"You won't give, I'll take!" –Joey Zasa, The Godfather: Part III
That infamous line above best captures how I feel about the market this week. Fact is, we're seeing a warranted break in the upward action, and primarily because corporate fundamentals are trumping any macro hope. Hyped Federal Reserve minutes were dead on arrival, and this much I knew when compiling notes Saturday morning. I didn't even mention the release Monday, as it was reflective of a trading setup that should have been detected 17 miles in the distance. There was not going to be a hint of more aggressive easing. There was going to be a realization that more aggressiveness would do next to nothing to alleviate profit margin pitfalls for the rest of 2012.
All these minutes had been poised to do was to disappoint, because they detailed a group of people talking policy style instead of policy action. In addition to all of these bore fests, the real second-quarter earnings season doesn't begin until next week, which is why dour preliminary reports are feeding on this nervous market like mold on six-month-old bread.
So, what the investing world will not give -- that is, news that unleashes new trends or themes -- I will take. Where I take information from is the newfound weakness -- on good volume, no less -- in stocks that had been working well during the market's soft patch. We must identify the leading stocks that are cooling relative to the market, and others that are soft vs. their respective sectors, and it's critical to start on this today. I believe there are messages being told here early on, and it's wise to understand them now so that winning positions don't end up turning into losers.
This is how you "take" from a market.
● One of the few winners in specialty apparel in 2012
● Has shaved off 10.2% since its July 5 same-store sales report
● Potential messages being sent: The slip in same-store sales in the final week of June was no fluke. It was an indication of evaporating consumer confidence, thus delaying back-to-school spending, which raises the specter of profit-busting markdowns. Why pay the premium multiple today? Let's send the stock lower and buy it at a cheaper premium to its sector, which is also experiencing a contraction in its price-to-earnings multiple (I see room to $33).
● Basically mirrors Zumiez in relative stock-price outperformance for retail, but has more of a presence overseas.
● The stock spent but a short while trading above its previous all-time high achieved in April.
● Potential messages being sent: This is a predominately a mall-based retailer entering a stretch of tough same-store sales and margin comparisons, and that's the case at most fundamentally outperforming retailers in 2012 -- for example, TJX (TJX) -- as droughts could negatively impact product costs in 2013. In determining whether there's valid fundamental concern on the name and similar stories, I am looking at the April 25 session low of $37.92 as a reference point.
● Potential messages being sent: Are there broader implications for global packaged goods names after cautious comments from Procter & Gamble (PG) and General Mills (GIS)? I certainly voice concern on pricing power, especially given that Cott (COT) landed strong and valid praise in Barron's this past weekend.
Dunkin Brands (DNKN)
● The stock was a pick of mine back in May, on a webisode of "TheStreet Hits the Street" (which star the amazingly awesome Debra Borchardt and yours truly). I have to say, if you bought on this recommendation, I would have no qualms closing up shop and spying a pre-earnings entry if the stars are aligned.
● Potential messages being sent: Dunkin has enjoyed rising success in sandwiches for lunch, which has led to increased coffee sales. Basically, the company is earning margin from every which angle, for a change. But, if I listen to the market, the message is perhaps the consumer is skipping that splurge and saving for coffee the following day.
General Electric (GE)
● Potential messages being sent: This has quietly been the ironclad industrial name, shaking off concerns on banks, a sluggish global macro climate and assorted warnings from others in the sector. Is that opinion still correct though? The market is questioning it, for sure.
The next group I'm watching for this type of breakdown action is the homebuilding sector. I have not seen enough troublesome selling to state that, for the housing market, the second half will be in stark contrast to the positive first half. Stay tuned.