Daily Market Update – October 6, 2014 (9:00 AM)
What a wild week ahead.
There’s not too much as far as scheduled economic news goes and there may also be some peaceful short term resolution to the protests underway in Hong Kong, but there will be an incredible amount of hot air generated this week.
Today, Secretary of Treasury Jack Lew speaks and on Thursday European Central Bank President Mario Draghi speaks
In-between will be Wednesday’s release of the monthly FOMC Statement and the eager anticipation around the wording used to indicate what we all know is now coming at least one month sooner than we thought last month.
Finally, there are 12 speeches scheduled to be given by members of the FOMC this week, winding up with hawkish member, Richard Fisher, who is able to move markets very much in the same manner that the Chairman, Janet Yellen can do, despite the fact that Fisher has frequently been wrong in his opinions and predictions.
Unfortunately, he speaks just a few hours before the market finishes its trading for the week and he has a habit of sending shares lower when he focuses on the need to increase interest rates sooner.
This morning none of that seems to matter as the pre-opening futures are indicating a moderately higher opening, possibly buoyed by Hewlett Packard’s possible split into 2 companies. Nonetheless, 28 out of 30 of the DJIA components were higher prior to the bell ringing,
That kind of opening would be welcome, even though I ordinarily like to see weakness to start the week.
That’s because I generally am looking to replace assigned positions and want to spend money, but don’t want to overspend.
This week, however, is another week that I’m not overly anxious to spend much money. Following 2 weeks of very confusing trading and seeing large moves in both directions with little or no provocation, it seems a little reckless to commit one way or another.
Rational thinking might say that there’s more downside than upside, but when has rational thinking really worked terribly well in the markets? If rational thinking had any role most people would have missed the last couple of thousand of points gain in the DJIA while awaiting the correction that we all knew to be obviously lurking.
With a handful of positions scheduled to expire this week and the same for next week’s monthly cycle end, at the moment, if making any new purchases I’m likely to look to add to this week’s expirations or possibly go out to October 24th.
In addition to the usual considerations whenever buying any new positions this week begins yet another earnings season, so that has to be thrown into the mix.
However, for the first time in a while, I’m actually optimistic about the upcoming earnings. The potential confounder will be the impact of share buy-backs. During the past few quarters those buy-backs have artificially boosted earnings per share, even as revenues were flat or even decreasing.
This time around, I expect revenues to be higher, especial in retail and consumer sections, but expect that buy backs have slowed down. That may result in higher revenues, but not the same pace of share reduction, which could lead to some earnings per share disappointments.
So as the bell rings, I hope that the strength continues and doesn’t do as so often has been the case and just withers away. If that strength does continue and builds on Friday’s close, volatility will move lower and that may make it a little more difficult to find expanded option opportunities. Nonetheless, for now, I’d prefer to see some higher moving prices, even at the expense of volatility, if that meant a greater likelihood of putting some existing stock positions to work.
This week I’d rather see myself producing income in that manner, along with more than the usual number of ex-dividend positions, than through the depletion of cash reserves.