Weekly Market Assessment
Another 'V' shaped rebound! We started off 2015 down by almost 3%, however, like so many times before, we hit a major moving average where buyers stepped in and brought the market right back up. We have seen these drastic moves where we lose 3-4% to the downside, only to recover that loss and gain more a few days later. When fear and volatility enter the market, people begin to fear the worst - you have seen and heard about this from me in what seems like every week! The collapse in oil continues and West Texas Intermediate has dropped below $50 for the first time since 2009! The 10 Year Treasury Bond yield continues to fall and has broken below the 2% level. It currently trades at 1.81%, which should raise concerns to investors as this is the safe haven when things aren't as rosy as they should be globally. With these low rates, we should see signs of price increases in commodities, however, they continue to decline. The positive side to this is home borrowers should be able to refinance at a lower rate and this will spur some activity in the home builder sector which is the backbone of our economy! So, as usual, there is a double-edged sword to the benefits to low rates.
The saying goes "As goes January, so goes the year." Last year we started off almost in the same fashion. Last year, concerns over higher interest rates put pressure on the market and now the steady decline in the 10 Year yield raises concerns! It seems to never end. We want one thing and once we get it, its not exactly the way we want it. The grass is always greener on the other side is a perfect analogy to how we change our outlooks on the market. Everyone wants lower oil prices however, when we get them concerns over companies going BK, people being laid off and thoughts of a global demand issues raises concerns. We feared that inflation was on the horizon and now it looks like deflation may be on our doorsteps. Investors want to buy stocks at lower prices, however when they arrive its a hands off approach! One of the most difficult things to do is to buy stocks when there is a sense of panic and sell stocks when there is a feeling of euphoria! This is exactly what your suppose to do however, investors fall victim to their own emotions and tend to do the exact opposite! We enter 2015 much like 2014, where only time will tell how it ends! The Rant: Going
Off on a Tangent with My 2 CentsFirst its about oil, I keep hearing how there is a demand issue and that is why oil prices have collapsed! I cant stand that! Crude oil is a finite commodity like gold and every other resource that cant be grown! The 19th century was Europe, the 20th Century was the U.S. and the 21st is China. I mean this in terms of growth and consumption! Auto sales in China are up 4X more today than in 2006! While automakers in the US are reporting high SUV sales. GDP is estimated to be 5% this year however I believe that will be revised down, while China is growing at a 7% clip! These are just a few things I think of that come to the top of my head. There is no way that the world is having a demand issue which would justifying the collapse in oil prices.
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.
Citigroup (C) $47.61- Citigroup disappointed on its recent earnings report along with other banks such as BAC ($15.38) and JPM ($55.93). Citigroup has sold off more than 15%, Bank of America by ~15% and JPM by ~13%. With interest rates lower from last year their spreads are shrinking and with new regulation, their proprietary trading segments are down. I may look to take a position in these names. They are making the watch list as I think they are oversold.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -No Trades
SPDR S&P 500 EFT (SPY)- No trades
FireEye (FEYE) - I have put on and taken off alot of option positions as I am now hedging out my weekly risk on this large position in the portfolio. Expiring this week I have sold another iron condor at $32/31 and $35.50/36.50. A spike in volatility on Friday opened up this opportunity to sell more option premium to protect my common position.