Daily Market Update – January 27, 2015 (Close)
Most mornings the pre-open futures don’t really mean too much as far as predicting how the day’s trading will go.
The late Mark Haines of CNBC used to say that all the time and always wondered why people got so excited about those numbers.
Certainly, the past week has been testament to just how irrelevant those early trading actions can be in predicting where the rest of the day will go as for most of those days the early indications were quickly reversed within the first hour of trading.
The exception to that general rule is when the pre-open futures moves very strongly in either direction and that was the story that was developing this morning and remained the story all throughout the day.
The main driver for the large drop was the bad earnings that came from DJIA components Microsoft, Caterpillar and United Technologies. That was already worth about 80 points of the 200 point early drop and represented both oil and currency factors and they were taking other innocent victims down along with them.
Somehow, even though the dollar has been gaining strength for a while, it seems strange that people whose job is to factor in all of the tangibles when coming up with earnings estimates somehow overlooked the impact of currency rates.
About another 50% of the pre-open loss was then added with the release of the “Durable Goods” data and the large downward revisions to the previous month. The powerful combination of disappointing earnings from imporatnt DJIA components and a sense that the economy wasn’t doing those sort of things that a robust and growing economy has to do was enough to see to it that the opening market followed the lead of the futures.
Heading into that opening bell there was plenty of reason to believe that the morning’s early indications would have some legs as the market was getting ready to begin trading for the day.
Lately, and for no good reason at all, the day before an FOMC Statement release day has been one that has seen some strong moves higher, in a show of investor confidence that the FOMC would continue being accommodative and that no substantive changes were going to get in the way of the market continuing to move higher.
That could easily have been the case today, but those earnings earnings disappointments and the very large moves seen in some key DJIA components going across sectors gave plenty of reason for the market to begin reclaiming gains this morning, despite would could be waiting ahead in terms of employment growth, wage growth and more discretionary income.
So today, as expected, ended up being a day of just watching and hoping for some kind of a bright spot.
The only thing is that briught spot never came, other than yet another chance to rollover some of the Dold mining ETF as precious metals also continue to ramp up their volatility and unpredictability.
Although most everyone loves the idea of buying stocks on weakness, there’s a limit to what kind of weakness most are willing to test and when. That’s true for individual stocks just as it is for the broader market.
I certainly like buying after declines in particular stocks when there is defined news and it seems to be overdone, but drops like the one that was developing this morning that aren’t very well defined aren’t very enticing. It’s hard to know what’s over done and what isn’t, so it may be best to stay away from the lures that keep popping up and they certainly did so today.
How often can you get a 10% discount on Microsoft and Caterpillar? Not often, but if the rest of the market is going to get infected over currency and growth related earnings, just as Microsoft and Caterpillar took the market lower, the market can then go and take Microsoft and Caterpillar lower, as well.
With expectations for a more sustained large drop in markets being validated with the sudden increase in large falls and rises and the lack of any upward momentum, it seems premature to want to jump in when a large decline characterizes the day. That’s especially true when even considering the pre-open futures decline the market would be barely 3% below its recent high.
Is that over done?
Time will tell and today it didn‘t give any indication that it was over done..
Just as the historically massive snowstorm that was supposed to hit New York City hasn’t really materialized as such, maybe this morning’s decline and the very dour guidances provided by a number of important companies won’t materialize either, but for now you have to believe that they will.
The difference is that the latter will take longer to figure out, but it’s the initial news that really gets our attention and we were all listening this morning.and will do the same again tomorrow.