Daily Market Update – July 22, 2014 (Close)
Talk about a boring day.
Sure, it was nice seeing the market climb 75 points, and seeing some breadth return to the market after last week seeing the DJIA outperform the S&P 500 every single day, but there really wasn’t much that was actionable today.
While I don’t mind being taken along for the ride it’s much better to actively participate in it, as well.
Today wasn’t destined to be that day, nor was it going to match yesterday’s excitement.
Yesterday’s comeback was pretty impressive as it seemed that the chance for any real explosive shift in either Ukraine or Gaza was unlikely, despite the situations still being tenuous.
This morning, in the absence of any overnight drama, the market looks as if it would continue that trend, although most eyes were on Bill Ackman’s presentation regarding Herbalife, that’s was scheduled to begin before the morning’s open. Instead, the Herbalife CFO got some airtime on CNBC and Ackman’s presentation started later than scheduled, but was live streamed by more than 10,000 people.
Given what Ackman has at stake and his apparent detente with Carl Icahn, you do have to wonder when he characterizes his presentation as “the most important he’s ever given in his life” it’s because of the amounts of dollars involved or because he thought he would blow the doors off on this years old story.
The market believed it might be the latter,as Herbalife went down about 11% yesterday on news of today’s presentation.
But when the reality became known it more than made up for everything that was lost, as you had to wonder what Ackman was talking about yesterday, as he must have known that today would bring nothing new to the equation. There was no Herbalife smoking gun and the presentation was befitting of the rest of the day in its boring track.
At the very least it should have made for some good theater or diversion if today would turn out to be an otherwise boring or quiet day. It was, but Ackman wasn’t
For those concerned about more meaningful things it was a big day for earnings reports with Verizon, Coca Cola, McDonalds and DuPont all scheduled before the opening and Apple and Microsoft, among others, after the close.
That should have been enough to keep most people busy and it would be especially nice to see some good numbers continue to come in and help support current pricing levels. In all likelihood the reports kept the market trading at a narrow, but decently higher range all day and may set the stage for tomorrow, as well.
The market continues to focus on EPS data, even though for so many companies comparing EPS data to previous quarters can be like apples and oranges because of the extent of share buy backs. In summarizing past earnings periods analysts have assessed their totality on the basis of increased EPS statistics without consideration of a decreasing number of shares that serve to inflate that metric.
The real measure for those interested in whether the economy is expanding has to be related to top line revenue and not the EPS data, which is further muddied by all of the accounting manipulations, charges and other adjustments.
One has to wonder what happens not only when Quantitative Easing ends in October, but when these massive buy backs start to slow down. Those have certainly been important factors, whether directly or indirectly, in helping investors favor equities over bonds and helping to stabilize stock prices.
You also have to wonder about the wisdom of initiating or increasing buy backs at current share prices.
CEOs and Boards of notorious for being willing to spend share holders’s money without regard to value and rarely buy back stock when prices are depressed. The fact that insider buying isn’t a terribly good predictor of a stock’s share price being ready to appreciate should be all anyone needs to know, If an insider can’t spend their own money in a timely and wise manner what chance do have have for doing so with other people’s money?
So this morning was another of just seeing where the early morning earnings reports would take the market and then hoping that the direction would continue higher as the pre-open futures indicated.
The hoping seemed to work, but still nothing really materialized.
Both before and after today’s session I continue to be indifferent to the prospect of adding new positions and would still rather see the market climb, drag my paper values with it and give me the opportunity to be positioned to sell new options or rollover existing positions.
My preference yesterday would have been to have used forward week option expirations rather than adding onto this week’s long list of expiring positions, but that turned out to not be the case. If there are any new purchases this week I would really like to see a little more ability to use some longer options, but things rarely follow the script, although today no script was necessary.