Daily Market Update – August 4, 2015 (8:45 AM)
No matter what the appearances were yesterday as the pre-opening futures were trading, there was no indication that the day would deteriorate so quickly and decisively.
There wasn’t too much reason seen during the course of the day to account for the very broad negative tone, although some pointed to Chinese economic news.
That seemed plausible, except that Chinese economic news is released well before our own markets begin trading and typically, if they are going to have any impact at all, begin to have that impact on our futures market the evening before.
That definitely wasn’t the case on Sunday evening, nor was it the case at 9:29 AM on Monday.
Sometimes, we just have to realize that there aren’t necessarily easy answers to explain reality.
There weren’t any obvious technical triggers, although individual hedge funds, banks or other institutions may have their own internal sell and buy signals, but there was no real sudden drop on a relatively large volume spike. Instead, it was a slow grind lower over the course of 90 minutes. If there was anything representing a spike in volume it came on an uptick at the close that pulled the DJIA almost 30 points higher in the final 5 minutes.
This morning’s futures are again relatively quiet, although there is a negative bias. Earnings are continuing to come in, although other than Retail, which begins with JW Nordstrom next week and then goes into high gear the following week, most of the important companies have now reported their earnings.
What we’ve seen thus far has already been designated with the acronym “BEMR.”
Beat earnings, missed revenues.
So if you were wondering what the impact of all of those share buybacks have been, it has been to create an illusion of earnings and to make management look good.
They have done so by spending lots and lots of shareholder money and they very often do so when shares are not priced very attractively.
I’m not a huge fan of dividends, but if a company has a need to spend its cash, I’d much rather see either an increase in the regular dividend or a special dividend. The former, though, is far better at supporting or encouraging an increase in share price than is the latter.
The problem is that increasing the dividend does nothing for the metrics that analysts like to follow, such as EPS growth, but share buybacks do make it look as if all is well and improving.
With a couple of new positions opened yesterday, I’m hopeful that they will have a chance of being assigned at the end of the week in order to generate a little cash for the following week. Next week, although only having 2 expiring positions at least has 2 more than starting this week and gives some hope for either generating some additional revenue or raising cash. That’s more than can be said for the way this week started.
The nice bounce I had been hoping for yesterday, in order to have a chance of selling some calls on existing positions never did come, so today the holes are a little deeper. Hopefully today the market can at least maintain itself and create some sort of a base as we head into Friday’s Employment Situation Report.
I’m hopeful that the report will show strong job growth and that the market will respond in an appropriate way, recognizing that to be good news.
At the moment, the only real impetus for a march higher is good economic news and maybe the same coming from China, for a change.