Daily Market Update – April 16, 2014 (Close)



Daily Market Update – April 16, 2014 (Close)

For most of the day yesterday it seemed as if the feeling of confidence that Monday’s close engendered was wasted. If your eyes have gotten to the point that it identifies almost everything on the basis of the relative amounts of red and green contained in the image you know that everything seemed dreary yesterday, particularly on the east coast and that included the New York Stock Exchange

But then, without the slightest cue or catalyst, the market simply reversed itself in the final 90 minutes and had a second successive strong close.

Sometimes it’s not just the net change for the day but it’s also the character of that change and the dynamics of how we arrived at the finish line. Yesterday was yet another day to inspire confidence in the overall market and maybe just another signal that this market just can’t get much beyond a 5% drop and just can’t do so for very long.

Not that anyone should let their guard down, but this morning’s pre-open market looks like it will be extending yesterday’s strong close. The fact that after a few days of nearly 80 degree weather there is some snow and frost on the ground outside my window is in no way a metaphor for what may happen in today’s market, although these rapid changes certainly get your attention and make you more cautious about planting the season’s vegetables or planting some new positions.

Today, as it would finally turn out was completely different from the two days preceding it. The market pointed higher from before the open and never wavered.

So far the way this week has developed as unlikely a scenario as you could imagine, especially considering the previous week and how that ended. The only suggestion that things were not as dire as they appeared was that despite nothing but bad news and mounting uncertainty on Friday, the market didn’t pile on at the close when there were renewed concerns about troops amassing on the Ukraine border and sell orders amassing at the close.

Still, the predominant evidence and the predominant thinking was that this time the market was going to get serious about approaching that 10% level so that most people could agree that we’ve finally had a correction.

Maybe, and it’s still early, the lesson to be learned is that the consensus is often short sighted. Or at lest it shows that we think we know what the catalysts are or will be, but we just don’t.

If Ukraine was going to be a near term catalyst last week it would be even more so after yesterday, but that’s just not the case, unless someone wants to claim that the market considers any armed confrontation in the area as a positive catalyst.

You just know that someone will do that, citing a version of “sell on the rumor and buy on the news” when it comes to rumors of bad news.

For certain, so far this earnings season hasn’t done anything to add to the concern. While there’s been nothing really stellar yet, neither has there been a developing forward looking theme that paints a negative picture. So while awaiting some kind of disaster on the Russian front or some really unexpected bad Chinese economic news, there’s not to much reason to suspect that the market will now chang
e what it has done so often in the past two years.

When faced with a downturn in prices it has just used that slightly lower level to spring to higher levels.

What may be different is that in the not too distant past we had seen many 5-10% downward moves and considered them to be a normal part of the market cycle. Now, everyone gets a minor sense of panic when the market falls 2% and strategies are immediately changed, as are behaviors that used to be reserved just for the periodic larger falls.

Maybe what’s called for is a re-definition of what constitutes a “correction.”  Maybe our minds don’t think in relative terms at all. Maybe we think in absolutes and a 5% drop when the DJIA is at 16000 seems much worse than a 5% drop at 12000.

While I had hoped that the market would use today as another opportunity to head higher, I’ve become resigned to this likely being the slowest week in years for opening new positions, although only one more is needed to tie that record and there’s still tomorrow.

Although I like to continually see positions rotate in and out of the portfolio, it’s only because I like to see positions generating fresh revenue. With cash reserves sitting at what I consider to be a minimum to really take advantage of a more classic “correction,” my hopes continue to be centered on seeing more new covered positions created and some rollovers to build up that cash level to start off the new monthly cycle on Monday.

Ultimately a sideways moving market depends much more on those rollovers than on opening new positions. It is also ultimately an easier market in which to outperform and manage positions, as well, as there are usually fewer total positions to clutter the landscape.

Hopefully that form of spring cleaning can start this week and this frost will be short lived