Daily Market Update – May 12, 2014 (9:15 AM)

There’s not too much on the schedule this week and while there are still some big names left to report, particularly major retailers,  it’s going to be hard to imagine how anyone will be able to put a positive spin on the recent pattern of earnings releases.

While Janet Yellen does speak on Thursday and lately her words have been reassuring, it’s just too late in the week, unless she has some real blockbuster in store for us.

I’m not counting on that happening.

What has really become clear is that despite all of the stock buy backs and the enhancements offered to the standard metric of earnings, earnings per share, comparable numbers haven’t set the world on fire. If anything, the market which for the previous quarters had overlooked the apples to oranges comparisons was now taking a more critical look at earnings and forward guidance.

What continually seems confusing is how there can be a belief that the economy is expanding yet earnings are mediocre and more importantly, forward guidance isn’t generally indicating optimism. It’s difficult to reconcile those seemingly contradictory points.

Yet employment statistics seem to indicate the creation of new jobs and a falling unemployment rate. While  perhaps buoyed by decreasing participation you would still anticipate that the rise in employment would begin to have some impact on the fortunes of retailers, especially on the lower and mid-tier end.

At least this week there will be lots of opportunity to see if that’s going to be the case as many do report, all the way from Wal-Mart to Nordstrom and the nation’s retailer, Macys.

With the DJIA hitting yet another high last week, in a week that the overall market saw a decline and a continued devastation of the NASDAQ, it’s hard to get overly enthusiastic.

With my personal cash sitting at 29% I am willing to get down to about 20% for the week. That means that I’m not expecting to add much more than 4 new positions for the week. Rather than add new positions I would be much more interested in seeing the market confront all of the reasons that it shouldn’t go any higher and then just go higher. I’d be very happy to have the opportunity to then sell new covers on existing positions rather than add to the exposure.

Sometimes passivity works.

But selling new calls has been a hard goal as the market has been unduly punishing not just the real high fliers but most anyone coming in short on the numbers. With guidance being less sanguine it has been rare to see companies reporting mediocre earnings to see their share performance rescued by positive guidance. Instead, it has been more like a 0ne – two punch. Additionally, for those that have fallen it’s been notable that the typical bounce backs have been much more muted, delayed or even absent.

Instead, something unusual has been happening. Instead of some bounce back and attenuation of losses, we’ve been seeing sellers just piling on and compounding the pain. While you might make a case that investors are simply taking their money and rotating elsewhere, especially into more traditionally safe sectors, that pattern hasn’t really held up for more than a portion of a single trading session.

None of that makes me very optimistic, but I am happy to see this particular earnings season wind down and also see the use of “weather” as an excuse for earnings to enter into the history books.

Based on the latest pattern of alternating higher and lower weeks, we’re due to go higher this week. However, as far as patterns go, last week’s string of higher Tuesday’s was demolished with a large loss, so I’m not putting too much faith into those purely coincidental events that seem to get lots of attention.

However, if traders choose to believe the validity of those patterns, then this week, as long as we’re due to go higher, I fully embrace them putting their money where those beliefs are and I’d be happy to collect the residual benefit of their actions.

 

 

 

 

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