Daily Market Update – July 22, 2014




Daily Market Update – July 22, 2014 (7:30 AM)

Yesterday’s comeback was pretty impressive as it seemed that the chance for any real explosive shift in either Ukraine or Gaza was unlikely, despite the situations still being tenuous.

This morning, in the absence of any overnight drama, the market looks as if it will continue that trend, although most eyes will be on Bill Ackman’s presentation regarding Herbalife, that’s scheduled to begin before this morning’s open. Given what he has at stake and his apparent detente with Carl Icahn, you do have to wonder when he characterizes his presentation as “the most important he’s ever given in his life” it’s because of the amounts of dollars involved or because he will blow the doors off on this years old story.

The market believed it might be the latter,as Herbalife went down about 11% yesterday on news of today’s presentation.

At the very least it should make for some good theater or diversion if today ends up being an otherwise boring or quiet day.

For those concerned about more meaningful things it will be a big day for earnings reports with Verizon, Coca Cola, McDonalds and DuPont all scheduled before the opening and Apple, among others after the close.

That should be enough to keep most people busy and it would be especially nice to see some good numbers to help support current pricing levels.

The market continues to focus on EPS data, even though for so many companies comparing EPS data to previous quarters can be like apples and oranges because of the extent of share buy backs. In summarizing past earnings periods analysts have assessed their totality on the basis of increased EPS statistics without consideration of a decreasing number of shares that serve to inflate that metric.

The real measure for those interested in whether the economy is expanding has to be related to top line revenue and not the EPS data, which is further muddied by all of the accounting manipulations, charges and other adjustments.

One has to wonder what happens not only when Quantitative Easing ends in October, but when these massive buy backs start to slow down. Those have certainly been important factors, whether directly or indirectly, in helping investors favor equities over bonds and helping to stabilize stock prices.

You also have to wonder about the wisdom of initiating or increasing
buy backs at current share prices.

CEOs and Boards of notorious for being willing to spend share holders’s money without regard to value and rarely buy back stock when prices are depressed. The fact that insider buying isn’t a terribly good predictor of a stock’s share price being ready to appreciate should be all anyone needs to know, If an insider can’t spend their own money in a timely and wise manner what chance do have have for doing so with other people’s money?

So this morning will probably be another of just seeing where the early morning earnings reports take the market and hoping that the direction will continue higher as the pre-open futures are indicating.

I continue to be indifferent to the prospect of adding new positions and would still rather see the market climb, drag my paper values with it and give me the opportunity to be positioned to sell new options or rollover existing positions.

My preference yesterday would have been to have used forward week option expirations rather than adding onto this week’s long list of expiring positions, but that turned out to not be the case. If there are any new purchases this week I would really like to see  a little more ability to use some longer options, but things rarely follow the script.