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Daily Market Update – July 23, 2015 (9:00 AM)
After a couple of days of disappointing earnings from some big names, especially among those that had recently taken a run higher and carrying the NASDAQ on its shoulders, there was some better news coming yesterday evening and again this morning, although there were still some disappointments in the mix, as well. If some of those price reductions hold as we bring the week to its end, there may be some good opportunities next week, but there’s a little too much uncertainty right now, as the market itself is having a hard time getting past its resistance level, to want to commit what limited cash I have. In the past week we’ve completely gotten away from any discussion of international events and have really focused entirely on fundamental issues and have put forward guidance on the back burner. Over the past few years it has been forward guidance that has sent many stocks higher or lower as earnings were released. If the market is truly a forward discounting mechanism, then that’s probably the way it should be. However, it seems that this quarter, with continuing uncertainty over the strength of the US Dollar and energy prices, there hasn’t been too much emphasis placed on the future. Additionally, there’s also no telling what an interest rate hike, albeit, at the earliest coming near the end of the current quarter, might do to those numbers. So, for the most part, the past week or so has been one of purity, one that has been backward looking. But the reactions to old news, on a net basis have been fairly subdued. On an individual basis, however, if you were an owner of shares of some of those NASDAQ high fliers reporting earnings, you were brought back to earth. While the net market move hasn’t been really great, there have certainly been no shortage of very large moves coming after earnings have been released. While I often find playing earnings a potentially appealing activity, those option premiums, whether calls or puts, just haven’t made the effort worth the risk and the options market has been consistently under-estimating the implied move, as a result. At the moment that is the seeming paradox in markets and derivatives pricing. The derivatives are priced as if there’s minimal risk, but the market feels as if there is lots of risk. That usually works its way out, but it has really been taking a very long time for that to happen. Unfortunately, the way that sort of thing usually works out is for some kind of explosive move and typically that means an explosive move to the downside. With the week now coming to its end and with only a single position set to expire, there’s not much action in the cards. The morning’s futures trading is subdued, but for the most part this week the futures haven’t really given much indication of what the day’s trading will hold.
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