Every stock ticker tells a story to anyone who is interested in listening. As I run though my trading screen multiple times in a session, I am always thinking about a company's recent news flow and how that will shape the stock price's future. Gap-downs on a chart are icky, gap-ups are lovely, and sideways action is either an opportunity or planted bomb. Nowadays I also look at stock tickers for what will be a hot debate tomorrow.
The to-and-fro in the market is very unsettling. The saving grace in the case of many stocks is that they are holding near 50-day moving averages. But if breakdowns in cyclical areas of the market (housing, retail) persist, you had best believe that 50-day moving averages will be convincingly pierced and that the selling floodgates will be opened further for the whole market.
I'm not entirely sure if the next 50 days in the market will be dreadful, but they are likely to be noticeably different from the 50 days prior. This is the current story the market is trying to share with interested folks.
Teen Apparel vs. S&P 500
- Stocks: American Eagle Outfitters (AEO), Aeropostale (ARO), Abercrombie & Fitch (ANF)
- Memo: Two of the three primary plays have lagged the S&P 500.
Potential future storyline: After a spend closer to need summer (basically, people will not have a month or so to pay off the charge cards), we could see an underwhelming start to the back-to-school selling season. I continue to believe that American Eagle is the winner from this bunch. Its fashion quotient is a nice differentiator and is in line with teen wardrobe preferences.
Dollar Stores vs. the Almighty Wal-Mart
Potential future storyline: Traffic issues will continue globally for Wal-Mart (WMT). Dollar stores' fundamentals stand to reaccelerate amid easier same-store sales comparisons and inventory price deflation.
Financials vs. S&P 500
- Stocks: JPMorgan (JPM), Wells Fargo (WFC), KeyCorp (KEY), PNC Financial (PNC), SPDR S&P Homebuilders (XHB), iShares Dow Jones U.S. Home Construction (ITB)
Potential future storyline: If there is a reason I haven't gone completely to the bearish camp, it's that the financials are staying the course. However, since fear of higher interest rates are permeating the Street, financials could be providing false assurance while housing names deserve greater respect. Sure, if rates rise a touch, banks will get better net interest margins (charging higher on mortgages and other products), but mortgage lending, investment banking and trading are at risk in terms of consumer demand and mortgage lending, and institutional and corporate activity is at risk in terms of deals and trading.
Absolute Complete Randomness
- I'm not sold on the bullishness around Bed Bath & Beyond (BBBY), considering how well TJX's (TJX) HomeGoods division is performing.
- Recent TV promotions from Dick's Sporting Goods (DKS) (which are rare) are suggesting that second-half 2013 margins could be softer than the numbers that were built into apparent "conservative" EPS guidance. Approach with caution.
- Why no small pop in Caterpillar (CAT)? China seems to be on a path to a minor growth re-acceleration. Hmm.
- Watch Columbia Sportswear (COLM).
- Stocks are reacting negatively to unfortunate surprises (the Institute for Supply Management manufacturing report, for instance). This is telling, in light of this "bad news is good news" thesis that has surfaced among investors. FYI, the month-on-month plunge in backlogs, according to ISM, was alarming (and went uncovered) in the context of employment trends in the next few months.
- Hershey (HSY) is hanging tough in this shift from defensives with yield (my sense is that it's attributable to the decline in sugar prices); Coca-Cola (KO), Kimberly-Clark (KMB), Church & Dwight (CHD)(serious fall here) and Kellogg (K), not so much.