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Daily Market Update – January 27, 2014 (9:15 AM)
While everyone has been spending their time loving to hate Caterpillar, they may owe an apology to the company for perhaps being what stood between a 300 point down day on Friday and its continuation today, as overseas markets opened the week much lower.
At a time when earnings may actually matter nothing speaks more loudly than a company that gets dirt under their fingernails and is actually making profits, particularly if those profits have some tie to China.
Thank you, Caterpillar. That was the most unnerving 3% market drop ever.
However, with recent news of a deterioration in the Chinese economy also comes a deterioration of the emphasis that the Chinese economy has had on Caterpillar’s fortunes. For the past couple of years Caterpillar’s reliance on China has been overly exaggerated and shares have been adversely impacted well out of proportion to the company’s exposure when bad news was reported.
That link may now take a little bit of a break, but it’s still likely that Caterpillar’s detractors will still help keep a floor on shares as earnings news becomes dated.
In a way, I’m happy to see the good performance this morning, but I was hoping to be able to pick up shares below $85 on earnings news.
In the big picture, I’d rather see Caterpillar add some stability to the market than brood over losing an opportunity to pick up shares.
This week will be one that is likely to be entirely defined by earnings and may see a number of gyrations as the numbers come across.
We start this week with prices looking much better, but the market’s stability at the opening today may actually just muddle the picture. I would have preferred some continuing weakness, albeit in a slow and methodical way. The problem with abrupt changes is that you really don’t have any inkling of whether there is reason to keep going in the same direction. Are you seeing an aberration or the beginning of a trend?
By the time you often feel comfortable enough to answer that question it’s likely to be too late.
While I like to exercise caution I don’t like to be frozen in place and always feel a need to put idle funds to work, as best as possible.
This week, however, just as the prior week, I didn’t see as many assignments as I would have expected and am sitting with a smaller cash reserve than usual to start the week.
For those that do have cash in reserve the question is whether you want to risk the strategic build up of that pile at a time when it isn’t clear where the direction is going.
I’m not very willing to go below 20%, which would mean on the order of 5 new positions this week.
Looking at those positions that are set to expire this Friday I’m encouraged that there’s a chance to replenish reserves, but that’s how I felt the previous two weeks, as well. As we get closer to the end of the week and the likelihood of assignments looks better, that may loosen up some of my inhibitions.
To start this week I’m mindful that several trading days last week started off on a positive note, but turned around fairly quickly and decidedly. So while encouraged by the morning’s trend, it’s probably best to wait to see if the commitment is really there once the bell rings.
While there may be some room for some more speculative trades this week, specifically earnings related, it’s probably a good idea to focus again on dividends and more staid stories.
Sometimes excitement is totally unnecessary.
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OTP Sector Distribution* as of January 24, 2014
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