The Day Ahead: Hot Mess or Hot Air?

 | Feb 05, 2013 | 8:40 AM EST
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At some point Monday, I got the eerie sense that the Grim Reaper was getting ready to pounce on my generally bullish stance on the market -- a feeling I haven't had since the "fiscal cliff" permeated the markets in December. After some investigation, here is what I was able to decipher from this sentiment shift.

Hot Mess or Hot Noise?

● Out of the blue, the prospects of European political turmoil and riots are returning. With pump-and-dumpers just itching to be market all-stars, any rumblings on the European debt-crisis front becomes enough of a bully pulpit to shake out weak hands and stall the flood of money from institutional investors.

● Garbage stocks rallied on Monday, while quality took it on the chin. So market-goers, rather than sticking with winners, began nibbling on stocks that have unperformed the rally. I don't think this particular action is a huge indication of impending doom. But, again, it serves as a launching pad for the bear debate, primarily since best-in-breed valuations are now extended on sane "base case" future sales and earnings assumptions.

● I reiterate my commentary last week: Consumer discretionary stocks are breaking down and falling below 10-day moving averages on the type of volume should be respected. This is happening in names such as Aeropostale (ARO); Guess? (GES), which has heavy exposure to Italy; Dick's Sporting Goods (DKS); and Saks (SKS) -- which is kind of disturbing against the backdrop of rising stock and home prices. Read: Less cash in the mobile wallet means people will be more vigilant over their personal savings cushion, and won't experience much of the "wealth effect" -- that is, the rise in spending that tends to accompanies the feeling of more wealth.

● Anyone find it odd that the iShares Emerging Markets Index (EEM) has done squat from Jan. 2? Despite optimistic comments by the suits on opportunities in these countries -- with India called out as challenging -- the fund has underperformed. Que pasa?

Amazon's (AMZN) earnings-report-fueled gains have disappeared. Weird.

Listen, in its entirety Monday could be characterized as profit-taking. The financial group continues to hold firm, and ditto for transportation stocks like FedEx (FDX) and comparable companies. Nonetheless, there is ton of fear-mongering out there right now. Folks are making market-top predictions based on renewed European troubles even as periphery yields remain well-contained. The upcoming State of Union Address may offer headline risk Feb. 12. Finally, there are concerns that the slight uptick in U.S. Treasury yields will stunt the housing recovery -- which, yes, is spreading ever so slightly to other sectors of the economy.

I am on the prowl for confirmation that these items stand to jack up the fear to the point that we'll land a 5% correction. Otherwise, it'll prove itself to be a bunch of "noise" that is being hyped in order for the whales to buy at lower prices. Stay tuned.

Video Recommendation Follow-Up

On Oct. 22, I stood in an office construction zone and offered the virtues of owning Whirlpool (WHR) as opposed to Stanley Black & Decker (SWK) and Snap-On (SNA). Theme at the time: derivative housing plays. Following a chat with an executive at Whirlpool yesterday, I recommend staying with the name. I believe the market continues to underappreciate the structural costs that Whirlpool has removed from its business -- and how beneficial that will be to operating margins as volume becomes incrementally more favorable.

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