2/19 Morningline

There was a time when the raising and lowering of the Federal Reserve's discount rate was a signal for bulls and bears on the stock market.

Clearly, this isn't that time. Blue chip stocks (SPY) opened narrowly in the upper half of yesterday's trading range. The price so far has traversed half a percent low to high.

The Fed's decision to raise the discount rate from 0.5% to 0.75% was analyzed more as a marker of bank bail-out success than as signalling a shift of policy. And the Consumer Price Index this morning showed little sign of inflation. So perhaps the Fed's motives are exactly as they said.

(Having worked as a journalist in Washington, D.C., I personally never assume anyone's motives are transparent. Plots within plots . . . the Bene Gesserit, the Spacing Guild, the Fremen . . .)

Treasury long bonds (TLT) were also trading narrowly within the prior-day range. Also gold (GLD). Among the big sector movers this morning are high-yield corporate debt (JNK), trading up, and natural gas (UNG), trading down on a gap. High-yield bond prices, in part, express the degree of confidence that the issuing companies won't default, and traders, I think, saw the Fed's action as  vote of confidence in the economy's recovery. The exchange-traded fund is in the second day of a macd bull signal. Natural gas has been falling since Jan. 7, so despite news stories crediting the decline to inventory reports, I think there's something more basic than news-reaction happening to this commodity. Oil (USO) is going its own way, barely moving within yesterday's range. Today is the last day of trading for options that expire in February. Expiry days always give the markets a bit of spice, and often a slight upward bias as positions get closed for shares.

A longer-term approach to the markets, through asset allocation. It has a particularly smart explanation of the math behind trading. Read it, liked it a lot.

Among my February holdings, my CVS iron condor, to my great satisfaction, has dropped back down into the range of maximum profit (by 2 cents). The other iron condor, ERTS, is within the range of max profit. I plan no action on either of these today.

My two February covered calls, PALM and MCO are trading well below the exercise price. So the options will disappear at the witching hour, and I'll keep the shares in the hopes of a profit, and perhaps future sales of covered calls. Neither stock is showing hugely favorable financials, but they're both in volatile sectors, so things can change.

Let's run the numbers:

Indicators, at about 10:10 a.m. Eastern:

• Blue chip stocks etf (SPY) is trading at $110.53, entered macd bull mode at close on Feb. 15 (at $109.74)
• Fear index or volatility (VIX) 20.97, bear (bullish for stocks), Feb. 12 (22.73)
• Treasury long bonds (TLT) $89.24, bear, Feb. 9 ($91.18)
• Corporate junk bonds (JNK) $38.64, bull, Feb. 18 ($38.40) 
• Emerging markets (EEM) $39.25, bull, Feb. 16 ($39.43)
• Gold (GLD) $108.02, bull, Feb. 12 ($107.04)
• Oil (USO) $38.56, bull, Feb. 10, ($36.51)

Forex currency pairs:

• Dollars per euro (EUR/USD) $1.3493, bear, Feb. 18 ($1.3526) - back in bear territory after a two-day whipsaw.
• Yen per dollar (USD/JPY) ¥91.81, bull, Feb. 16 (90.13)

Stock options holdings, February expiry:

• CVS, iron condor (p29/-p31/-c34/c36) $33.96, bull, Feb. 10 ($33.21)
  
• ERTS, iron condor (p15/-p16/-c18/c19)  $16.64, bear, Feb. 9 ($15.96) - Showing a preliminary bull signal on the macd.
• MCO, covered call (-c30) $26.93, bear, Feb. 4 (26.39)
• PALM, covered call (s/-c13)  $9.35, bear, Jan. 26 ($11.17)

Stock option holdings, March expiry:

• AOD, long shares, $8.42, bear, Jan. 21 ($9.03) - Preliminary bull signal today.
• AKS, iron condor (p19/-p20/-c25/c26), $23.05, bull, Feb. 12 ($21.68)
• CAL, covered call (-c19), $19.85, bull, Feb. 16 ($19.88)
• CSCO, iron condor (p22/-p23/-c25/c26), $24.14, bull, Feb. 8 (23.50)

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Topics: S&P 500, SPDR, Spiders, Treasury bonds, high-yield corporate junk bonds, emerging markets, gold, precious metals, oil, petroleum, AK Steel Holding, Alpine Total Dynamic Dividend fund, Continental Airlines aviation, Cisco Systems networking, CVS, pharmacies, drugs, Electronic Arts games, Gannett newspapers media , Moodys bond rating, Annaly Capital Management real estate REIT mortgage-backed securities, Palm smartphone Pixi Pri.