Daily Market Update – June 12, 2014 (9:00 AM) After a rare triple digit loss and no new record being set, the morning’s market doesn’t appear to be quite ready to follow through with more of the same. It doesn’t really appear to be ready to do much of anything, actually. There still remains no identifible catalyst to move the market in either direction and if yesterday’s thesis was correct, that Eric Cantor’s primary election loss was the culprit for the market decline, there’s no real reason for continuing pessimism. Those kind of stories don’t usually have much in the way of lasting power, even if they were accurate in the first place. While the market has been by and large unexciting and moving in smallish kind of steps, the same can’t be said for individual stocks, especially when earnings are in focus. Today it’s LuLuLemon. It started yesterday when its founder, who arguably started a slide in shares months ago when he made comments that were very disparaging of potential and actual customers, decided to pull his support of the current Chairman of the Board, saying that his interests weren’t aligned with the “core values” of the company. Every time Chip WIlson, the founder, seems to open his mouth, if you’re a shareholder you feel as if your core values were violated. Yesterday was no different, and came one day before earnings were to be released. The Board expressed their disagreement with the founder and stemmed yesterday’s loss, but this morning’s diminished guidance is punishing shares and adding to their already depressed levels. This, without the added drama of an errant founder, has been the story of many stocks the past few earnings seasons. Despite a market that has been climbing higher many stocks are left behind or sent into tailspins and are taking longer to recover than ever before. as the market moves higher it does so on the backs of stocks rotating in and out of favor rather than pulling most along higher to varying degrees. While there may be something unhealthy at LuLuLemon a market not trickling down to its component members is also something that may not be as robust as it seems. While the volatility continues to be interpreted as reflecting investor “complacency,” I think that it’s hard to accept that interpretation. Very few are taking anything for granted which is unlike other periods when markets were making new highs. There is much more nervousness than is being acknowledged and that has to include the professional investor community which is reportedly under-performing the broad market. In the case of hedge fund managers they are lifting some of their traditional hedging techniques in efforts to catch up to the market, while at the same time increasing their exposure to adverse events by having done so. That should give them plenty of reason to be nervous. While those make me wary, it doesn’t make me overly nervous. The lack of enthusiasm for this market has to be taken as some sort of positive sign, but it is still very difficult to justify committing all to the prospect of the crowd being wrong. For now, there’s little reason to make a directional bet and little basis for the belief that there will be any kind of clear directional path. At the moment I’m not willing to bet much new money and may even want to recycle less than the already low levels as assignments occur. The next two days will be ones looking for the opportunities to rollover stocks, although there aren’t too many for this week and perhaps realize some assignments in preparation for next week’s monthly option cycle end. Hopefully next Wednesday FOMC statement and ensuing press conference by Janet Yellen won’t disrupt prices too much and leave us in a good position to make some decisions for July 2014. .
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