Today, the DOW followed a recently familiar pattern: a good start, followed by a downdraft, and finally a loss at the closing bell. XOM and GS hurt the index again today. The DOW fell 72 points. The S&P 500 lost 8 and the NASDAQ dropped 15 points.
NFLX was higher after its report, but well below the 144 level that it had reached in last night’s aftermarket. My contention that buying calls is not usually a good strategy seemed to prove correct as the prices of calls on NFLX in the strike price range of 133 were all lower. The reason they were down, despite a nice gain in the price of the stock itself, is a classic illustration of how market makers pump up the prices of these calls (and puts) well ahead of earnings. Even if an investor bought a call and the stock went up, the investors typically end up with coal in their Christmas stockings.
There were further economic reports today as weekly jobless claims fell to 234,000. This was a decline of 15,000. More importantly, the four-week moving average of these claims fell to its lowest level since 1973 when the labor force was obviously much smaller than it is now. These stats attest to the strength of the labor market today and another reason why the Fed must be proud of itself for getting the interest rate hike right. In addition, this was now a record 98th straight week of claims below 300,000.
December housing starts rose by 11% for their best year since 2007…but building permits, an indicator of future activity, actually slipped a bit with a decline of 0.2%.
Bond yields rose sharply after these reports. They are now up to 2.46% for the 10-year Note; the highest level of the year. The dollar has strengthened again on these developments while the Euro fell back below down to 1.06 today. Gold took beating again and it is now priced at $1,204 and ounce. Crude oil travels in its own world…higher today at $52.18 a barrel.
Donald M. Selkin
These are excerpts from Don Selkin’s Daily Market Notes, abbreviated and updated with permission from the author. Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: Bloomberg Financial, Reuters, and the Associated Press.