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The Day Ahead: What Would Clint Eastwood Do?

Stocks in this article: FDXGLDSLVHOV

Clint Eastwood has a well-crafted tough-as-nails persona. Even at 80-something years old, he gives the impression that trying to pickpocket him on an empty street corner would be met with a bullet wound to the chest from a concealed .44 Magnum. Heck, as old Clint stood there chatting to an empty chair at the Republican National Convention, I couldn't help but wonder: If that had taken place in an action movie scene, would the chair have been smashed against a person's skull?

Still, if you drill into the Eastwood persona (which I have done via The Enforcer and Unforgiven), more often than not his characters are scripted to assume calculated risks. Blowing away a punk criminal on a pier came after a quick mental calculation on whether to fire, for example.

I've maintained a selectively bullish stance this week -- one on which the market has kindly helped me out. Since this has felt akin to whistling past a graveyard, I'm now going to lighten the load. Here is the calculated risk on which I am wagering: As official details are released surrounding key news events, the "event risk," or "disappointment factor" of them -- as strategists so gracefully detailed in emails to me Monday night -- will rise to top-of-mind status with investors. Please do keep in mind that this is open for a slight tweak in advance of the August employment report.

From Where Is This All Derived?

As my analyst buddies put it, here are the major "buckets."

Little Things

  • Initially, I thought the 2%-to-3% drop in FedEx (FDX) on an earnings warning was a welcome outcome -- and, or a brief moment, it was. The fact is that the stock still reacted negatively to bad news, and it likely did not fully price in the scope of the warning from a macroeconomic perspective. The market, after all, was backstopped by strong expectations on the ECB decision and August employment report -- which, if the headline number comes in subpar, should spur Federal Reserve action in a week. With event risk on the rise, the market is left open to interpret stocks on fundamental considerations, including on slowing purchasing managers index data and so on. That is not good from a bull point of view.
  • The SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) have zoomed higher on the belief that asset reinflation is in the cards, compliments of the Fed -- and, to a lesser extent, the ECB. (Come on, those guys just want to save a bond yield.) In Wednesday's session, prior to the reinflating news events, these ETFs pulled back enough to toss in red flag in my head. Disappointment could be lurking.
  • Homebuilder stocks -- and, yes, I continue to be pro-Hovnanian (HOV) -- were sold immediately following the weak construction data Tuesday, and then were bid back up into the close. With its mixed action Wednesday, the group was unable to convince me that the Tuesday reversal was true or sturdy. To me, that could be a tell on the August employment numbers not being horrific enough, at sub-100,000, to spur the full spectrum of extraordinary easing next week, if at all. So there was some disappointment, and a hot sector was sold.

The Big Thing

The market's response to the leaks on the ECB's action plan reminded me of when I, as an eight-year-old, got only second-place in a race: I was happy to have landed a medal, but I was upset it wasn't a gold. It's clear the market wanted more forceful ECB action with fewer strings attached -- that is, by Germany and its own slowing economy. Ultimately, the market chose to breathe a sigh of relief that there was any action at all, as opposed to a massive letdown in no action.

But, on this assumption that the ECB delivered, I'll put in a " not so fast, cowboy." The market could very well flip-flop on its view once all details are disseminated, potentially rendering the ECB, and president Mario Draghi, comparable to the underwriters of Facebook's (FB) IPO: a ton of overpromising and under-delivering. Any which way, there is event risk here.

At the time of publication, Sozzi had no positions in the stocks mentioned, although positions may change at any time.

Brian Sozzi is Chief Equities Analyst for NBG Productions. In this capacity, he is responsible for developing independent financial content and actionable stock recommendations (including ratings and price targets) for an institutional and retail investor base. In addition, Sozzi is the Editor in Chief of the "Decoding Wall St." investor education online platform.

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