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Daily Market Update – January 8, 2014 (Close)

This morning’s ADP jobs data ahead of Friday’s Employment Situation Report was a good one. It was the best report in over a year.

Today was also the 5th anniversary of my retirement.”

The correlation between the ADP and Employment Report two isn’t as good as ADP would have had you believe when it started releasing the data a number of years ago, however, it does carry weight, especially at times when the Employment Situation Report, released two days later was deemed important.

If today had been two months ago the response to the ADP statistics would have been negative, as it would have fired worries about the official government report and how that could have given the Federal Reserve reason to begin the taper of their Quantitative Easing.

With the end of the world not having occurred as the FOMC announced the initiation of the taper last month, much of the fear is gone.

Now there’s nothing to get traders worried in the employment numbers.. Mostly because there’s some reasonable assurance that regardless of the official numbers there will be no policy change coming in its near term aftermath.

Not only is the Chairmanship in transition, but it’s too early to increase the taper before there’s been an opportunity to assess its initial implementation. So it’s likely that Friday will be a non-event.

That would be just fine with me, as many positions are set to expire on that date.

What will be an event, at least for individual stocks, is the start of yet another earnings season tomorrow.

If the Federal Reserve has been right about the economy it would be reasonable to start expecting better earnings and that would be expected to lead to some multiple expansion of the market. That means higher prices, as long as you believe in the relationship between price and earnings.

Of course, that assumes that the market hasn’t already been anticipating the expanded multiples associated with an improving economy.

Going forward, I’m inclined to discount the market discount.

I discount the market’s ability to forecast the future much as the market completely discounted today’s FOMC minutes. And in this case, when I say “discounted,” what I mean is “ignored.”

I think that if earnings are actually improving, and the simple act of so many having bought back shares alone, will increase earnings per share, then shares will move higher on the news.

The market had been pointing toward a mildly higher opening but that devolved pretty quickly after the opening bell. It’s really not clear that the drop actually signifies anything, especially in the day after a triple point gain. There are so many swirling and competing theories that try to explain investor behavior in January, especially with regard to tax related behavior, that anything is possible.

I especially think that there’s lots of reason to cash in on big winners now, thereby giving 16 months until the tax bill and ensuring that the paper profits become realized. That’s a damper to markets.

Had 2013 been a typical year or a losing year the dynamic would be entirely different right now with tax related selling in high gear to close out the year and greater buying to start the year.

I’m still of the belief that buying will pick up even though I continue to want to exercise some caution. While at a low level on cash reser
ves and wanting to see it get replenished at week’s end, I’m anxious to again put that money back to use.

That’s recycling at its best, even better than recycling myself out of “retirement.”

 

 

 

 

 

 

 

   

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 OTP Sector Distribution* as of January 8, 2014

 * Assumes equal number of shares in positions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Monday through Thursday? See “Daily Market Update” with first edition published by 12 Noon and Closing Update published by 4:30 PM

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