Dykstra: Delphi Financial Bodes Well

Before I give you my pick today, be aware, as the market is going to get hammered today! It's already been down over 200 points.

Outside of the financial sector, actual September-quarter earnings results have been roughly in line with expectations. But expectations for the December quarter continue to erode, reflecting downbeat guidance from several bellwether companies.

Richard Moroney, the editor of the Dow Theory Forecasts newsletter, which happens to be one of my favorite newsletters of the 30 I subscribe to, explains that the market faces some near-term headwinds:

The calendar. Since 1950, September has been the worst-performing month for the Dow Industrials, S&P 500, and Nasdaq Composite -- by a wide margin. For the S&P 500, the average monthly loss in September is 0.8%, with 23 gains and 33 losses. Only February and August also have average monthly losses, and September is the only month with more losses than gains.

Earnings preseason. Earnings-estimate trends remain mostly favorable, though September-quarter profit warnings for S&P 500 companies are running slightly above historical norms. Estimate trends should be watched closely over the next month, as should the market's ability to weather the high-profile profit shortfalls announced every quarter.

The bottom line: until humans learn to "bottle luck and sell it, in one of these get-rich-quick schemes"; the thinking will remain just that -- schemes.

When I invest my money, I look for quality companies that have been unfairly taken down because some bad-suited broker makes a negative comment or downgrades the stock, leading to the stock being oversold. In some cases, this happens because the company beat the number but did not guide up "high enough" for the broker's liking.

A perfect example: my pick yesterday, International Game Technology(IGT Quote) said quarterly earnings rose on improved results from its gaming operations.

The slot machine maker said fiscal fourth-quarter net income rose to $122.6 million, or 38 cents per share, from $114.9 million, or 33 cents per share, a year earlier. Let the operators take this apart, and after they beat it up to where it is down $2, I would strongly recommend buying the same deep-in-the-money (DITM) calls that I put my order in for on Wednesday.