The Turning Tide: Any Day Now

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Includes: BBBY, JCP, M
by: George Acs

Summary

Expectations continue to be longstanding as reality seems to be often defying historical precedence.

Low oil prices, low interest rates, lack of consumer participation, and disappointing earnings all seem to have endured far longer than past experiences.

While history undoubtedly repeats itself, it isn't as confined in its periodicity as our expectations would have it behave.

I find myself uttering the phrase "Any day now," more and more, but I know that I'm not alone in doing so.

Over the past few years there have been any number of reasons to believe that whatever predominant theme had the lion's share of the headlines would soon run its course.

Nothing lasts forever but the Earth and sky, so it's only reasonable to expect each passing day brings us closer to the conclusion of whatever current trend we're mired in. But unlike the prisoner counting down the days, we're in an open-ended system.

The prisoner looks toward a future that he knows, with a great degree of certainty, will come along, pending good behavior. After all, the sentencing judge told him when that day would arrive. On the other hand, those of us who only have the potential to be white collar criminals are reliant on the past repeating itself and we use the past as a guide for forming our expectations.

Lately, that model hasn't been very good.

Those who have been of the belief that history repeats itself have started taking a long and longer view if they're still to hold onto their belief that repeating history is inevitable.

For the longest time the refrain was brought up over and over again as we found ourselves waiting for a 10% correction.

As often as had been the case in the few years prior to the latter months of 2015, every time the market was approaching one of its common 5% declines, the chorus rang out warning that it had been far too long since the last 10% decline.

It took years to finally get one and while we waited there was no shortage of those continually reminding us of how overdue we had been.

As one of the minor voices in the choir my own voice grew raspy with the frequency of those warnings.

Then there's been the matter of oil prices.

While the descent in price seen over the past 2 years isn't even close to the one seen in 2008, we've been crossing off far many more days in the conviction that prices at such depths couldn't possibly last.

Guess what?

And while we've waited for the day to come for oil prices to finally rise, we've also spent much of that time in the belief that any day now we would finally witness the expected oil dividend reflected in increased consumer spending.

How's that working out?

And while you're waiting for consumers to finally start spending all of their oil related savings, we all know that any day now stocks have to regain their rationality and stop following oil in lockstep. Even with wide agreement that low oil prices are a result of over-production and not diminished demand, stocks continue to take declining oil prices as a threat and rejoice in rising prices.

Maybe next week?

And as this current earnings season gets underway with financials still unable to give positive guidance, for how many quarters have we now been of the belief that corporate top and bottom lines would finally start to show some improvement?

That's a rhetorical question.

We all know that it's been far too long.

While thinking that over, who hasn't been of the belief that interest rates were going to be moving higher any day now?

And to top it off, I've been convinced that volatility would be returning any day now, but we all now know that the normal rules and the normal cycles just haven't been reliable and predictable.

Of course, having been on the wrong side of so many expectations, coming to a realization that past history may be an unreliable partner for the future, may mean only one thing.

We may be coming one day closer to a return to normality and a return to the days when counting down the days was a fruitful pursuit.

I expect that to happen any day now.

As usual, the week's potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or "PEE" categories.

With earnings season getting ready to enter its second week, I'm a little surprised by how small some of the implied moves in stock price are for the coming week among those reporting earnings. The option market's expectations for sedate price moves takes away some of the opportunities that I've come to look forward to as earnings seasons begin.

Since options pricing reflects uncertainty, among other things, those engaged in that market seem to have much more certainty than I can summon.

With the markets expecting an agreement to cut oil production to be confirmed this weekend, I don't anticipate any additional uptick in oil dragging stocks higher to start the week.

But, there may be risk in the other direction if this agreement fails to materialize, as was the case just 2 months ago.

If stocks and oil are still tethered in the coming week, that risk could be spread even to companies that have little at risk to oil, but get taken out or in with the tide.

This week, like last, I still am focused on retail, but am mindful of upcoming earnings. Also, just like last week, there are very few stocks that interest me at the moment.

I expect that to change any day now, but I don't know if that's because their prices will be irresistibly low or because the trend higher will be too hard to ignore.

Among those things that I've been expecting to happen any day now for the longest time is to finally start hearing retailers report god news and actually giving positive guidance.

My expectation has been wrong, but I continue to believe that the retailers will let us know about any positive change earlier than we'll learn about it from GDP or any other official measures.

Macy's (NYSE:M) doesn't report earnings until May 11, 2016 and is now trading at a point mid-way between its very recent trading range.

For me, that defines the boundaries in the near term in representing the risk and the reward. I expect that Macy's will fare better than expected when it does report earnings, perhaps not due to the consumer, but due to charges related to its strategies.

Until that time that earnings are announced, Macy's is offering a reasonably good option premium for what I believe to be limited downside risk and the potential to achieve an earnings related bounce back in the event of a short term price decline in the intervening weeks.

Bed Bath and Beyond (NASDAQ:BBBY) doesn't report earnings until June 22, 2016 and its recent chart is similar to that of Macy's.

Its current price is a bit above the mid-point of its recent range and so it may have some more downside potential than Macy's, but it, too, is offering an attractive weekly option premium.

That premium is a little bit better for those considering a buy/write, rather than the sale of puts, although the put volume was unusually heavy on Friday, while call volume was fairly light.

Because of the difference in open interest, I may be more inclined to sell puts, in the event that I'm looking for liquidity, if faced with the need for a rollover as the week comes to its end.

Finally, if there's any retailer that falls into the "any day now" category, it has to be JC Penney (NYSE:JCP).

In JC Penney's case, "any day now" could just as easily be referring to the day that they disappear or to the day that they finally get some traction.

Like both Macy's and Bed Bath and Beyond, JC Penney's stock price is now at about the mid-point of its recent range.

That mid-point, however, represents a large percentage move higher during that time and a subsequent large percentage move lower.

As a result, the weekly option premium is very high, so don't let the 0.99 Beta fool you. The option market perceives significant uncertainty in where the next move will be and as with Bed Bath and Beyond, the put volume on Friday dwarfed the call volume.

In the case of JC Penney, however, the call option premium is far better than that which can be obtained for the sale of puts and there is sufficient liquidity on the call side to not limit the ability to rollover the short call option position, if necessary.

In the meantime, I know that I'll also be able to sell calls on existing JC Penney lots that I own, any day now.

Traditional Stocks: Bed Bath and Beyond, Macy's

Momentum Stocks: J C Penney

Double-Dip Dividend: none

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. The above selections may become actionable - most often coupling a share purchase with call option sales or the sale of covered put contracts - in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week, with reduction of trading risk.

Disclosure: I am/we are long BBBY,JCP,M.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may buy/add shares or sell puts in BBBY, JCP and M