Daily Market Update – Jul 14 ,2014 (Close)

While there’s not too much economic news scheduled this week it will be a busy one for earnings and possibly international events.

For the most part, however, with the exception of the very initial military advance into Crimea, international events, other than in banking, have been almost completely ignored, even in precious metals markets.

Unless something truly unexpected and horrific happens overseas as everyone seems to have bigger and more destructive weapons and appear to have lost any reluctance in using them, those normal war-like events should be non-events for traders.

So it’s likely that most focus will be on earnings this week and we may live and die by those.

The week gets its start with a surprising earnings boost from Citigroup, which hasn’t found the way to deliver good news in a while and even failed the paint by numbers test necessary for regulators to allow it to initiate a stock buyback or raise the dividend.

A strong Citigroup would be the sort of thing to inspire some market confidence, especially if future strength is projected to be on the revenue side rather than through expense control.

It’s often said that the markets are lead out of their doldrums by the financial sector, although it’s hard to characterize current levels as anything but “near highs,” rather than “doldrums.” However, reports from JP Morgan, Morgan Stanley and Goldman Sachs this week could be just the thing to get the indexes back on track to surpass previous records and maybe take everyone along for the ride and not just select sectors.

When the final closing bell sounded the market, probably spurred on by Citigroup, traded in a remarkably narrow range, although individual stocks seemed to vary quite a bit through the day, possibly reflecting lots of rotation. It was a nice day, but the DJIA had its performance enhanced compared to the broad indexes due to the performance of some of its higher priced componetns, such as Visa, IBM and Goldman Sachs. Those higher priced Dow components have a disproportionate impact on the index.

This week will likely be very different from last week’s trading approach.

With no big event planned for the week there’s not too much reason to consider early rollovers where possible and instead there’s a greater need to create new positions if weekly income creation is a goal. Any broad market strength could create some opportunity to sell options on uncovered positions, but new positions  are likely to be a primary strategy this week.

With some money to spend thanks to some assignments last week, I’m willing to take cash down to about the 16% level, which could be as many as 6 new positions. As with previous weeks, however, the challenge is trying to find opportunities that aren’t so close to their peak prices or that could conceivably withstand broad market weakness better than the rest of the market. Today that was really challenging, especially with the latter criterion in mind.

With the market’s rise having come sector by sector, rather than as a broad wave of advances, it would be wonderful to be able to predict the next sector poised to move higher, but that is likely to be as successful of a venture than attempts to predict anything else, so it’s still better to look for individual positions and where possible, to diversify the selections.

Last week was a counter-example to that simple tenet, as all three new positions were energy related and two of the positions were the same – Chesapeake Energy.

While last week  was a good week to not have invested much capital, especially early in the week, and it is difficult establishing diversity if you don’t commit much funds, that lack of diversity isn’t something that I’d want to do on a regular basis.

Hopefully the opportunities this week will be a little more far flung and I would especially like to add some technology, industrials, healthcare and maybe even finance, despite the morning’s likely boost across that sector from the Citigroup news. The one trade of the day, in the industrial sector, didn’t come close to keeping up wiuth the market, as the entire industrial sector was weak throughout the day and never did catch up.

With a nearly triple digit advance in the pre-open market I didn’t think that I’d be rushing in if the market actually opened in the same manner, but unlike other sessions where there were false starts, today wasn’t one of those days. That was consistent with those kind of rallies that are fueled by financials. Knowing that, or at least believing that, however, and the willingness to do a little bit of chasing, still didn’t result in any great opportunity to find worthy new positions..

While I wanted to part of any party and was willing, uncharacteristically, to pay up for the privilege, today just wasn’t the day.

 

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