The Daily Dose: A Nasty Bout of the Flu

 | Jan 28, 2014 | 12:30 PM EST
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I decided to interview Mr. Market really quickly on Monday night, as he sure looks to have caught a nasty bout of the flu.

First, Here Come the Sector Rotations

The market rallied a touch on Monday, but then collapsed into the close.  Was the positive energy based on Apple (AAPL) earnings optimism that proved unfounded by 4:30 p.m. EST?  Who cares? I don't. Apple is not indicative of the majority of companies I deem integral for analyzing the market's future direction. What I did care about was the continued bid under consumer staples and utilities as the market fought back on Monday. That, in my opinion, reflects skepticism that the selling has fully run its course.

See the chart below: Coca-Cola (KO) in dark blue, Pepsico (PEP) in red, Kimberly Clark (KMB) in aqua and Hershey (HSY) in purple. The Dow is dark green, the Nasdaq is brown and the S&P 500 is lime green.

Source: Yahoo! Finance

Forget Emerging Markets -- Check Out Social

Your eyes should be squarely focused on the downdraft in social-media stocks. With their high price-to-earnings multiples, these names have no doubt particularly benefited from ample Federal Reserve liquidity, which drives borrowing costs lower. Should these stocks fail to stabilize near-term, this could trigger a dumping of other high-P/E stocks in different sectors now that the central bank has begun to taper quantitative easing.

Below are the Global X Social Media ETF (SOCL) in dark blue, Twitter (TWTR) in lime green, Facebook (FB) in aqua and LinkedIn (LNKD) in purple. The Dow is in red, the Nasdaq is in dark green and the S&P is in brown.

Source: Yahoo! Finance

And Now, Some Stock Picks

First, my firm, Belus Capital Advisors, reiterated a Sell rating on Aeropostale (ARO) yesterday afternoon. The stock gapped lower afterwards, only to recover a bit as a large shareholder came out on Bloomberg TV pushing for a sale. I encourage you to pull this report from your broker and decide for yourself. (Note: We are included in the consensus estimates.)

In a battle of the transportation stocks, meanwhile, I choose Ryder (R) over UPS (UPS) as a possible sector long idea. Keep in mind that transports are acting pitifully at the moment and, broadly speaking, I continue to suggest clients hold more cash than normal.

In the chart below are the Dow Jones Transportation Average in blue, the Dow industrials in red, the Nasdaq in green and the S&P in brown. One takeaway here: the relative underperformance of Dow Transports during recent pullback

Source: Yahoo! Finance

Source: Yahoo! Finance

Finally, on Apple Earnings (Because I Have To)

This was too hairy an earnings call for my taste. When I hear a company try to explain away poor guidance and pockets of unexpected weakness by telling analysts to ignore certain items, as Apple basically did, it's a red flag. Let Carl Icahn pump this one. Sit tight for the time being.

Also: Look out, Square and Paypal (of eBay (EBAY), of course). Apple is prepping to unleash a revolutionary beast that could disrupt the mobile-payments industry, perhaps sooner than many anticipate.



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