Weekly Market Assessment
In what seems like a scene out of Groundhogs Day, we have once again maneuvered past another crisis only to possibly relive it again in approximately three months. Looking beyond the default count down clock, the talking heads on Capitol Hill and the fear mongering from the Treasury, the 10 Year Treasury Bond and the Volatility Index, all gave signals that going over the cliff was nonexistent. The 10 Year Treasury bond now trades at 2.60%, as a new incoming Federal Reserve Chairwomen, Janet Yellen, continues to keep the heavy hand in the bond market beyond Bernankes term. She is known to be extremely accommodating, which means $85 billion a month in bond purchases and a low Federal Funds rate is here to stay! This type of monetary policy again forces investors into the equity market in a search for yield. As we enter new highs in the S&P 500, investors have continued to buy on every small correction so far this year. This goes to show that as long as there remains investors obsessed with the short term, the opportunity for exploiting this mis pricing creates opportunity for long term investors to buy on the dips. We are reaching new highs in the S&P 500, however not obtaining dual confirmation that the Dow is also hitting new highs, brings some concern. Each attempt to bring this market into a more than 5% correction, is met by buyers stepping in with an understanding that the cheap money is here to stay!
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Jobs report and New home sales- Next week we will have the delayed jobs report. I believe this will have little impact on the market unless it is a far out of the estimate numbers, since we did receive the ADP jobs report, I believe this is already baked into he market and should see little impact from the data. New Home Sales-This will be interesting since we have now had a drop in yields, from the 3% highs on the 10 year. Ill be looking for continued tail risk in the sales data which should effect KBH (17.20) and TOL ($32.30). Ill be looking at these two leading up to the release.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
Priceline (PCLN) - Sold Vertical "PUT" spreads. The market opened up the week down, close to 1% on default risk. Most momentum stocks sold off as well. PCLN implied volatility spiked which created more option premium. I sold the $975/970 PUTS as this level which was at the 50 day moving average. Also a negative analyst report about Expedia, its competitor also helped bring down PCLN. Weekly option gain of 26%
JCPenny- I have taken a long position in this struggling retail company. With 54% of the float being sold short, a short covering would give a huge rally where weak shorts would definitely cover. "If" retail is coming back and consumer sentiment remains at current levels, we should slowly see a movement into this area of retail from other discount retail stores. I am manly playing this on a short squeeze coming into the holiday season.
Nuance Communication (NUAN)- provides voice and language solutions for businesses and consumers worldwide. A long position has been taken in NUAN. Carl Icahn now has 2 board members and a 16.9% stake in the company. Among being in other products, this is the company behind Siri in Apple devices