The Day Ahead: Of American Psychos & Fresh Flowers
"And that's the view from 36,000 feet," a very well paid CEO proudly stated on a conference call Wednesday. I was immediately overcome with a range of emotions, first being anger (what the heck does that proclamation actually mean to a granny holding this dividend payer and calling into listen off the rotary phone) and then sympathy/love (well, the CEO doesn't know any better, it's how he communicates with his executive team on the daily). Immediately, one thing became clear: Go for a walk because the emotional peaks and valleys inherent to earnings season are taking their collective toll.
So, this burst of written fun was devised alone at the beach, sitting in the section reserved for BBQs, wearing an old Abercrombie & Fitch (ANF) hoodie (reiterate: American Eagle (AEO) over Abercrombie for a holiday season play, sell-side upgrades not luring me in). The goal of this mid-week soul searching: to flesh out the positives the market is ingesting after a tough-to-swallow bunch of earnings only a few days earlier. Surely, there has to be more meat to the bullish argument bone than the U.S. housing recovery creating a global euphoria that envelopes everything from lumber manufacturers to Dunkin' Donuts (hope you snagged my free favorable tweet on Dunkin' Brands (DNKN) a week ago.
A Life Filled with Flowers and Unicorns
- Real hourly earnings have had yearly gains only twice in the past 20 months. Oops, lol, how'd that negative enter the mix here? Moving right along. .
- From 36,000 feet, we are able to see that the rallies on Monday and Tuesday were on volume that could be deemed convincing. .
- There has been a nibbling at shares, near session lows, of companies that delivered dour third-quarter earnings, commentary on business conditions, and forward guidance. .
- Energy and materials are outperforming during this mini advance, lending support to these views: (1) easing tensions on the surface in the EU will translate to another month of life in industrial production, and other data from September that indicated a corner turn; (2) post-power transition, China goes from economic concern back to old standby lover for the bulls amid an array of stimulus measures. .
- Since their Sept. 27 lows, the Dow Transport and Baltic Dry indices have risen a cool 4.6% and 31.2%, respectably. To true believers in the mystical powers of Mr. Market, the gains are signaling that the third quarter, commentary and guidance from industrial and multinationals are kitchen sink. Key benchmark names to apply include FedEx (FDX) and CSX (CSX).
- I am personally NOT a fan of doing this to help validate an argument bullish or bearish, but excluding an IBM (IBM) from the Dow Industrials, the index was optically healthier on Wednesday.
Be honest, you could feel the mild disdain for every one of those bright, fresh flower-like moments. But, hey, there are positives to stuff in the manbag (or murse) and go research a stock while scrubbing free Starbucks (SBUX) WiFi. From my in the trenches perspective, there continues to be a majority of factors at large to approach stock-picking with squinted, skeptical eyes. The emphasis is on the actual ability to pick a stock, as I don't feel we are headed towards an apocalyptic crash where all stocks correlate and go down in unison. What we will have to endure, pending tax and regulatory certainty, is drafts of bearishness and bullishness that make the stock-picking that much more difficult; again I remain hesitant to say market rallies will stick.A couple things I added to my arsenal: (1) the SPDR S&P Homebuilders (XHB) should have cleared $26.15 on the housing start/permit data; (2) want to witness rigor in the SPDR Gold (GLD) and iShares Silver Trust (SLV) on a return to the "reflation trade" logic; (3) want a transport or large multinational to put forward an earnings report and call that lends credence to the upward bias of the aforementioned Baltic Dry and Dow Transport indices. In the meantime, I am left pondering if the market is simply in a trance: It parties blindly after being perceived as being in oversold territory, becomes tired near prior highs (using Fed high for marker), and then loses steam again as the catalysts that produced the rally are not being handed off to data and individual company performance. Earnings Season, Rage Out Session Inspirational Listening Prep the Disaster List I am prepping a short candidate list in case the fiscal cliff wallops consumer confidence pre-holidays. Best to be prepared, no? I have stuck Target (TGT) on this list due to its new price matching initiatives across distribution channels and amped up inventory bets weighing on earnings in a consumer pullback that leaves Wal-Mart (WMT) as the top destination for consumers (and relative share price outperformer). When do you pull the trigger on this play? Follow me by watching consumer confidence readings as well as price action of retail stocks in response to positive consumer data; obviously looking for dings in the armor that has suddenly become the U.S. consumer. The Philly Fed ... ... Best notch another month of improvement in new orders (if it does, that would interest me).
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