Weekly Market Assessment
Triple digit Deja Vu! What started two weeks ago has continued today with another week full of 200+ swings in the Dow moving in either direction. In the past month alone, the Dow has seen a total of a combined 2,000 points from highs to lows and back! Creating a crazy chutes and ladders affect that has brought back uncertainty and massive volatility! Investors are fleeing to the safe havens with the 10 Year Treasury Bond dropping to 2.27% (not seen in 16 months)! We are again at the 150 day moving average and only 100 points away from the 200 day average. What looked to be a rally is again forgotten come the following morning as triple digit moves continue to frustrate and confuse traders as to where we might be heading. What is causing these large swings in either direction? One could say the strength in the dollar, which was suppose to be a sign of U.S. economic strength, however, the Russell 2000 index (2000 domestic small cap companies) is down 9% since I last wrote about the strength in the dollar. What about the energy sector which is now down 20% since this dollar appreciation? In addition, crude oil just dropped below $85 a barrel, not seen since December of 2012! Wouldn't most think this drop in oil would act as a stimulus to U.S. consumers as a so called "tax break"? Or, might it also reduce costs for companies in the Dow Jones Transport index, which is now down double digits? Is the strength in the U.S. dollar really expressing a stronger economy?
Forcing the Federal Reserve's hand! The FOMC meeting minutes from last month came out and are interesting! They had this to say, "Several participants thought that the current forward guidance regarding the federal funds rate suggested a longer period before liftoff, and perhaps also a more gradual increase in the federal funds rate thereafter, than they believed was likely to be appropriate given economic and financial conditions." It also expresses that "inflation had been running below the Committees longer run objective". The market was looking for interest rates to move higher, however, from these statements directly from the horses mouth, suggests something different! I mentioned last week that with this rise in the dollar and decline in commodities, that the fed was being forced into keeping rates low beyond there stated deadline and "maybe" even additional QE in the future! Peter Schiff from EuroPacific Capital, who has been a critic of the Fed's policies, had this to say, "I don’t think they ever had a plan to hike rates,” he told Yahoo Finance. "I think their plan is to launch QE 4, but they can’t come out and admit that so they've been pretending that they’re gonna raise rates." Wow! The Federal Reserve has backed itself into a corner that most will never understand. The market is bigger than anyone and any institution and it's the one that's in control!
The Rant: Going Off on a Tangent with My 2 Cents
The much rumored talks about Iliad buying T-Mobile has brought extreme frustration! This news release came out on Monday, "France's Iliad to Make New Offer for T-Mobile US Next Week -- Report" Since this release, the stock has declined more than 7%! I had a long position in this stock weeks ago and traded it out for "CALL" options in November at the $30 strike price. So, technically I'm still long however, however time is of the essence! What is frustrating is "if" this new bid comes, the case made to the shareholders is that Iliad will say that the new bid is 25% above Fridays close. However, when looking at when the first bid from this company was first made, it was only 10% above the previous days close. Looking at the options there is a huge open interest at the $35 strike price (45,000 open contracts) where most believe the bid will come in at. The waiting game is on and we will see if these reports are true and the case Iliad makes for its bid!
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -No trades
Lakeland Industries (LAKE)- manufactures and sells safety garments and accessories for the industrial protective clothing market worldwide. This company shot up over 300% since the announcement of Ebola entering the U.S. They sell those white and yellow lab suits. This company has more than doubled its market cap with fundamentals that seem to not justify the current valuation. I am shorting this company at 17.80.
JCPenney (JCP)- After its investor day, JCP announced a small change in their same store sales numbers from mid to high single digits to low single digital same store sales, this sunk the stock ~10%. It hit its 200 day moving average and looked to have found support. I have purchased common shares of JCP at $8.25.