Monthly Archives: October 2014

Daily Market Update – October 2, 2014 (9:00 AM)

After yesterday’s 238 point drop and following all of the tumult of the past two weeks, it’s hard to believe that the market is down only about 3% from its peak of just two weeks ago.

For the most part there really hasn’t been much in the way of meaningful news during the past two weeks but the market has certainly taken on a very, very different tone.

Whether the net movement is lower or higher there’s a palpable difference even if you have never heard of the word “volatility.”

When there are no real over-riding economic themes, as there haven’t been of late, you can at least see why the market is like a ping pong ball in active play. The movements of the past two weeks have really been dizzying and there’s no indication of when the next period of stability will be at hand.

The only thing that may return some fundamentals to trading may be the beginning of earnings season next week.

It would be nice to see a market trading on something tangible, such as fundamentals.

It lately has been ignoring geo-political events, which is a good thing, but has also been ignoring the precipitous drop in commodity prices which would ordinarily have a positive impact on growth and discretionary spending.

Of course the results from earnings season could cut both ways, especially as there is an increasing consensus looking for improved numbers. The problem with those kinds of expectations is that there is more possibility for disappointment.

We all know the phenomenon of “good not being good enough,” and that consistently extends to stocks when they report their earnings.

Before next week’s earnings there was still the matter of this morning’s statement from the ECB and tomorrow’s Employment Situation Report.

What may be increasingly noted on the ECB front is that its leader, Mario Draghi may be much better at rhetoric than action.

He has moved global markets on more than one occasion by making comments suggesting that the ECB can and will do whatever it takes to meet the ECB’s single mandate, which is to maintain price stability.

Most recently the expectation has been that the ECB would introduce its version of Quantitative Easing to help keep interest rates low, but it has really done nothing.

Tha
t didn’t change this morning as Draghi announced that the ECB will continue to observe.

So that leave’s tomorrow’s Employment Situation Report to offer some respite to the negative trend.

If so, it couldn’t come at a better time, but hopefully today there will still be some reason for the market to move higher and offer opportunities to remove some of the burden from requiring an explosively upside move tomorrow in order to get that desired combination of rollovers and assignments.

Daily Market Update – October 1, 2014 (Close)

For many, closing out the third quarter will be a welcome thing, as it turned out to be the worst quarter since December 2012.

It’s hard to fathom that bit of news as we haven’t had a sharp decline this past quarter and we’ve had so much news of hitting new market high after new market high.

How do you reconcile both of those?

Part of the illusion lies in realizing that sometimes a small number of stocks that are performing very well may account for the vast majority of the year’s advances, as is the case in the NASDAQ, courtesy of Apple, Facebook, Intel, Microsoft and Gilead.

The rest? Not so encouraging.

The morning didn’t look like the new quarter will necessarily herald the beginning of a reversal and when it was all aid and done the decline from the previous market high found itself having been increased by 100%.

The remainder of this week still has some potentially important stock moving news as tomorrow brings news from the ECB and then Friday has the monthly Employment Situation Report.

Any of those could be impactful, but they may be so in differing directions. It would be nice if they could line up in the same way as a few weeks ago when we had such disparate events as the Scottish referendum, the Alibaba IPO and an FOMC statement all working out as hoped.

With the market now about 3% below its all time high the one thing that becomes clear is that we are less and less tolerant of any looming threats. There was a time when we considered 10% rollbacks to be a normal kind of occurrence. For the past two years it has been more like 5% and we’ve been dragged kicking and screaming into those, possibly still sensitive to the declines seen in 2007 and 2008.

Now, we get very nervous even below the 2% value, maybe because our minds are more wired to focus on the absolute size of the drop rather than on the relative size of the drop. When the DJIA gets up to 17000 those triple digit moves aren’t as meaningful as they were at 12000, yet we make no adjustment in our minds.

I know that I don’t. I don’t set the threshold by increasing my recognition of a large move to 150 points. So today’s 200+ point decline seems even larger than it really should seem.

