I've been feeling the pressure lately, but that zone is where the best work tends to come from -- those periods when you don't know how much is left in the tank and decide to forge ahead regardless.
In any case, this mental state comes right on time -- just as everyone wants to snag respect for projecting the imminent demise of jumping risk assets. Some toss around Bloomberg charts with fancy odd-shaped circles highlighting some prior major climax in equity demand, while others choose to stay married to S&P 500 projections that continue to mean the rally is passing them by. Everywhere I turn I see a crowd of contestants for this game, as if there is an enormous group of individuals competing for the title of "America's Next Amazing Stock-Picker." It's becoming a little silly.
Even though I'm trained in fundamental analysis, I've learned through to respect market cues. If these don't suggest a shift in a stock or market view, why assume the risk of being the sole contrarian clown? But, for the purposes of this piece, I will step into the shoes of one of these contestants and offer you multiple signs of impending disaster that would have been required in order to compete with the doomsayers.
● Companies are giving us two important messages. First, first-quarter sales and margins will be worse sequentially and vs. the prior year. Second, although January sales trends have rebounded, there is little visibility into the rest of the quarter. None of this fits snuggly with Mr. Market's rationale.
● Caterpillar (CAT) is being sent higher, even though it sure appears the current quarter will be super challenging in terms of margins and sales. In my view, that "risk appetite" reflects the blinding enthusiasm to get long a "hope name" -- that is, a stock that may have a vastly different set of financials in the second half than it will for the first.
● Nobody cares to mention this, but consumer discretionary stocks are slipping below their 10-day moving averages, or simply treading water, ahead of reads on personal income and employment. I always use consumer discretionary stocks as a marker for possible changes in broader-market direction.
● Numerous examples have surfaced in corporate America for sales trends have broken from "seasonal patterns." Is that normal? Nope.
Spotlight: S&P 500 Railroad Index
I plan to obsess over this leading index for the balance of the week, and so should you. On Jan. 25 the index hit 795, slightly eclipsing the Sept. 14 peak of 792, which came after the Federal Reserve announcement of more quantitative easing. On Monday the index gave back that level. If a dreaded market top is approaching -- given stretched valuations vs. future economic realities -- this is the index where it could first appear.
Strategy-wise, I have made no moves. I still suggest long exposure, and I'm still compiling a strong list of defense mechanisms for the nearing mini bear raid (aka the 1.7% pullback).
J.C. Penney (JCP): Last week I said, "Stay away from J.C. Penney here. The trading action in the stock hints at an impending negative news event." Well, we got that news, and it signals a very, very bad quarter; the market had expected merely very bad. If you've shorted the name, stay with that position. If you've done nothing, continue doing nothing. This name ain't for you.