Month: May 2014

Daily Market Update – May 12, 2014 (Close)

There’s not too much on the schedule this week and while there are still some big names left to report, particularly major retailers,  it’s going to be hard to imagine how anyone will be able to put a positive spin on the recent pattern of earnings releases.

While Janet Yellen does speak on Thursday and lately her words have been reassuring, it’s just too late in the week, unless she has some real blockbuster in store for us.

I’m not counting on that happening.

What has really become clear is that despite all of the stock buy backs and the enhancements offered to the standard metric of earnings, earnings per share, comparable numbers haven’t set the world on fire. If anything, the market which for the previous quarters had overlooked the apples to oranges comparisons was now taking a more critical look at earnings and forward guidance.

What continually seems confusing is how there can be a belief that the economy is expanding yet earnings are mediocre and more importantly, forward guidance isn’t generally indicating optimism. It’s difficult to reconcile those seemingly contradictory points.

Yet employment statistics seem to indicate the creation of new jobs and a falling unemployment rate. While  perhaps buoyed by decreasing participation you would still anticipate that the rise in employment would begin to have some impact on the fortunes of retailers, especially on the lower and mid-tier end.

At least this week there will be lots of opportunity to see if that’s going to be the case as many do report, all the way from Wal-Mart to Nordstrom and the nation’s retailer, Macys.

With the DJIA hitting yet another high last week, in a week that the overall market saw a decline and a continued devastation of the NASDAQ, it’s hard to get overly enthusiastic, but somehow the market just decided to start the week with another triple point gain and hit new highs in both the DJIA and S&P 500 and the NASDAQ’s gain was nearly double that of those, after weeks of badly trailing them.

With my personal cash sitting at 29% I was willing to get down to about 20% for the week, but didn’t do too much to make that happen today. Certainly with a market jumping out of the gate I wasn’t prepared to chase positions, but even in a flailing market I hadn‘t expected to add much more than 4 new positions for the week. Rather than add new positions I would have been much more interested in seeing the market confront all of the reasons that it shouldn’t go any higher and then just go higher. I’d have been very happy to have the opportunity to then sell new covers on existing positions rather than add to the exposure.

Sometimes passivity works and today was definitely a day for passivity, as I watched and watched, with barely any trades, but also with no complaints, other than not having sold any additional call contracts.

But selling new calls has been a hard goal as the market has been unduly punishing not just the real high fliers but most anyone coming in short on the numbers. With guidance being less sanguine it has been rare to see companies reporting mediocre earnings to see their share performance rescued by positive guidance. Instead, it has been more like a 0ne – two punch. Additionally, for those that have fallen it’s been notable that the typical bounce backs have been much more muted, delayed or even absent.

Instead, something unusual has been happening. Instead of some bounce back and attenuation of losses, we’ve been seeing sellers just piling on and compounding the pain. While you might make a case that investors are simply taking their money and rotating elsewhere, especially into more traditionally safe sectors, that pattern hasn’t really held up for more than a portion of a single trading session.

None of that makes me very optimistic, but I am happy to see this particular earnings season wind down and also see the use of “weather” as an excuse for earnings to enter into the history books.

Based on the latest pattern of alternating higher and lower weeks, we’re due to go higher this week. However, as far as patterns go, last week’s string of higher Tuesday’s was demolished with a large loss, so I’m not putting too much faith into those purely coincidental events that seem to get lots of attention.

Today was simply a nice day and with broadly based advances. Why did it act the way it did? Who knows? In fact, I don’t think I really heard anyone offer a guess today, because there’s really no good reason for it to have happened.

However, if traders choose to believe the validity of those patterns, then this week, as long as we’re due to go higher, I fully embrace them putting their money where those beliefs are and I’d be happy to collect the residual benefit of their actions.

Daily Market Update – May 12, 2014 (9:15 AM)

There’s not too much on the schedule this week and while there are still some big names left to report, particularly major retailers,  it’s going to be hard to imagine how anyone will be able to put a positive spin on the recent pattern of earnings releases.

While Janet Yellen does speak on Thursday and lately her words have been reassuring, it’s just too late in the week, unless she has some real blockbuster in store for us.

I’m not counting on that happening.

What has really become clear is that despite all of the stock buy backs and the enhancements offered to the standard metric of earnings, earnings per share, comparable numbers haven’t set the world on fire. If anything, the market which for the previous quarters had overlooked the apples to oranges comparisons was now taking a more critical look at earnings and forward guidance.

What continually seems confusing is how there can be a belief that the economy is expanding yet earnings are mediocre and more importantly, forward guidance isn’t generally indicating optimism. It’s difficult to reconcile those seemingly contradictory points.

