Monthly Archives: July 2015

Daily Market Update – July 23,  2015  (9:00 AM)

After a couple of days of disappointing earnings from some big names, especially among those that had recently taken a run higher and carrying the NASDAQ on its shoulders, there was some better news coming yesterday evening and again this morning, although there were still some disappointments in the mix, as well.

If some of those price reductions hold as we bring the week to its end, there may be some good opportunities next week, but there’s a little too much uncertainty right now, as the market itself is having a hard time getting past its resistance level, to want to commit what limited cash I have.

In the past week we’ve completely gotten away from any discussion of international events and have really focused entirely on fundamental issues and have put forward guidance on the back burner.

Over the past few years it has been forward guidance that has sent many stocks higher or lower as earnings were released. If the market is truly a forward discounting mechanism, then that’s probably the way it should be.

However, it seems that this quarter, with continuing uncertainty over the strength of the US Dollar and energy prices, there hasn’t been too much emphasis placed on the future. Additionally, there’s also no telling what an interest rate hike, albeit, at the earliest coming near the end of the current quarter, might do to those numbers.

So, for the most part, the past week or so has been one of purity, one that has been backward looking. But the reactions to old news, on a net basis have been fairly subdued.

On an individual basis, however, if you were an owner of shares of some of those NASDAQ high fliers reporting earnings, you were brought back to earth. While the net market move hasn’t been really great, there have certainly been no shortage of very large moves coming after earnings have been released.

While I often find playing earnings a potentially appealing activity, those option premiums, whether calls or puts, just haven’t made the effort worth the risk and the options market has been consistently under-estimating the implied move, as a result.

At the moment that is the seeming paradox in markets and derivatives pricing.

The derivatives are priced as if there’s minimal risk, but the market feels as if there is lots of risk.

That usually works its way out, but it has really been taking a very long time for that to happen. Unfortunately, the way that sort of thing usually works out is for some kind of explosive move and typically that means an explosive move to the downside.

With the week now coming to its end and with only a single position set to expire, there’s not much action in the cards.

The morning’s futures trading is subdued, but for the most part this week the futures haven’t really given much indication of what the day’s trading will hold.

Daily Market Update – July 22,  2015  (Close)

More earnings came after yesterday’s closing bell and they continued the shift of the path of the first full week of earnings. That shift began before yesterday’s open.

While yesterday was another in a series of days in which the DJIA was lagging behind the S&P 500 and the NASDAQ 100, due in part to some large moves in DJIA components and a streak of forward moves by a very small handful of NASDAQ components, this morning, as we got ready to begin, the shoe was clearly on the other foot.

This time, the dual disappointments from Microsoft and Apple added a double dose of earnings disappointment to the NASDAQ, which is based on market capitalization, as opposed to the DJIA, which is based on share price.

That share price is one of the reasons, maybe the only real reason that Apple had to split 7 to 1. Had it not done so, this morning’s $9.50 decline in the futures trading would have detracted about 420 points from the DJIA, instead of the paltry 60 points.

Microsoft, on the other hand, despite being only half as much as Apple on a percentage basis, was costing the DJIA only about 10 points during the pre-opening trading.

On the other hand, the combined market capitalization of Apple and Microsoft was over $1.1 Trillion before this morning’s prices settle.

At that moment, before the opening bell was to rings, as a result of that one – two punch, the DJIA was down about 0.2%, the S&P 500 was down about 0.4% and the NASDAQ 100 was down 1.1%.

When it was all over Apple contributed about 35 points of the DJIA’s 68 point loss, while Microsoft accounted for about 11 points of that loss.

That’s a complete reversal of the picture as the market had been moving higher, but sooner or later that’s the way most things go. Whatever goes up goes down and whatever lags, tends to catch up in relative terms.

While the earnings reports after yesterday’s close were disappointing, it really remained to be seen what kind of an impact the most recent reports would have on today’s market. Yesterday’s early disappointments took their real toll on the DJIA, but there was enough pain to spread around as the broader market got progressively weaker as the morning went on.

