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Daily Market Update – January 13, 2014 (9:30 AM)

With one third of January now part of history, history is at risk of not repeating itself this year unless the market does something with the next two weeks.

With earnings season really getting into full swing this week comes word that a 6% increase in comparable period earnings are expected. That alone should help increase the broad market, unless of course there’s an inexplicable shrinking of the market multiple.

But that 6% seems high, unless that’s the result of some optics secondary to share buy backs. Fewer shares can result in increased earnings per share even if net earnings decrease.The only problems is that optics can only take you so far. At some point no one is fooled.

The continuing difficulty exhibited by retail makes it hard to see where improved earnings are coming from unless they are really the result of optics.The last couple of quarters the major money center banks reported nice earnings, but they really didn’t set the tone. Rather, they set investors up for disappointment.

But last year that didn’t really matter. No matter what was going on the market just kept going higher.

While it’s obviously too early to make any conclusions or projections, at least it’s clear that this January isn’t looking at all like the past two years. Looking at some of the really significant price drops among those that disappoint the market with either earnings or guidance the lack broad market strength, thus far, makes you wonder when the other shoe is about to hit.

I suppose first they actually have to be able to sell the shoes, so maybe we’re then safe. Even Family Dollar is struggling.

After a week of a lot of assignments and an end of the monthly cycle this week, I’m hoping for a repeat. Some good earnings reports from the banks this week would at least add some support to the market in a week that isn’t scheduled to have much in the way of market moving news, otherwise.

While the money is available this week, I’m still a little cautious and am not likely to bring cash reserves down as low as they went last week. This week I stand at 40% and am willing to get down to about 25%, which would be 5 to 7 new positions.

However, as nearing mid-week or Thursday, if it appears as if there may be a considerable number of assignments on Friday that may send a signal for a second surge of buying. If the cash is likely to be there, I would rather get premiums reflecting 6 days of time by jumping the gun on the week, rather than waiting for next week’s holiday shortened trading to begin on Tuesday.

Lately, it seems that every day has a challenge.

Today in the pre-open it’s LuLuLemon.

They set the stage for disappointing earnings by reporting that store traffic was low in December. With options expiring next Friday that allows some time for price recovery, which I think will be forthcoming. With a new CEO it’s not unusual to load up on bad news so that their first “clean” quarterly earnings report will have had as much bad news eliminated. The strategy is to always accelerate the negatives and have them reflect on past leadership.

Clearly someone bet wrong on shares on Friday when it went nearly 4% higher on no news on an otherwise flat day in the market.

However, as retailers are getting the bad news out and taking their hits they are becoming more and more attractive, although if any are potential buys this week, as Bed Bath and Beyond, L Brands, Target, Lowes and even Sears are all possible purchases this week, individuals should make certain that retail isn‘t too large of a sector in their portfolios.

Ultimately, I don’t understand how the market can not see the retail situation as reflecting an economy that isn’t as robust as it should be. Hopefully the last Employment SItuation Report was an anomaly and not a foreteller of people’s inability to make discretionary pirchases.

So it’s another weak of selective caution.

 

 

 

 

 

 

 

   

 Access prior Daily Market Updates by clicking here

 OTP Sector Distribution* as of January 10, 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

Friday? See Week in Review for summary statistics and performance

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