The Daily Dose: Hit the Line of Scrimmage

 | Nov 07, 2013 | 10:00 AM EST
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The uproar regarding bullying that has embroiled the Miami Dolphins is dead accurate. An NFL locker room is akin to a corporate boardroom. It's a place where business is to be conducted in a respectful manner to each individual present. Shame on almost all the Miami Dolphins players for not taking a harder stance on such absurd acts.

The entire ordeal reinforces to me that you always have to hit the line of scrimmage hard (something tells me the player be singled out for bullying may have been playing soft), trying to get ahead with every possible bone and muscle in your God-given body.

With respect to the market, I am seeing a great deal of poor research being done. It's surface in nature, suggesting in an indirect way that complacency on the market's next direction has been established (stocks only go higher, no?). I want to the hit the line of scrimmage hard today...

Stalking Macro Data

From an aerial view, macro data have been improving in comparison with September and October and in comparison with consensus.

But while this has been happening, the 10-year U.S. Treasury bond has been creeping, and it now sits at 2.66% with barely a notice. The moment is approaching a point where I believe the forward progress of stock prices is viewed as signaling increasing macro momentum, and it has reignited calls of a Fed tapering early in 2014 instead of later in the year. You want to be spying high-P/E-multiple stocks (Starbucks (SBUX), Netflix (NFLX), etc.) to see if there is a sea change in sentiment.

What Insiders Are Doing

As I mentioned earlier in the week, I am in search of divergences in the market that nobody cares to mention. Yesterday I noted how the Philly Housing Sector Index and KBW Bank Index were lagging the Dow and S&P 500 over the past couple of weeks. Why am I searching for things that don't marry up to the persistent bullish sentiment? Simple: It's how you avoid getting your rear-end handed to you by being on the wrong side of a shift in the markets!

Today I want to show off my bestie, the ratio of insider selling to insider buying. According to the table, insiders may be using the post-earnings period (where poor reports were brushed aside because of hope surrounding Fed stimulus efforts) in order to lighten the load into year-end, considering the level of valuations compared with historical norms. I have also supplied a picture of the S&P 500 as a means to compare and contrast insider selling with reactions in actual stock prices.

Insider Transactions Ratio
S&P Year to Date
Yahoo! Finance

Abercrombie's Pitch

Abercrombie & Fitch (ANF) shares received a mild pass by the market in response to an earnings bomb. Why? Execs issued a bunch of seriously inflated long-term operating margin projections. Selling the hope, baby. Suffice it to say, I am not as optimistic about the company's long-term potential, given its resistance to change and given that U.S. teens are emotionally disconnected from the typical teen-apparel concepts in the mall. These are three things to know on Abercrombie, for now:

  • The CEO "expects to stay on in 2014." That would be super-unfortunate. This man is an embarrassment, and he has also failed to groom a successor. I found it to be a lack of respect that the CEO seemed very uninterested at analyst day, often staring at the floor with his arms crossed, almost resembling a teenager. Don't laugh -- body language is a must-use analytical factor.
  • Sales were running below plan from August. I anticipate this trend to be shared by Aeropostale (ARO) and American Eagle Outfitters (AEO) in the coming weeks.
  • It's my experience that in order to revitalize a retail concept such as is being done at Hollister, it takes a while, and in the process, margin risk remains elevated.

By the way, this is a new picture of Abercrombie's CEO.


A&F CEO Mike Jeffries


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