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Daily Market Update – January 28, 2014 (Close)
It’s probably a good thing that Apple stopped being a market leader about 2 years ago.
There was a time, not too long ago, that we really didn’t need an S&P 500. All we needed was an S&P 1, as long as that one stock was Apple. Back then, as went Apple shares so went the rest of the market.
Apple’s volatility has been falling significantly and is well below 1.00, as it gets closer to moving in a discordant manner with the overall market.
With the earnings disappointment comes lots of questions, mostly around company leadership and not around a changing marketplace that is beginning to get saturated with the highest of margin products and finds itself with alternative choices. If ever there was a time for Apple to introduce a new product genre, it’s now. Supporting Apple’s share price will take lots more than share buy backs or financial engineering, but you can certainly expect a lot more noise on that front if the market doesn’t buoy share price higher as it perceives a bargain.
So a pre-market indication of a nearly 8% loss shouldn’t have too much of an impact, other than on the NASDAQ 100. Instead, this morning saw an early reversal of its nice gains created by a disappointing durable goods number, but at least that has some fundamental, although probably not lasting, value.
While earnings are going to be the key story for the week, and for the most part, they have been surprisingly good this week, there is that matter of one last Bernanke led FOMC meeting, which begins today and culminates with the minutes being released tomorrow.
After about 8 years of Bernanke’s leadership it was surprising that some would still find themselves speculating as to whether Friday’s 300 point drop would play a role in any decision by the committee. The difference between economists and traders is pretty apparent if you have to ask that question.
There’s probably not going to be much in the way of impact from this last meeting, but you never know how interpretations of the nuances perceived in the wording of the minutes will impact the market.
With three new positions opened already this week there still may be room for a couple more, but that would bring me to the lowest cash position that I’m willing to hold. At 20% there would still be sufficient reserve to take advantage of any sudden drop.
But then there’s next week and the week after.
The more insidious drops, such as what we may be undergoing right now, are the ones that are more difficult to manage and slowly suck reserves down, leaving you incapable of fully taking advantage of the opportunity when it actually finally arrives.
The need to continually replenish reserves through assignments becomes increasingly important as reserves are getting near threshold levels. Hopefully this week, perhaps buoyed by some decent earnings reports lifting the overall market, will reverse a recent trend of disappointments.
Alternatively, rollovers accomplish the same net result, which is to generate income, but do so without the need to re-invent the wheel by finding new investing opportunities.
Once again, today was a day of watching to see whether the early slightly positive tone could continue past mid-morning. For the first time in 6 trading sessions the market actually finished with a gain. In some cases, that gain, especially in the final hour, as with Texas Instruments, wasn’t wanted as it started to encroach on that $42.80 level that could trigger some early assignments to capture the dividend.
Lately the mid-morning has been a challenge and picking up shares too early in the day has been an example of bad timing swayed by a false promise of a stabilizing market.
With the market now down nearly 4% the question is whether this is just a repeat of previous market drops over the past 21 months that couldn’t go beyond 5% or just an intermediate point in what we all define as a true correction.
Flip a coin and you’re as likely to be right as the next person. Today was a much welcomed respite, despite the fact that we haven’t really seen much in the way of suffering.
I suppose we may all be the investing equivalent of flabby and out of shape, but in that world, I’d rather be in that shape.
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OTP Sector Distribution* as of January 28, 2014
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