FOMC Chairwoman Janet Yellen’s commentary sent the equity markets higher on Wednesday. In essence, she removed most of the bearish case for stocks to fall and yields to rise. Furthermore, her commentary on stock market volatility took the wind out of the sails of those who, and in my opinion mistakenly, pray at the feet of the CBOE Market Volatility Index (VIX). I have written extensively as to how that index is misleading, subjective and imperfect. Now perhaps the media might give it less attention, as it deserves.
Quarterly Derivative Expiration Will Guide Markets Today
Thus, Wednesday afternoon, the equity markets rose to new highs, as defined by the S&P 500 (SPX). On Thursday the markets waded in shallow negative territory for most of the day until a late flurry of orders sent the SPX once again higher, albeit modestly, into record territory. Gold also broke out to a two-month high, but I would not hang my hat on that fact to guide your investment or trading decision.
Yesterday’s late buying flourish was likely due to the mega quarterly derivatives expiration which will occur today. Today’s opening which looks to be fractionally higher and the closing action will also be impacted by the derivative expiration. In our newest strategy, the LakeView Dividend Capture Buy-Write Strategy, we have many positions that expire on today’s close and will be looking to roll those options or sell stock and enter into new positions on Monday.
Carl Icahn Calls For Family Dollar to Put Itself Up For Sale
In micro stock news, Oracle (ORCL) delivered lousy results after the market closed yesterday and is looking to decline by about 6% at the market open. I do not expect that individual stock’s decline to spread amongst other Nasdaq 100 (NDX) stocks today. Carl Icahn is pushing for Family Dollar (FDO) to put itself up for sale. There are some other major activist investors in Family Dollar such as Nelson Pelt and Peter May’s Trian and John Paulson’s fund. This story seems to fester ever few months. Let’s see if all these egos can come together and make something happen.
Harley Davidson (HOG), one of our investment holdings has unveiled an electric motorcycle. Having recently spent a week at Americade and having done so for the past several years, I welcome the reduction in noise pollution. Our price target for Harley Davidson at the end of this year remains at $78, about 11% higher from yesterday’s closing price of $70.14.
Enjoy the first day and weekend of summer.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long HOG — although positions can change at any time.
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