Here's why buying the opening is a harder than we think.
Because we have to undo the rally that culminated in yesterday's spike, as that is now revealed as nothing but a short-squeeze augmented by what turned out to be uninformed buyers, many of whom have a level of remorse that is pretty unfathomable.
Their selling, plus overseas pain, could have hit the Dow down 7% circuit breaker (13 and 20 being the next) for the 15-minute pause. That might be the time to look for buys.
But there's a reason why this moment is even more challenging than the futures would indicate, even as they were down even more in the middle of the night: We have a dearth of earnings reports this week but what we did have actually pretty much uniformly disappointed.
Sure, because of the short-covering rally into the vote you couldn't tell, but Lennar (LEN), the second-biggest homebuilder, Carmax (KMX), one of the biggest car retailers, FedEx (FDX), the biggest freight forwarder, Werner (WERN), a large trucking company, Bed Bath (BBBY), a huge discount retailer, Canadian Pacific (CP), a gigantic railroad, Accenture (CAN), the best of the best systems integrators, and Red Hat (RHT) and Adobe (ADBE), two fast-growing cloud companies all disappointed investors in one way shape or form. All of them! In fact, only KB Homes (KBH) stands out as a company that didn't blow it.
That's a pretty nasty thicket of company numbers from all sorts of industries in every case with some very nasty read-throughs.
It's not hard to draw a bunch of conclusions, all of them very negative.
If Carmax misses, that's a sign that the residual value of cars isn't that robust. If you are Ford (F) or GM (GM) you sure don't want to see that. I thought Lennar was pretty darned good. And given that the Fed is on hold for now I read Lennar as a positive for most things involving the home and home building. I may ultimately be right and both it and Bed Bath end up rallying, the latter on some really disappointing comparable store sales. Nevertheless, you don't want big retailers revolving around homes and a giant homebuilding stock doing badly and you can't expect that to usher in anything positive. The big decline in mortgage rates from Brexit that we are going to see could help, but let's face it, the market just can't get excited about homebuilders because they can't build enough of them and they can't sell enough of them and they can't make enough money on each one.
I wanted to excuse Canadian Pacific because of the Canadian wildfires out west, but the fact is that the company made a point of blaming its shortfall on more than just the conflagration. There were way too many negatives. Werner flat out said the economy was sluggish. It had nothing good to say.
I don't want to freak out about FedEx because, again, it just wasn't all that bad. But when you talk the quarter over with people they were uniformly downbeat on e-commerce numbers which, again, I thought silly. Yet who am I to dispute the concept even as I did urge you to buy it. That was wrong because of Brexit and now I feel Brexit's being held out as a cessation of world commercial behavior, so it's way too early on top of yesterday's gains.
Sometimes stocks create their own negativity because they have run too much and I think that's why Adobe and Accenture plummeted initially. When I read through the quarters I came back thinking "give me a break" just because they aren't promotional doesn't mean they are doing badly. Honestly, these were very good quarters. But the rap was simple. We are used to blow-away numbers from these two. Instead we got what, for these amazing companies, is considered inline forecast boosts, which is an oxymoron if you ask me. Just this morning Credit Suisse downgraded Accenture saying this is the first quarter in two years that wasn't a blowout, so the blowback's not over.
Only Red Hat of the techs seemed to actually have a less than stellar quarter, but I chalked all of that off on an acquisition that made it a little difficult to read the quarter and the fact that the previous quarters were ridiculously strong. When I read through the conference call, I felt much better than the stock would indicate but it's not what you glom onto on a hard day like today.
That's right, in the vortex of macro, the micro this week offers only the coldest of comfort.