The Day Ahead: Spread Your Wings Like a Seagull

 | Sep 19, 2012 | 8:10 AM EDT  | Comments
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Stock quotes in this article:

fdx

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lulu

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pay

I'm tellin' ya, picking stocks and tracking the market is uber fun. I learn new stuff every single day -- and today, before I jump in to thoughts on the market, I wanted to pay forward some of that education, putting context around a couple of characterizations of the environment that you may be hearing this week.

"Slow grind higher"

This means stocks won't go higher in every session, and there will be periodic setbacks. This saying is so broad and dismissive that it usually brings me a chuckle.

"We love stocks for the long term."

Be mentally and physically prepared for short-term portfolio pain. If you are able to stomach volatility, stocks will be higher five to seven years from now as intrinsic value is realized. Okee dokee.

"Eventually we will have a recovery around the world."

Huh? Note this is usually support for a long-term bullish thesis.

These are the various opinions on stocks and the overall market that I have had to digest over the weekend, much as you have had to do. Why does it feel as if the rug is being pulled from under our feet as the smart money seeks to unload? I didn't have that sense Monday, but the feeling did perk up that evening -- which prompted me to concoct that "World is Ending, Sky is Falling, Head for the Hills" investor survival guide for Tuesday.

When the market opened for business Tuesday, I thought the coast was clear. I figured there would be indiscriminate selling across sectors, renewed vigor in asset-inflation trades SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) and that leading issues would return to the land of green.

But, midway through the session, the climate took a turn for the worse. I'm not sure if it was the perpetual drumbeat of doom and gloom finally sinking into the minds of the bulls with shaky hands, concerns on the election outcome or a presently unforeseen development. Nonetheless, key points in my survival guide were violated, leading me to believe it's OK to state a move to the sidelines is warranted.  In other words, you might want to rein in long exposure.

What in the world am I referencing?

● Stocks that gapped higher on the Federal Reserve announcement gave back further gains on more convincing volume.

● Financials made it a true banker's hour day, starting the session favorably but closing up shop early.

● A company offering bad news -- FedEx (FDX) -- didn't managed to charge higher, even though a chorus had of bulls expected that cost cuts would topple any downside risk to global volumes. Further, in my view the report served to deflate peer comparables.

● Defensive names again logged another day in the green. I will add a General Electric (GE) to the small sampling I am watching, along with Hershey (HSY), Pepsico (PEP), Coca-Cola (KO) and Kimberly-Clark (KMB).

Here are three near-term scenarios for the market:

1. Selling triggers selling. Gains from the Fed announcement -- not from the run-up to it -- are wiped clean.

2. The market doesn't retrace all Fed announcement gains. It hold, and the rally recovers those gains.

3. The market literally trades sideways as bulls and bears shout valid views at one another.

I say morph into a seagull, spread your wings and fly away until we see better action from the stocks that drove the market to this point -- among other factors to which you should pay careful attention, of course.

The Dimly Lit Rumor Bar

● I joked about this on my Twitter account, the message was dead serious: The September employment report will sneak up on you so get prepared -- now. My initial instinct is to gird for a letdown, as gleaned from the employment component in the Empire State and FedEx seeking "further" streamlining. What I am attempting to figure out Wednesday is whether the market is starting to price in another subpar jobs report, and then to interpret it as saying the Fed's third round of quantitative easing -- a.k.a. QE-Infinity -- will have limited short-term impact. If so, this is a big win for the bears, seeing as fiscal-cliff worries and the international stories will then get reiterated with greater authority.

● A rumor made the rounds yesterday that David Einhorn is shorting Lululemon (LULU). Would I be surprised? Nope. Take a glance at Lululemon's "Provision for Income Taxes" line in the recent 10-Q with the SEC. The explanation for the lower tax rate seems kind of weird, no?

● For those that have inquired, yes: I still don't dig VeriFone (PAY). The recent venture-capital raise by Square only solidified that call.

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This may not be all that popular of a post, but you might understand where I'm coming from.

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