This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Day Ahead: Join the Reality Club

The hottest word on Planet Financial is oversold. Every which way I turn, that term is being used with reckless abandon to explain stock prices. For those extra fancy technical folks, out comes an array of dots, lines, and shapes to support their oversold musings. On the other side of the spectrum, the fundamentally driven crowd crows about "cheap P/Es" and gobs of corporate cash just waiting to be deployed. Oh, and expectations are that the fiscal cliff situation will be resolved to a satisfactory degree by the second week in December.

While I totally respect the work of fellow market peeps, I don't think all of this really matters. A low P/E multiple? Well, this market doesn't seem to care about that perception -- stock prices continue to adjust lower for a future that is predicted on the present. As for sexy lines overlaid on a Bloomberg chart, why waste the precious minutes to draw them? The market is sharing a tale of justifiable gloom, which requires new lines to be drawn by the close of trading.

The very definition of oversold is misleading, and inspires false hope on the part of investors who grow big eyes for assumed opportunities. Does oversold mean stocks will rise 5% inside of five days? Perhaps 2%? What's the event that gets one of those to transpire? No one really knows, as the term is trading-oriented and designed to take a stab at playing, not investing in, a short-term sentiment shift that participants hope will morphs into better real economy characteristics.

Here are the two main points I would like to make about oversold:

1: Macroeconomic data, assuming months of negative connotations, will bottom. By bottom, I want to see month-on-month improvement in key components and that they are working together to paint a brighter economic future in the next three months.

Is this happening? I would argue that line items are in fact bottoming, and that the Street has increasingly become appropriately bearish. But, and this is big, components of macro reports are being unsupportive of one another. For example, the Empire State report showed new orders rose above zero for the first time since June but employment dropped through a trap door. A similar outcome was evidenced in the Philly Fed, and now the November employment report looks quite shaky. I read the new order to employment dynamic as: orders for businesses are at competitive prices, the order rate is sporadic, visibility into added orders is scant, so why commit to a new hire? Much of this will unwind when we get some clarity on the fiscal cliff, but at the moment, the perception is that things will worsen to an unknown level and that fear must be captured more in stock valuations.

2: A supposedly cheap stock, rendered so as it trades below the market's multiple and at a discount to historical, is thrown a vote of confidence by the market. There are zillions of stocks out there that reflect at least six months of decelerating sales and earnings growth, as well as surprisingly negative guidance. Some of these issues are internally inflicted, though an equal if not larger factor is the macro wreaking havoc on challenged business models. In the oversold zone, it would not be too much to ask for an investor to swoop in and determine that the current valuation finally prices in an absurd amount of macro dread that couldn't possibly come to fruition. I haven't seen any tangible evidence of this game of cat and mouse commencing.

Does this piece's tone leave me wondering if I have gone too bearish? Sure it does, and I am admittedly operating on borrowed time as I expect that when the first pace of fundamentally positive data is received, the market will snap back hard due to the strong underlying compete earnings power. In the meanwhile, I will continue to live dangerously, but with a clear conscience.

Stocks With Friends

On Wal-Mart (WMT - Get Report) and Target (TGT - Get Report), be patient. I am hearing talk of trading down, consolidated shopping trips, aggressive holiday pricing and slowing same-store sales growth.

As for Dell (DELL), I don't want exposure to a company removed from growth markets in an ultra-competitive and daily changing industry inside aNasdaq that led us into this malaise. Want to be involved on Dell? Think about companies it could acquire to spur growth.

Nike's (NKE - Get Report) dividend is to be expected as despite disappointing one-year operating performance, the outlook for cash remains robust. I am not hot on this stock; I prefer Dick's Sporting Goods (DKS - Get Report).
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.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs