The Day Ahead: Bounces and Broken Charts

 | Jun 27, 2013 | 8:00 AM EDT  | Comments
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Stock quotes in this article:

nke

,

len

,

nflx

,

ebay

There is a reason why a Bible is found in the top drawer of a hotel suite. It's a reminder to do the right thing in life. So let the financial-media version of televangelist Joel Osteen lead you to the investing Promised Land. First, a couple of themes in the emails I am receiving:

  • Is this rally real? Are we back on a path to year-end prosperity?
  • What should I do now? I missed a 2.1% retracement (yes, you did, and I know it's a life-ruiner).
  • Why am I forced to root for a bad U.S. economy so that my carefully managed stock portfolio expands in value?
  • Does a soft second quarter from the financials equate to a gloomy overall upcoming earnings season? I mean, no love by the market was shown to investment banks in Wednesday's rally.
  • Should I place any stock in the increased frequency of stock rating downgrades this week?
  • Gold is plummeting, must signal deflation, and a litany of sour macro reports in the months ahead.

Brother Sozz doesn't have precise answers to the questions above to take and ponder by the in-ground pool bought using leverage in mid-2007. Personally, I feel this is a bounce made so by hot air from global government lifers. If you look at countless charts of individual stocks, they remain broken -- simply no volume and crossing of the 10-day moving average (not in every case, of course).

In fact, I don't see the conviction in other charts such as the Dow Transports, Russell 2000, and certainly not in the capex-spending-cycle Nasdaq (which is odd after that absolutely amazing durable-goods orders report). Nonetheless, I want to provide you with these passages to consider:

  • The market is penalizing the Fed's increased clarity regarding an exit and transparency efforts. This is a major problem for a long-term investor: If the market reacts this harshly to words, imagine the response to actual action! (Some will say that action will be priced in, but the truth is that we have no clue, given the uncharted waters we sail, thanks to Captain Ben). Memo: Since the Fed added the "substantial" language tying policy to labor improvement, only 0.2% has been shaved from the unemployment rate. Pretty lame.
  • Technically, the U.S. economy is underperforming the Fed's downwardly revised 2013 GDP forecast of 2.3% to 2.6%. "Taper-mania" likely has caused many companies to enter the second half of the year slower in terms of sales growth than the second quarter, therefore you have to be concerned about whether valuations reflect that new reality. Memo: We aren't that far removed from the highs for the year.

One of the few positive indicators out there continues to be the Baltic Dry Index. Honestly, though, I prefer to watch sea legs develop in the housing and industrial complexes before sounding more constructive on an asset outside of cash.

Randomness

  • I would be surprised if Nike (NKE) doesn't beat on earnings. Price hikes are finally sticking, inflation is abating, and its two biggest athletes, LeBron James and Tiger Woods, are at the top of their respective games. Wild card: inventory levels in China.
  • Sketchers (SKX) caught my eye.
  • Tuesday's pullback in Lennar (LEN) from session highs on stellar quarterlies was unfortunate. Let's see if that happens again with KB Home (KBH), provided it sounds as optimistic as Lennar did.
  • Netflix (NFLX) snagged a downgrade earlier in the week. You could have been prepared for that by reading this.
  • eBay (EBAY) has been the only stock call for my new company that has frustrated the hell out of me. Stock can't even catch a darn bid in an up market! The company indeed has a strong story to pitch (which it did to me when we chatted). I think the 411 is that the market is realizing that slowing growth trends raise the potential for another lackluster earnings outlook (maybe a couple pennies below consensus, since the second quarter was issued in line and viewed as a letdown), this time for the third quarter. 

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