of gyrating price movements up and down and a subsequent return to the mean. Because of those sharp movements its option premium is generally attractive and shares routinely distribute a special dividend in addition to a regular dividend that has been routinely increased since it began three years ago.

The financial sector has been weak of late and we’ve gotten surprises from JP Morgan (JPM) recently with regard to its future investment related earnings and Bank of America (BAC) with regard to its calculation error of capital on its books. However, Morgan Stanley (MS) has been steadfast. Fortunately, if interested in purchasing shares its steadfast performance hasn’t been matched by its share price which is now about 10% off its recent high. 

With its newly increased dividend and plenty of opportunity to see approval for a further increase, it appears to be operating at high efficiency and has been trading within a reasonably tight price range for the past 6 months, making it a good consideration for a covered option trade and perhaps on a serial basis.

Since I’ve spent much of 2014 in pursuit of dividends in anticipation of decreased opportunity for share appreciation, Eli Lilly (LLY) is once again under consideration as it goes ex-dividend this week. With shares trading less than 5% from its one year high, I would prefer a lower entry price, but the sector is seeing more interest with mergers, acquisitions and regulatory scrutiny, all of which can be an impetus for increasing option premiums.

Finally, it’s hard to believe that I would ever live in an age when people are suggesting that Apple (AAPL) may no longer be “cool.” For some, that was the reason behind their reported purchase of Beats Music, as many professed not to understand the synergies, nor the appeal, besides the cache that comes with the name. 

Last week I thought there might be opportunity to purchase Apple shares in order to attempt to capture its dividend and option premium in the hope for a quick trade. As it work turn out that trade was never made because Apple opened the week up strongly, continuing its run higher since recent earnings and other news were announced. I don’t usually chase stocks and in this case that proved to be fortuitous as shares followed the market’s own ambivalence and finished the week lower.

However, this week comes the same potential opportunity with the newly resurgent Microsoft (MSFT). While it’s still too early to begin suggesting that there’s anything “cool” about Microsoft, there’s nothing lame about trying to grab the dividend and option premium that was elusive the previous week with its competition.

Microsoft has under-performed the S&P 500 over the past month as the clamor over “old technology” hasn’t really been a path to riches, but has certainly been better than the so-called “new technology.” Yet Microsoft has been maintaining the $39 level and may be in good position to trade in that range for a while longer. It neither needs to obey or disregard gravity for its premiums and dividends to make it a worthwhile portfolio addition.

 

Traditional Stocks: Comcast, Dow Chemical, Holly Frontier

Momentum: Best Buy, Coach, Morgan Stanley, Mosaic

Double Dip Dividend: Microsoft (5/13 $0.28), Eli Lilly (5/13 $0.49)

Premiums Enhanced by Earnings: none

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.