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Daily Market Update – February 10, 2014 (9:30 AM)

After least week’s bookend, but opposite triple digit moves to open and close the week we’re left feeling a bit more optimistic than just a week ago.

Whether or not that’s justified is hard to say, but we’re now slowly moving away from the real market movers reporting their earnings and may once again fall prey to speculating about what every little nuance or event means.

This week, for example, Janet Yellen will give Congressional testimony on Tuesday and five other Federal Reserve Governors will be giving addresses. Any of those can slip in a phrase, make a joke or simply use a single word with perceived emphasis that will send traders into fits and take the market with them.

No doubt everyone will want to know how Janet Yellen feels about the past two months of employment statistics, particularly since she seems interested in pursuing a lower unemployment threshold than previously was the case. For traders it also means having to decide whether her intent means that the course of the tapering to Quantitative Easing will be altered.

While we don’t know what she will say when faced with questions we do know that there is alwys some layer of obfuscation in the answers. With Yellen, we just don’t know how much there will be. Maybe she’ll continue the example set by her predecessor and be more decipherable than was his predecessor.

Of course, if there is even the slightest suggestion that the path may be altered that then brings the question as to whether altering that path is good or bad as regards the economy and then whether what’s good or bad for the economy is bad or good for the stock market.

For individual traders it makes absolutely no sense trying to understand that which can’t be understood. Trying to apply logical processes to understand the unpredictable or the illogical is itself illogical.

Given their performance last week, it’s only logical that in hindsight I wish that I had opened more new positions. I don’t think, however, I’m going to be interested in over-compensating this week. While for now it appears that the market is fairly resistant to anything more than a 5% decline in the S&P, the previous pattern has been to erase that loss and go even further on the upside. I think that I will look for a little more evidence that we’ll be on that path rather than assuming we already are on our way.

I would rather miss a percent on the upside than be first on line to capture a few percent on the downside.

With cash at about 34% to start the week but only 6 positions set to expire this week I’m likely to be conservative with cash and will also likely look at weekly options or those that may be able to bypass the February 22, 2014 monthly expiration.

With a number of potentially good dividend plays this week I may also preferentially look in their direction, particularly as volatility has again died down and the premiums are reflecting that to be the case.

In previous weeks the first hour, if the market was moving higher, turned out to be very unreliable in predicting direction for the rest of the day as many investors took the opportunity to secure some profits whenever they could in anticipation of further market declines.

For that reason I will probably be an observer early in the sessions this week and see where this week’s sentiment takes us.

Watching the pre-open market it appears that no one has an idea of where we’re going to start the week. When there’s that little resolve it’s often easier to have an event get blown out of proportion and trigger a mood. Other than potentially being prompted by this week’s scheduled events or something unexpected on the international front, the mood would do well to just stay flat.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

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