The Day Ahead: Firecrackers

 | Jul 03, 2013 | 8:00 AM EDT
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I want to wish you and your family a wonderful and safe July Fourth. On the day, we are supposed to celebrate our independence from Big Mother, but just remember that our financial independence is being attacked by bad-suit-wearing geeks in old D.C. buildings. In the words of my former high school crush, Alanis Morissette, "Isn't it ironic?"

Anyway, I am usually first in line to identify when something smells like rotting fish in the market. For instance, the two sessions this week have closed well off the highs of the day. On Monday, who knows why this occurred? On Tuesday, it was attributed to Egypt and random rumors by those seeking external approval. The point is that markets are living, breathing organisms that are now operating on steroids (machine trading, free Fed money), and therefore they could turn on the drop of a dime for no fundamental reason at all.

The bulls could hold on to this, at least:

  • The Dow didn't finish down triple-digit points, which was the hallmark of the nasty sessions that began in early June.
  • Housing names generally held their ground.
  • Financials generally held their ground (wow, KeyCorp (KEY) is on fire!).
  • Auto stocks priced in positive news despite higher rates.

If anything, the spread of red across the industrial complex bears watching by traders who are living and dying on each tick of the market (widespread weakness probably due to concern on Egypt news spurring another summer of international headline risk).

Nonetheless, I enter jobs mania tactically bearish, because frankly, I can do whatever I want to help clients win. Seriously, though, there will be no questioning your manhood or sisterhood by adopting a reactionary stance into #FireCrackerFriday. Everyone wants to send social-media bombs depicting their absolute asset-selecting amazingness, which is cool, I suppose. However, the way I am going to win for people is to think beyond a five-second and one-week investment time horizon.

By the way, did you see Abercrombie & Fitch (ANF) shares? The stock popped up on my radar screen Monday afternoon. After a sharp selloff, the recent action in the stock is interesting. I do believe there is headline risk from unfavorable weather across the country, which could hurt sales of seasonal apparel during July Fourth weekend. However, I continue to receive reports from contacts of healthy levels of shopping in the past week or so.

Abecrombie's merchandise offerings have improved in recent quarters, something easily seen on the website. Of note is that the stock is materially outperforming its key peers and the Consumer Discretionary ETF (XLY) this week.



Sector Watch: Housing

The leader of the homebuilder Hovnanian (HOV) was blowing some smoke on Tuesday. Hey, the company has his name on the door, and his family created the business from nothing (nice interview with him for Institutional Investor). I get his bullishness. But look at this simple chart and think for yourself.


Lumber Prices
Yahoo! Finance


In the case of lumber, its branches point to a sharp second-half economic slowdown in the U.S. One thing to keep in mind amid the plunge in lumber prices: Companies tied to the housing market could surprise investors negatively with their third-quarter outlooks if in fact demand has slowed on the ground.

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