Prep Course for Daily Blind Date with Stocks¿ Realize that the market is not under pressure from Apple ( AAPL) having near-term supply constraints. (Think: the stock has been sold, so where has that money gone? Maybe it's passed into defensive utilities?) It's not suffering from a Facebook CEO that is trying to extract top talent from Russia, Papa John's ( PZZA) giving away free pizzas, nor even from Yahoo! ( YHOO) grabbing headlines every time the new CEO speaks. See the absurdity in those comments? The market, as I see it, is comparable to a person trapped in a box slowly filling with water: It does not know where it can turn to escape to safety. That, coupled with the typical apprehension around earnings season -- which is only magnified now, as we have entered fiscal-cliff danger zone -- is the sentiment and realism that are driving stocks after a euphoric event.
- Ask yourself this if you're yearning to jump in. In the Institute for Supply Management manufacturing survey, is the consumer-confidence measure that may have transmitted into it a reflection of prior stock price appreciation? If so, is that measure at risk of reversing in October, November and December?
- What I characterize as "garbage stocks" -- shares of companies with weak fundamentals and trading at discounts to peers in terms of valuation -- are not attracting bottom-fishers. How do I arrive at this conclusion? The "garbage stocks" continue to fall further from their 50-day moving averages.
- What I characterize as "sexy stocks" are putting in weak defenses of their 50-day moving averages, looking at volume, or they look destined for a test. If these companies continue to deserve their valuation spread relative to "garbage stocks," based on superior fundamentals, shouldn't there should be greater interest on a pullback? The fact that there isn't suggests further cream must be sliced from the toppy valuation.