Daily Market Update – July 21, 2014 (Close)
The weekend had plenty of people glued to the news and as bad or gruesome as it events may have been it looked as if the week’s trading may have warranted the confidence of those ignoring calls to lighten up holdings going into a weekend of uncertainty.
With a mildly negative beginning to futures trading to start the week, it’s really no different from most any other week in that regard, but the market decided to start its worries after first making certain that they didn’t get in the way of enjoying a nice summer’s weekend.
To its credit the market did really reverse a nice 125 point decline and almost got to the even mark, before finally ending the day right where the futures said it would begin the day.
With so many S&P 500 companies reporting earnings this week I though maybe extraneous events would lose some relevancy as the market focused more on fundamental issues of profits, losses and outlook, but it probably wouldn’t be a very good idea to actually believe that has high probability.
The market though started its recovery after a statement by President Obama that pointed fingers but didn’t add additional sanctions and now it appears that the EU won’t be adding any sanctions against Russia, at the moment.
But at least some of the week may simply be about the stocks and nothing else as there will be a deluge of results being released over the next few days that’s bound to generate some speculation about where we are going.
Following the previous week’s strong showing by the financials it will remain to be seen if other sectors of the economy begin to show the same kind of strength. That hasn’t been the case for the past few quarters, especially at the retail level, which is ultimately the best indicator of everything. Sooner or later, perhaps sooner, there’s bound to be some corroborating data indicating that the economy is improving and more than just earnings per share data buoyed by stock buy backs.
With a surprisingly good week last week, owing entirely to the rebound seen on Friday, I’m still not filled with over-confidence to begin this week. While I don’t necessarily see an immediate reason for negativity, by the same token it’s hard to see an immediate reason for optimism that is in turn backed up by investment dollars.
As with previous weeks I would be more happy to generate the week’s income through rollovers or even better, the sale of calls on uncovered positions, than through the opening of new positions.
In some part that due to having only a single position assigned last week and not driving cash reserves significantly higher.
While I’m willing to spend cash down to about 15%, representing about 5 new positions, as in previous weeks I haven’t found too much in the way of appealing opportunities.
I’m still a little surprised that two new purchases were made today, but they were in keeping with the idea of looking for those positions that might be somewhat more resistant to European centric bad news. Best Buy and Las Vegas Sands fit that billing.
General Electric, which was on this week’s list, but with that caveat about its international liability, showed why it was to be avoided today, but just how much should certain stocks be punished on the rumor?
Friday’s rebound helped to erase some of what appeared to be developing opportunities, or at least put them a little further out of reach, but there’s almost always something that may be a relative bargain that pops up unexpectedly, perhaps because of some unexpected news, such as YUM Brands dropping further this morning on another food safety issue in China, or Lorillard on the heels of a $26 billion jury award to a smoker who passed away nearly 20 years ago, who started smoking at age 13, sometime around 1973. Something tells me that even if the then 13 year old child did know that cigarette smoking was hazardous to health it wouldn’t have made too much of a difference in his course of action.
It reminds me of the opportunity that arose when the award against Anadarko was first announced a few months ago. The amount of the award would eventually turn out to be very far removed from anyone’s sense of reality, yet the market’s initial reaction was to believe that the award amount was sacrosanct.
While awaiting or assessing those potential opportunities the week already has a fair number of positions set to expire this Friday. What makes this Friday a little unusual is that of the 17 positions expiring, that represents only 10 different stocks, as a number are multiply represented.
That number is also an unusually high number to begin a monthly option cycle, but with the volatility being so low there has been very little ability to justify going longer in time on many positions as the incremental premiums have been so low. Even the new purchases so far have been for this week’s expiration as it was difficult to justify the extra time for such small amounts of extra income.
Otherwise, where possible or logical, I may look to any opportunity for early rollover of some of those positions to better diversify the holdings by expiration date, as well as to generate some of the week’s income flow.
As has been the case lately, tomorrow will probably be the same as today and many previous days. I will probably sit back a bit and see how the market unfolds, as it’s not giving too much indication of strength, weakness or commitment as it ended trading today.