Here is a secret. I am feeling a pressing desire to not have egg on my face for continuing to be negative on stocks and then watching them climb a few percentage points over a stretch of sessions.
Although the reasons to be cautious are plentiful, they are well-chronicled. On the positive side, overwhelming negativity when met with a touch of lighter fluid (as of now, that kerosene is found in Germany wanting to agree to greater coordination across EU member states in exchange for a power grab) often lights a small flame that could develop into a bonfire with more juice (positive news flow). On the negative side, "well-chronicled doesn't mean there isn't material risk to possible worst-case scenarios.
Making sense of this is one of the pillars of the new school of investing first taught in 2008-2009 and necessary once more.
I am pulling out of every darn trick in my bag to determine if:
- What we began to experience in the markets late last week is justifiable optimism.
- What we are seeing this week is the type of firm foundation that could zap additional shorts and get long money working again.
- Stocks have simply priced in too much gloom on second-quarter earnings and fiscal-year outlooks and if the market may be onto something by biting on the EU coordination plan rumors that would remove the black cloud hanging above P/E multiples and, to a lesser extent, corporate outlooks.
There is light at the end of the tunnel (as in the selloff may be on hold until the Greek election). Unfortunately, I am not sure if what I am seeing is truly good news or just perception of it being good news tossed into an oversold market. The lack of trust I have in the things I am coming across, coupled with stocks throughout many non-defensive sectors needing to form bases after deep scars before longer-term investors enter, continue to have me acting as Johnny Negative.
But, on to those positive tidbits, right?
The New Positive List
- Global multinationals (such as Caterpillar (CAT)) have started to do the intra-quarter I-bank/boutique investment firm conference circuit and there have been zero profit warnings on already-muted expectations.
- Stocks are acting rationally, or as expected, to specific news:
- J.C. Penney (JCP): Got hammered yesterday after succumbing to the will of the people that it helped train on buying for decades. Management is bringing back the use of the word "sale" in its marketing and outwardly ate some humble pie. The stock shed roughly 4%.
- VF Corp. (VFC): Guided to low-double-digit percentage sales growth in Europe in 2012, below the 16% pace in 2011. After hearing the Ralph Lauren (RL) and Tiffany (TIF) earnings calls, investors were anticipating VF Corp. outlining a high-single-digit percentage European sales gain 2012 and acknowledgement of risk to that forecast. No go, due to company-specific attributes (such as market share gains on leading product). VF Corp. finished higher on the day.
- TJ Maxx (TJX): Logged a losing session as money flowed into names with a stronger discretionary component to total sales.
- Interesting action: Best Buy (BBY).
- Odd action: Walgreen (WAG) on a bad May sales report.
- If you believe in a market rebound driven by EU unity, Guess (GES) at its present valuation is where you look in retail.
- Go figure: Bank of America (BAC) finding that aforementioned base that I am yearning for in stocks, which is opposite to the other financials on my trading screen.
- Remix: As I noted last week, disinflation (a slowing rate of price increases in the economy, which comes before deflation) is a rising problem. You have to pay attention to reads on pricing in the ISM, CPI, reports, as well as in second-quarter sales drivers (volume, price, currency). Yesterday's ISM-service report showed the pricing component falling for the first time since July 2009. I read that as: EU cold-catching.