Daily Market Update – January 27, 2015 (8:45 AM)
Most mornings the pre-open futures don’t really mean too much as far as predicting how the day’s trading will go.
The late Mark Haines of CNBC used to say that all the time and always wondered why people got so excited about those numbers.
Certainly, the past week has been testament to just how irrelevant those early trading actions can be in predicting where the rest of the day will go as for most of those days the early indications were quickly reversed within the first hour of trading.
The exception to that general rule is when the pre-open futures moves very strongly in either direction and that is the story that’s developing this morning.
The main driver for the large drop was the bad earnings that came from DJIA components Microsoft, Caterpillar and United Technologies. That was already worth about 80 points of the 200 point early drop and represented both oil and currency factors and they were taking other innocent victimes down along with them.
About another 50% was then added to the loss with the release of the “Durable Goods” data and the large downward revisions to the previous month, so there’s reason to believe that this morning’s early indications will have some legs as the market gets set to begin its trading for the day.
Lately, and for no good reason at all, the day before an FOMC Statement release day has been one that has seen some strong moves higher, in a show of investor confidence that the FOMC would continue being accommodative and that no substantive changes were going to get in the way of the market continuing to move higher.
That may still be the case but the very disappointing earnings and the very large moves seen in some key DJIA components going across sectors gives plenty of reason for the market to begin reclaiming gains this morning, despite would should be waiting ahead in terms of employment growth, wage growth and more discretionary income.
So today will likely end up being a day of just watching and hoping for some kind of a bright spot.
Although most everyone loves the idea of buying stocks on weakness, there;s a limit to what kind of weakness most are willing to test and when. That’s true for individual stocks just as it is for the broader market.
I certainly like buying after declines in particular stocks when there is defined news and it seems to be overdone, but drops like the one that is developing this morning aren’t very well defined and it’s hard to know what’s over done and what isn’t.
With expectations for a more sustained large drop in markets being validated with the sudden increase in large falls and rises and the lack of any upward momentum, it seems premature to want to jump in when a large decline characterizes the day. That’s especially true when even considering the pre-open futures decline the market would be barely 3% below its recent high.
Is that over done?
Time will tell this morning.
Just as the historically massive snowstorm that was supposed to hit New York City hasn’t really materialized as such, maybe this morning’s decline and the very dour guidances provided by a number of important companies won’t materialize either.
The difference is that the latter will take longer to figure out, but it’s the initial news that really gets our attention and we’re all listening this morning.