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Daily Market Update – January 6, 2014 (Close)

Last night I went to bed hearing that the Nikkei had fallen 2% and was ready to awaken to the same kind of news regarding the S&P 500 futures.

So much for a January Rally.

Normally I turn on the TV and check Bloomberg for the overnight recap before doing anything else, but this morning, in anticipation of some rocky roads ahead, it was time to make the coffee first. I thought there might be a need for some comfort.

But that didn’t turn out to be the case. The US markets were preparing themselves for a sedate open in a week that will likely see the confirmation of Janet Yellen as the next Federal Reserve Chairman and end with the release of the Employment Situation Report.

While it remains hard to really embrace a bullish attitude I’d be inclined to be bullish if January simply slowly and methodically climbs higher, rather than some years past in which it had spectacular returns that just weren’t borne out throughout the year or that didn’t live up to the January promise of things to come.

Both 2012 and 2013 saw 5% gains in January, ending the years up about 13% and 30%, respectively.

Either of those would be good years when all said and done, but by and large 2012 was flat for the remainder of the year, just as was 2011.

While I continue to look at 2013 as an aberration, I’m not entirely certain that 2014 will be any different. Certainly there will be those prepared to say in hindsight that if earnings do improve and there is a faltering market, or one that isn’t very responsive to those brightened earnings, it was simply a case of the market having discounted an improving economy.

I’ve long given up on the idea that the market and those who spend their lives immersed in it are so smart as to be able to look so convincingly into the future and predicate their actions today on events 6 months from today.

While I do understand the concept of “buy on the rumor and sell on the news,” that is a real time strategy, not one based on some finite portion of my life expectancy.

But the economy, by all measures, is improving. They key is that it isn’t getting red hot, as previous recoveries have seen such periods when all guns were firing, leading to spiking interest rates, which in turn lead to bonds being preferred over stocks.

Stocks are the only game in town and that doesn’t really show any sign of changing right now.

A slowly improving economy is like the somewhat perverted scientific experiment of placing a frog into a very slowly warming pot of water that eventually gets to a boil, except that the outcome is good.

A slowly climbing market, especially one that takes the time to smell the roses, is also one that is more likely to lead to a good outcome.

The past couple of months have actually been like that as the market has taken some time to rest, consolidate and move forward. While I and so many others talk about how healthy a 5 or 10% correction would be, perhaps the most healthy way of going forward is simply to pace oneself.

With many positions set to expire this and next week and not having replenished the cash reserve very much this week, pacing myself is likely the key to this week.

I’d like to see that slow climb continue and lead to lots of assignments, but with prices not having climbed so high as to make the decision regarding adding new positions so difficult.

Ultimately in a flat market or one that slowly climbs higher or lo slowly drops lower, there would be far less need to add new positions and far more opportunity to make rollover trades. Whatever brings in the income or whatever creates a downside cushion is fine, as long as the process goes on and on.

Although I expected each of the last two weeks to be slow trading weeks, they turned out very differently. But this week I’m again expecting a slow trading week and would be surprised if it turned out otherwise.

I’d be content to just let the market show the way and follow its lead this week.

 

 

 

 

 

   

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 OTP Sector Distribution* as of January 6, 2014

 * Assumes equal number of shares in positions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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