What was also noticeable yesterday was the large hits taken by some lesser known stocks when reporting earnings disappointments. Even announcing the plans to cut jobs, normally something that offsets some of the price declines associated with disappointing earnings, did little, if anything to stem the decline in Lexmark, for example.

With a little bit of cash still in hand, I don’t think that I’ll be likely to spend any more for the remainder of the week unless there’s some significant weakness to capitalize on, such as in Lexmark, maybe.

With still lots more earnings yet to be reported, there’s a need to erase the disappointments from yesterday and a need to paint a picture that’s consistent with an expanding economy.

Of course, that would re-introduce fears of an interest rate increase, but most are beginning to accept the likelihood that a rate increase will become reality by September.

Daily Market Update – July 22,  2015  (9:15 AM)

More earnings came after yesterday’s closing bell and they continued the shift of the path of the first full week of earnings. That shiftt began before yesterday’s open.

While yesterday was another in a series of days in which the DJIA was lagging behind the S&P 500 and the NASDAQ 100, due in part to some large moves in DJIA comoponents and a streak of forward moves by a very small handful of NASDAQ components, this morning, as we get ready to begin, the shoe is on the other foot.

This time, the dual disappointments from Microsoft and Apple add a double dose of earnings disappointment to the NASDAQ, which is based on market capitalization, as opposed to the DJIA, which is based on share price.

That share price is one of the reasons, maybe the only real reason that Apple had to split 7 to 1. Had it not done so, this morning’s $9.50 decline in the futures trading would have detracted about 420 points from the DJIA, instead of the paltry 60 points.

Microsft, on the other hand, despite being only half as much as Apple on a percentage basis, is costing the DJIA only about 10 points.

On the other hand, the combined market capitalization of Apple and Microsoft was over $1.1 Trillion before this morning’s prices settle.

At the moment, before the opening bell rings, as a result the DJIA is down about 0.2%, the S&P 500 is down about 0.4% and the NASDAQ 100 is down 1.1%.

That’s a complete reversal odf the picture as the market had been moving higher, but sooner or later that’s the way most things go. Whatever goes up goes down and whatever lags, tends to catch up in relative terms.

While the earnings reports after yesterday’s close were disappointing, it really remains to be seen what kind of an impact the most recent reports will have on today’s market. Yesterday’s early disappointments took their real toll on the DJIA, but there was enough pain to spread around as the broader market got progressively weaker as the morning went on.

What was also noticeable yesterday was the large hits taken by some lesser known stocks when reporting earnings disappointments. Even announcing the plans to cut jobs, normally something that offsets some of the price declines associated with disappointing earnings, did little, if anything to stem the decline in Lexmark, for example.

With a little bit of cash still in hand, I don’t think that I’ll be likely to spend any more for the remainder of the week unless there’s some significant weakness to capitalize on, such as in Lexmark, maybe.

With still lots more earnings yet to be reported, there’s a need to erase the disappointments from yesterday and a need to paint a picture that’s consistent with an expanding economy.

Of course, that would re-introduce fears of an interest rate increase, but most are beginning to accept the likelihood that a rate increase will become reality by September.

Daily Market Update – July 21,  2015  (Close)

Earnings are coming through this morning and some of the methodology differences in calculating the DJIA and S&P 500 resulted in another divergence between the two this morning and it widened during the day’s trading session.

That happens whenever a DJIA component, or two, that happen to be relatively high priced per shares, as was the case this morning, have large moves in the same direction. The size of those moves is more accentuated in the DJIA than in the broader index that is market capitalization weighted, rather than being price weighted.

For example, IBM’s move this morning had contributed about 56 points to the DJIA, although in the wrong direction. United Technologies is doing the same, but only reducing the index by about 25 points. Of course, they have some considerable impact on the S&P 500, as well, since they are so large, but much less than on the DJIA and none on the NASDAQ 100.

In fact, by the time the closing bell rang IBM and United Technologies accounted for about 110 points of the DJIA’s loss.

While that’s always interesting, sometimes those divergences actually say something more than simply reflecting on the way the indexes are calculated.

In the previous week that dichotomy existed all through the week and included the NASDAQ 100, as well, which was the great out-performer, with the DJIA lagging behind the S&P 500, as well.

