Daily Market Update – July 24, 2014 (8:30 AM)
Along the lines of yesterday’s thoughts about the absence of market leaders, it’s too bad that advertising revenues aren’t the sort of thing that pick up everyone’s confidence and floats all sectors higher.
If that was the case then Facebook would be this generation’s IBM.
Facebook’s continuing ability to generate ad revenue, especially from mobile devices, is really incredible.
Yesterday was the company’s ninth earnings report since going public and investors have only once not rewarded existing shareholders after the very first time someone expressed negativity about the lack of a mobile strategy way back when.
While good news for Facebook it’s not really clear what their fortunes mean for anyone else.
It’s tempting to believe that increased ad revenues reflect increased optimism by retailers and increased interest by consumers. That could be good news for retailers.
Of course, it could also just mean that more people are on line with Facebook and spending more time when on line on the site, as Facebook ads can generate revenue simply by being served and not always requiring a click to bring in the bucks.
Facebook was one of those companies that I thought about selling puts in advance of earnings, but I rarely want to do so when there is a large advance in share price right before earnings. More often than not that kind of pre-earnings advance is an invitation to tumble after the data is released.
Not so this time around.
While the market has a mild upward bias in the pre-opening futures, it’s not too likely that anyone has to thank Facebook, although other individual stocks, like Twitter, may be getting some benefit by their loose association or resemblance to Facebook.
For things that really matter and are better reflections of the overall economy you have to look to companies like Caterpillar, which reported this morning. Their EPS figures are improving, thanks to large buy backs, which will be increasing. However, revenues were on the light side and projections for next year are on the low side of analyst’s reports.
So what does that mean?
A year ago the most celebrated and successful short seller, Jim Chanos, very publicly called Caterpillar his short of the year. Since that time shares are about 25% higher.
The Chairman was called the worst CEO of the year and widely criticized for executing buy backs at high share prices.
This one company just shows that no one really knows, no matter how good their thesis.
Business is not as good as expected, financial optics improving EPS data and the stock just goes higher.
Too bad there aren’t more of those. I’d gladly trade being right on my thesis for boatloads of profits.
Hopefully this morning’s muted strength will translate into some of those profits.
With next week’s weekly options trading beginning for those companies that don’t have expanded weekly options there is a chance of adding some positions, such as Texas Instruments, which goes ex-dividend next week, but my focus will continue to be finding opportunities for rollover.
At the moment there looks like there is the possibility of a fair number of assignments and some rollovers in the making. Since the past seven or so Friday’s have closed positively, that gives me some encouragement for this week, which has otherwise been bereft of activity and more importantly, income revenue.