At the mid-week point, even before today’s plunge, I wasn’t likely to be thinking about adding too much to the existing portfolio. I don’t want to spend cash reserves down and instead will be hopeful of making it out of this week with both assignments and rollovers, although I would like to see more on the assignment side of the ledger.

While it’s hard to resist what appear to be bargains you could have easily said the same thing yesterday and the day
before and now you would be sitting on the wrong side of that bargain. As was said yesterday, the challenge is really distinguishing between value and “value traps.”

Meanwhile, volatility is ticking higher and as long as the market continues having large alternating movements, including those intra-day movements, the increase in volatility can be relatively easy to take and not come at too great of a cost. Today was not the right way to do it, though.

While this week continues the challenge that had been the third quarter, next week begins yet another earnings season and it may be a very critical one as the market’s most recent weakness hasn’t really had much of a foundation. Poor earnings could finally give the market a reason to seek a lower level, especially since many are expecting some improved reports from the retail sector.

On the other hand good earnings, especially exceeding expectations could become the fuel that’s been missing for a while, even as markets did reach new highs.After the declines of this week good earnings news could easily be a springboard for some meaningful moves higher, or at least back to where we started.

So this week is one to hopefully be escaped in preparation for next week, which may herald a quarter different from the last and different from today.

Daily Market Update – October 1, 2014 (9:30 AM)

For many, closing out the third quarter will be a welcome thing, as it turned out to be the worst quarter since December 2012.

It’s hard to fathom that bit of news as we haven’t had a sharp decline this quarter and we’ve had so much news of hitting new market high after new market high.

How do you reconcile both of those?

Part of the illusion lies in realizing that sometimes a small number of stocks that are performing very well may account for the vast majority of the year’s advances, as is the case in the NASDAQ, courtesy of Apple, Facebook, Intel, Microsoft and Gilead.

The rest? Not so encouraging.

The morning doesn’t look like the new quarter will necessarily herald the beginning of a reversal.

The remainder of this week still has some potentially important stock moving news, as later this morning comes the ISM Manufacturing Index, tomorrow brings news from the ECB and then Friday has the monthly Employment Situation Report.

Any of those could be impactful, but they may be so in differing directions. It would be nice if they could line up in the same way as a few weeks ago when we had such disparate events as the Scottish referendum, the Alibaba IPO and an FOMC statement all working out as hoped.

With the market less than 2% below its all time high the one thing that becomes clear is that we are less and less tolerant of any looming threats. There was a time when we considered 10% rollbacks to be a normal kind of occurrence. For the past two years it has been more like 5% and we’ve been dragged kicking and screaming into those, possibly still sensitive to the declines seen in 2007 and 2008.

Now, we get very nervous even below the 2% value, maybe because our minds are more wired to focus on the absolute size of the drop rather than on the relative size of the drop. When the DJIA gets up to 17000 those triple digit moves aren’t as meaningful as they were at 12000, yet we make no adjustment in our minds.

I know that I don’t. I don’t set the threshold by increasing my recognition of a large move to 150 points.

At the mid-week point I’m not likely to think about adding too much to the existing portfolio. I don’t want to spend cash reserves down and instead will be hopeful of making it out of this week with both assignments and rollovers, although I would like to see more on the assignment side of the ledger.

Meanwhile, volatility is ticking higher and as long as the market continues having large alternating movements, inclu
ding those intra-day movements, the increase in volatility can be relatively easy to take and not come at too great of a cost.

While this week continues the challenge that had been the third quarter, next week begins yet another earnings season and it may be a very critical one as the market’s most recent weakness hasn’t really had much of a foundation. Poor earnings could finally give the market a reason to seek a lower level, especially since many are expecting some improved reports from the retail sector.

On the other hand good earnings, especially exceeding expectations could become the fuel that’s been missing for a while, even as markets did reach new highs.

So this week is one to hopefully be escaped in preparation for next week, which may herald a quarter different from the last