Daily Market Update – October 21, 2014 (Close)

Yesterday was certainly a tale of two different indexes as for most of the day the DJIA was trading in negative territory while the S&P 500 actually had a very nice advance.

IBM’s really bad earnings and forward guidance that scuttled its famed “5 Year Plan” was enough to take as much as 105 points off of the DJIA at IBM’s lowest share price of the day. While it had some impact on the S&P 500, you’d never know it, because it is a relative speck in that index.

As a general rule every point move by a DJIA component is worth about 7 points in the index.

This morning there are 5 such components reporting and those results are mixed, but the early indication is for a mildly higher opening.

That mild opening took on a completely different character for no really obvious reason and ended 215 points higher.

Had IBM traded flat yesterday we would have been talking about yet another in a series of triple digit moves. It’s not everyday that you see a DJIA component move 7%. However, whenever you see any stock move that much, regardless of the direction, you really have to wonder how so many smart people, analysts and investors, could have gotten things so wrong.

Yet that happens all of the time. Maybe understandable with smaller and more speculative companies that aren’t followed by many, but IBM? Coca Cola?

If you would have excluded McDonalds, Coca Cola  and IBM, which had another abysmal dayfrom today’s DJIA, the climb would have been about another 70 points.

It’s funny how first IBM and now McDonalds and Coca Cola are all struggling as they lose market share in a changing world. Those were all once licenses to print money and aren’t going away in my lifetime, but they’re facing challenges that they never would have anticipated as one time market leaders.

What’s also worth realizing is how fortunate it was that IBM’s earnings were released yesterday morning to begin the week, rather than early last week.

While IBM is no longer the single stock that is able to change market tone and direction, it would have been really bad if it had come at a time that pessimism and selling was already the predominant sentiment and action. As bad as the early part of last week was, that IBM news would have greatly compounded the selling.

Pure luck, but that will never get recorded anywhere. IBM’s news, if having come last week, could easily have been the straw that broke the camel’s back a
nd taken us beyond that 10% threshold and made that correction become official.

Apple reported earnings yesterday afternoon and the spin is placing heavy emphasis on iPhone sales and what futures quarters will bring, although there may be quite a bit of uncertainty coming in those future quarters as they not only roll out Apple Pay, but also introduce that much awaited Apple Watch.

Apple’s post-earnings move was really muted as iPad and iTunes sales are dropping, with the increase in the Mac line of computers and laptops seemingly coming at the expense of tablets.

Not that you can project from a single quarter’s earnings, but the lessons from icons like IBM, McDonalds and Coca Cola is that the world moves on, with or without you and no one is ultimately immune to that basic reality.

This morning’s pre-open futures pointed to a mildly higher opening. While, I liked the idea of seeing another pop higher so that perhaps there might be a chance to sell more call contracts on uncovered positions, I really would have preferred a narrow trading range session. While that would lower volatility, it might offer some confidence that it may be the time to buy something.

That confidence comes from either seeing a runaway train or the building of qa base. Today’s gains were nice, but they still aren’t the real confidence builder needed. It’s still hard to lose sight of the reality that these moves occur in a big picture and that big picture is one of a declining market.

That kind of confidence may still take a little while to build so in the meantime I would love to have the opportunity to generate some returns from more of the call sales. As has been the case over the past few weeks while volatility was rising I’ll keep looking at forward week or even forward month contract expirations, as long as the volatility can keep those premiums appealing enough.

However, today’s gains really drained volatility and there were decreasing opportunities to find good trades in forward weeks. Instead it was a good day to just wash net asset value grow.

Hopefully the growth won’t get washed away anytime soon.