Yet employment statistics seem to indicate the creation of new jobs and a falling unemployment rate. While  perhaps buoyed by decreasing participation you would still anticipate that the rise in employment would begin to have some impact on the fortunes of retailers, especially on the lower and mid-tier end.

At least this week there will be lots of opportunity to see if that’s going to be the case as many do report, all the way from Wal-Mart to Nordstrom and the nation’s retailer, Macys.

With the DJIA hitting yet another high last week, in a week that the overall market saw a decline and a continued devastation of the NASDAQ, it’s hard to get overly enthusiastic.

With my personal cash sitting at 29% I am willing to get down to about 20% for the week. That means that I’m not expecting to add much more than 4 new positions for the week. Rather than add new positions I would be much more interested in seeing the market confront all of the reasons that it shouldn’t go any higher and then just go higher. I’d be very happy to have the opportunity to then sell new covers on existing positions rather than add to the exposure.

Sometimes passivity works.

But selling new calls has been a hard goal as the market has been unduly punishing not just the real high fliers but most anyone coming in short on the numbers. With guidance being less sanguine it has been rare to see companies reporting mediocre earnings to see their share performance rescued by positive guidance. Instead, it has been more like a 0ne – two punch. Additionally, for those that have fallen it’s been notable that the typical bounce backs have been much more muted, delayed or even absent.

Instead, something unusual has been happening. Instead of some bounce back and attenuation of losses, we’ve been seeing sellers just piling on and compounding the pain. While you might make a case that investors are simply taking their money and rotating elsewhere, especially into more traditionally safe sectors, that pattern hasn’t really held up for more than a portion of a single trading session.

None of that makes me very optimistic, but I am happy to see this particular earnings season wind down and also see the use of “weather” as an excuse for earnings to enter into the history books.

Based on the latest pattern of alternating higher and lower weeks, we’re due to go higher this week. However, as far as patterns go, last week’s string of higher Tuesday’s was demolished with a large loss, so I’m not putting too much faith into those purely coincidental events that seem to get lots of attention.

However, if traders choose to believe the validity of those patterns, then this week, as long as we’re due to go higher, I fully embrace them putting their money where those beliefs are and I’d be happy to collect the residual benefit of their actions.

MONDAY:   Not much in store this week, but those do have a way od becoming eventful, nonetheless. A mildly positive open may be at hand and would be welcome, especially if setting the stage to return to a positive Tuesday and a positive week.

TUESDAY:     No immediate follow through to yesterday’s nice gains, but at least there’s some hope as earnings season, for the most part, comes to its eand this week.

WEDNESDAY:  Early morning earnings from big names don’t seem to offer impetus to move higher, but new records are the norm this week, thus far

THURSDAY:    Wal-Mart and Cisco look as if they’re balancing one another this morning and as we’ve recently been seeing big moves don’t appear to have follow-through the next morning. In today’s case that would be good.

FRIDAY:  Unfortunately, not likely to be too busy with rollovers today as the best two days of strong declines have taken a toll on assignments and rollovers







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

The Week in Review will be posted by 6 PM and the Weekend Update will be posted by Noon on Sundy.

Today’s possible outcomes include:

Assignment:  BBY, GPS, TXN, UNH, VZ

Rollover:   GM, SBUX, TXN

Expiration:  EBAY, FDO, LOW

Trades, if any, will be attempted to be made by 3:30 PM EDT

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Daily Market Update – May 8, 2014 (8:45 AM)

Markets go up and markets go down all of the time, so it wasn’t or at least shouldn’t have been terribly surprising that yesterday would have a bounce back following Tuesday’s terrible market that saw a broad retreat.

But despite yesterday’s nice performance it was relatively superficial as the NASDAQ continued its high profile decline, taking with it not only the ones you would call the “usual suspects,” but also the more staid.

Last night was more of the same as further earnings were released and companies like Tesla are showing the strain and will just get added to the growing heap of casualties that are, thus far, taking longer than the usual time to at least start their recovery.

That’s discouraging and may not be something that will stay in isolation. As with most systems under attack, it’s the weakest that are usually the first to fall. Tremendously high beta and outrageous price/earnings are those characteristics that on the one hand send some stocks on a parabolic move higher and on an identical path lower.

But after they’ve fallen, what’s next?

To some degree that depends on the rate of the descent and the rate of the spread. It’s like contagion, except the  opposite.

In a real contagion the more quickly spreading and the more lethal, eventually the more self limiting, as the killer kills off its hosts and loses its ability to spread. But with stocks the quicker the descent the more it is likely to drag others along and feed upon itself. Even the healthy low beta, moderate price/earnings kind of names are then susceptible.

