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The Day Ahead: Spread Your Wings Like a Seagull

What in the world am I referencing?

  • Stocks that gapped higher on the Federal Reserve announcement gave back further gains on more convincing volume.
  • Financials made it a true banker's hour day, starting the session favorably but closing up shop early.
  • A company offering bad news -- FedEx (FDX - Get Report) -- didn't managed to charge higher, even though a chorus had of bulls expected that cost cuts would topple any downside risk to global volumes. Further, in my view the report served to deflate peer comparables.
  • Defensive names again logged another day in the green. I will add a General Electric (GE) to the small sampling I am watching, along with Hershey (HSY), Pepsico (PEP), Coca-Cola (KO) and Kimberly-Clark (KMB).

Here are three near-term scenarios for the market:

  1. Selling triggers selling. Gains from the Fed announcement -- not from the run-up to it -- are wiped clean.
  2. The market doesn't retrace all Fed announcement gains. It hold, and the rally recovers those gains.
  3. The market literally trades sideways as bulls and bears shout valid views at one another.
I say morph into a seagull, spread your wings and fly away until we see better action from the stocks that drove the market to this point -- among other factors to which you should pay careful attention, of course.

The Dimly Lit Rumor Bar

  • I joked about this on my Twitter account, the message was dead serious: The September employment report will sneak up on you so get prepared -- now. My initial instinct is to gird for a letdown, as gleaned from the employment component in the Empire State and FedEx seeking "further" streamlining. What I am attempting to figure out Wednesday is whether the market is starting to price in another subpar jobs report, and then to interpret it as saying the Fed's third round of quantitative easing -- a.k.a. QE-Infinity -- will have limited short-term impact. If so, this is a big win for the bears, seeing as fiscal-cliff worries and the international stories will then get reiterated with greater authority.
  • A rumor made the rounds yesterday that David Einhorn is shorting Lululemon (LULU - Get Report). Would I be surprised? Nope. Take a glance at Lululemon's "Provision for Income Taxes" line in the recent 10-Q filing with the SEC. The explanation for the lower tax rate seems kind of weird, no?
  • For those that have inquired, yes: I still don't dig VeriFone (PAY - Get Report). The recent venture-capital raise by Square only solidified that call.
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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