The Day Ahead: Are You Terribly Frightened?

 | Mar 13, 2013 | 8:00 AM EDT
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Two consecutive days where by noon there was a newfound fear that the magical Dow run would come to an end. Did that make you frightened? Scared that perhaps you bought stocks at the top and whoosh, 5% of the principle may go up in non-conclave smoke? Of course there was angst, provided that trading is your thing as compared to thinking about junior's college fund or retirement. But, when the gong was smashed on the session, stocks yet again proved those loafer-wearing tools whipping out an arsenal of too cool for school vernacular (risk on; breather; stocks don't go up in a straight line; trend is your friend; beware of a triple-top; the correction is here) wrong. Another round of late in the day buying on the dips, that admittedly was not as convincing as on Monday.

Here are a couple notes I have logged:

  • If unable to sleep at night or are maniacal on protecting every piece of paper wealth created, take some chips off the table into the end of the week. There is no glaring doom issue on the immediate horizon, just a significantly higher hurdle bar around retail sales and the Empire State Index. I also find the news flow on China, holiday shift influenced or not (memo: no enthusiasm for Caterpillar's (CAT) stock on weak China data, pretty intriguing,) generally uncovered in analyst models (presents a form of risk absent in stock valuations, I think); we are scheduled to receive new second tier China data on Friday. Furthermore, stocks that are having upgrades thrown their direction are being met with a yawn by investors, a hint that the market has priced in the optimism on the future expressed in those rosier assessments.
  • The major indices, underneath the surface, don't appear as hearty as they do on the surface (potential new messages to consider are being overlooked in other words.) I am beginning to see an increase in leading stocks (for example Google (GOOG)) weaken a touch relative to the benchmarks/pullback to 10-week moving average. For less fundamentally sound companies, their stocks have actually violated support in the face of the market's rally.
  • The positives that have fueled the market, Fed easing, U.S. economic resilience, stable Europe feels rather well-known. It's almost as if a good housing or manufacturing report won't be enough to lift the market further so basically, the risk reward is starting to shift.

Everything on offer shouldn't be grouped in a column titled "OMG The World is Ending, Buy Treasuries." At this juncture, one has to be on heightened alert for anything that suggests the doom mongers could be correct. On the topic of Treasuries, any consolidation of gains near-term theoretically has to bring renewed interest in homebuilders (appetite for safety gets those yields back down; there has been buying interest above the 2% mark). I would prefer to play this hypothesis with Toll Brothers (TOL).

Around the Horn: JC Penney

Rumors that the departure of JC Penney's (JCP) CEO Ron Johnson was a done deal are the new norm, and truly sprang to life on Tuesday. I can say that my sources had Johnson getting the boot last weekend, a decision that would be wrong in my view (note: I still rate the stock a sell, but am not one to root for the demise of a company that was part of my childhood just to feel great about my abilities.) Johnson must at least stay atop the sinking ship until the Martha Stewart case is resolved or the opening of a ton of new shop in shops occurs this spring. 

Please be very careful on buying into the notion that Johnson's exit would be wonderful news. In reality, JC Penney would immediately be swept into an operational tailspin that adds fuel to the fire on the ability to remain a going concern. By the way, I was dead serious on Twitter (link: yesterday with the below comment: 

Columnist Conversations

we will add this here to cheaply protect our downside a bit BOUGHT SPY SEP 244 PUT AT 2.70 ...



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