That’s why seeing bounce backs are so important, as is seeing evidence of companies that thrive under the same environment. But if the companies thriving under those kind of environments are restricted to utilities and the P&G’s of the world, that itself is a reflection of walls weakening. While the foundation is critical, most people don’t predicate their decisions on the foundations. It’s what else there is beyond the foundation that attracts or frightens people

What has been generally missing so far during this earnings season is much evidence of thriving companies. The signs of strength that would actually promote either investor enthusiasm or at least reflect real economic growth just aren’t there or aren’t widely noticed.

The last few quarters, at least the past two, have seen earnings that were generally referred to as average or better than average and have been some basis for the market moving even further ahead, although for much of the past two years prior to 2014 there wasn’t much reason required.

On a retail level and on a manufacturing level, not to mention iron and coal, the basic fuels of growth, the basis for believing economic growth was proceeding has been lacking. That didn’t matter in 2012 and 2013 and so far, isn’t terribly important now, either.

What had been conveniently overlooked in those previous quarters has been the increasing and ever wider im
pact of stock buy backs as the earnings, even if falling, were rising on a per shares basis.

While reporting earnings per share is supposed to make it an apples to apples kind of comparison, that’s just not always the case. Reduce the number of shares in your denominator and by comparison it’s as if you moved on to a new group of uglier friends that now makes yu look better than before.

It’s often said that the shortcoming of technical analysis is that it focuses solely on charts and doesn’t really consider fundamental factors. Likewise, fundamental analysis is faulted for not considering share movement, history and patterns, but they can be further faulted for willingly accepting numbers on their surface and sometimes comparing apples to oranges. To some degree that can’t be helped because the reporting of buy backs isn’t always made on a timely basis and may not coincide very neatly with the reporting periods.  Apple, for example, just released information regarding its buy backs as of February 2014, while its earnings were for the period ending in March.

Maybe the markets are coming to this kind of realization. You can’t blame tax selling, end of the year profit taking, seasonality,  or the weather anymore.

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Daily Market Update – May 7, 2014 (Close)

Yesterday was just an absolutely brutal day for the market and it continued into the after-hours trading.

Some stocks, like YELP, which reported nice earnings last week and went higher, despite being among those ultra-high beta momentum stocks just plunged yesterday, for no reason of its own, going down about 14%.

YELP  was one of the personal trades that I made recently that wasn’t part of the recommended list of trades because the risk seemed a little inappropriate, but that worked out for a very quick gain.

In hindsight I often think that such trades should have been included as part of the Trading Alerts.

But YELP’s subsequent drop That actually paled in comparison to Twitter, which didn’t likely set off the bad day, but was bad enough to distort most everything, as it went down about 18% on incredible volume.

Then again, trades like Twitter make me glad, in hindsight, that some trades aren’t part of the recommended list of trades.

Twitter was joined by the likes of GNC (down 11.3%), FireEye (down  16.5%), Zuillily (down 20.5%) and Whole Foods, which went down 13.8% and appears to be headed even lower in the pre-open.

Among the names above, not all are high beta, yet they were also horribly punished.

In the case of Whole Foods, it’s a little hard to understand. Months ago I write about the drop Whole Foods had taken as it announced some lower same store sales that were caused by bad weather. At that time I wrote that I hoped that it wouldn’t be doubly punished when earnings were released.

It was.

This morning, after yesterday’s terrible all around showing, which was made even more intolerable because it came on a Tuesday and we had grown accustomed to  strong market performances on Tuesdays, appears to be headed mildly higher.

But we’ll see.

The action is Twitter was bad from the beginning and I was surprised. I really hadn’t expected so much selling and so much price pressure, particularly since shares had already fallen quite a bit and insiders said they wouldn’t be selling. It reminded of Facebook when it faced its own lock-up expiration. The scenario was identical. Shares had fallen from their $38 IPO to $21 right before the expiration date. They eventually fell to about $18, but the selling was fairly muted and not on explosive volume. Lots of Facebook insiders likely believed that shares were valued too cheaply and they may have known that there were some good initiatives and news to come.

Twitter, on the other hand, may be populated by insiders who don’t have the same confidence.

But the real blow came when Mark Mahaney, a respected analyst, who was fired from Citigroup a few years ago for sharing non-public information and who came to  a settlement with Massachusetts regulators, suggested that perhaps Twitter insiders who said they wouldn’t sell shares at the expiration did actually sell shares.

He wasn’t questioned on that comment and offered no additional information.

But shares accelerated their decline after those comments.

Even if I hadn’t added to my short put positions I would have thought that to have been a reckless thing to say, unless there was personal gain to be had.

Today is likely to be a slow day on the personal front and spent hoping to see some strength re-developing in the market and in individual positions that may have been treated far too harshly.

The hopes came true, but there was scant opportunity to sell new calls today. So there’s every reason to keep hoping tomorrow and Friday and to urge all of your friends to shop at Whole Foods and then Tweet out their experiences.