What the recent market has been reflecting is that the advance from the 5% mini-correction has been very much led by a small number of very large market capitalization stocks. Those stocks also happen to have been NASDAQ 100 stocks.

Late this morning there was actually something on CNBC that highlighted just that point, but they went a step further by recalculating the NASDAQ 100 if the big gainers had been removed. Suddenly, those large cap NASDAQ stocks were seen as having contributed nearly 100% of the NASDAQ’s very impressive gain.

Suddenly the actually health of the NASDAQ 96 or so wasn’t that great.

While the market was just a hair away from setting a new high on the S&P 500 and while the NASDAQ has again closed at another new high, the advance has been nowhere near as broad as you might believe. It’s very much been a phenomenon of a handful of companies that are distorting the indexes, especially the S&P 500 and the NASDAQ 100.

That creates a condition where you can feel left behind, but are very much in the same boat as most people, unless they happen to have shares in those great gainers.

Hopefully some of the good fortune of those that have been carrying the markets will diffuse a little bit to the rest of the market and carry it along for the ride higher.

That, surprisingly, wasn’t going to be th case today, even though the DJIA was far worse than the S&P 500 to end the day.

After a good beginning to earnings season, this morning had brought some disappointing numbers, but no real surprises.

There are still lots more earnings reports to come and for the moment not too much economic news. Neither is there international events on the immediate horizon to hijack our attention.

While earnings will continue to come in at a strong pace for the next week or so the re-strengthening of the US Dollar may again begin to temper forward guidance, although that hasn’t been the case to this point.

While I’d like to see some increase in volatility in order to make option premiums more attractive, at the moment that’s outweighed by a hope that the market does get to follow in the path of some of those recent great NASDAQ gainers and simply move higher.

I would trade off opening new pos
itions for the time being for that kind of equilibration and spreading of the wealth.

Daily Market Update – July 21,  2015  (8:30 AM)

Earnings are coming through this morning and some of the methodology differences in calculating the DJIA and S&P 500 are resulting in another divergence between the two this morning.

That happens whenever a DJIA component, or two, that happen to be relatively high priced per shares, as is the case this morning, have large moves in the same direction. The size of those moves is more accentuated in the DJIA than in the broader index that is market capitalization weighted, rather than being price weighted.

For example, IBM’s move thois morning is contributing about 56 points to the DJIA, although in the wrong direction. United Technologies is doing the same, but only reducing the index by about 25 points. Of course, they have some considerable impact on the S&P 500, as well, since they are so large, but much less than on the DJIA and none on the NASDAQ 100.

While that’s always interesting, sometimes those divergences actually say something more than simply reflecting on the way the indexes are calculated.

In the previous week that dichotomy existed all through the week and included the NASDAQ 100, as well, which was the great out-performer, with the DJIA lagging behind the S&P 500, as well.

What the recent market has been reflecting is that the advance from the 5% mini-correction has been very much led by a small number of very large market capitalizatoin stocks. Those stocks also happen to have been NASDAQ 100 stocks.

While the market was just a hair away from setting a new high on the S&P 500 and while the NASDAQ has again closed at another new high, the advance has been nowhere near as broad as you might believe. It’s very much been a phenomenon of a handful of companies that are distrorting the indexes, especially the S&P 500 and the NASDAQ 100.

That creates a condition where you can feel left behind, but are very much in the same boat as most people, unless they happen to have shares in those great gainers.

Hopefully some of the good fortune of those that have been carrying the markets will diffuse a little bit to the rest of the market and carry it along for the ride higher.

After a good beginning to earnings season, this morning has brought some disappointing numbers, but no real surprises.

There are still lots more earnings reports to come and for the moment not too much economic news. Neither is there international events on the immediate horizon to hijack our attention.

While earnings will continue to come in at a strong pace for the next week or so the re-strengthening of the US DOllar may again begin to temper forward guidance, although that hasn’t been the case to this point.

While I’d like to see some increase in volatility in order to make option premiums more attractive, at the moment that’s outweighed by a hope that the market does get to follow in the path of some of those recent great NASDAQ gainers and simply move higher.

I would trade off opening new positions for the time being for that kind of equilibration and sharing of the wealth.