The Day Ahead: Automatic Tuesdays

 | May 29, 2013 | 8:00 AM EDT  | Comments
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Stock quotes in this article:

HYG

,

JNK

,

urbn

I fielded several calls on the positive insanity that has broken out on Tuesdays. Clients just don't get it and, hey, neither did I until I sat down over the long weekend and pondered the subject.

There is surprisingly next to no analysis being published on the "Turnaround Tuesday" topic, only shock-and-awe comments -- and naturally, the streak stat that causes everyone's head to shake in utter amazement. I wanted to put forth a trial run explanation for Automatic Tuesday, which may continue for the foreseeable future given a structural force in the marketplace: the Federal Reserve.

Explanation #1: POMO!

If you look at the Fed's primary open market operations schedule, known as "POMO," each Tuesday (I went back to April and May) the low point in the amount they purchase comes on Tuesday. This is followed by the biggest day they are in the market, which is Wednesday.

I reckon the big boys (and their uber wealthy clients) are buying stocks at cheaper valuations on Tuesday ahead of the inflow of Fed money into the market Wednesday. In actuality, they are buying before the news, a savvy maneuver indeed.

The simple equation to know: Fed money reaches bank coffers, banks still bullish on stocks (strategists continue to chase the S&P 500 target wise), banks put that money into buying stocks, market goes higher.

When there is no explanation

Embedded in the soil that is the world of investing is an odd divergence in the junk bond market. Unfortunately, nobody has brought that to the surface as a potential negative on the future for stocks. The premise would be that demand slows in the back half of 2013, making corporate balance sheets a bit riskier in the eyes of debt holders. Consider some of the not so discussed stats.

  • The iShares iBoxx High Yield Corporate Bond (HYG) and SPDR Barclays High Yield Bond (JNK) closed lower for the third straight week last week.
  • Since the start of May, the iBoxx has seen outflows of $419.0 million, slightly less than the SPDR at $426.0 million.

 Admittedly this is not a super loud alarm bell, perhaps an intriguing note to keep in mind as the equity markets are ripping higher. For my mental planning purposes, I am more interested in the widening divergence of these two ETFs relative to the S&P 500 since mid-April.

                                                         

How to Invest in a Stock of a Retailer

 I get asked this question a lot, and it surfaced once again on Tuesday. No matter how hard I try I am unable to shake the self infatuation with analyzing retailers. They offer great insight into so many other sectors, and I strongly encourage reading a couple of earnings transcripts (at least 10) before their useful information turns stale.

Here are a few golden insights if interested in putting money to work in the sector:

To invest in retail, you need to start first with a basic checklist that a company should surpass. Examples on that checklist include:

(1)   An online only business that serves a unique niche in the market;

(2)   A brick and mortar business with a fantastic online and social strategy that drives conversion and repeat business

(3)   The business is outperforming market conditions in China/Europe;

(4)   There is leader at the helm ruling with an iron fist in terms of how the business is run (expenses controlled, bad stores closed, etc.).

For my clients, we have been keen on Urban Outfitters (URBN) and TJ Maxx. Urban Outfitters is running lean and mean on inventory, with its founder back at the helm, and online for them is rocking. TJ Maxx is luring in a new younger customer base that enjoys thrift, is about to launch online, and is outperforming peers in Canada and Europe.

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