• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

The Day Ahead: How to Chat With a Market Fairy

When the market sends you highly conflicting messages, here's how to sort things out.
By BRIAN SOZZI Sep 12, 2012 | 08:00 AM EDT
Stocks quotes in this article: LZB, BBBY, AA, MCD, TXN, DECK

First things first: Do you have a market fairy? If not, ask yourself why.

Since sharing is caring, and I am a caring guy, the inside scoop is that at least three market fairies circle around me at any given. One fairy offers consistent reminders to be suspect of the bulls in the market overall and within specific stocks. Another is always screaming that stocks are a buy no matter what is unfolding in the world at large. The third is the quintessential voice of reason. She wears white and has a calming tone, offering words of wisdom such as, "be critical, but not blind to opportunity" and "go with your gut instinct -- a stock is moving up or down for reasons that will present themselves in the future."

I am sort of on non-speaking terms with these three usually-helpful imaginary friends, as they have collectively continued to articulate conflicting advice. After a couple seconds of self-reflection, I can't say I blame them for having wandering minds.

For instance, homebuilder stocks remain hot, hot, hot (including my forgotten pick Hovnanian (HOV)).

Conflicting thoughts: The market has certainly priced in some amount of quantitative easing from the Federal Reserve this week -- which, if implemented, should boost general stocks prices, if the past is any guide. Assuming we do see another round of QE, U.S. Treasury yields could rise as paper is dumped for a higher growth assets in stocks, thus choking off the housing recovery in 2013 -- a recovery in which Fed chief Bernanke doesn't seem to be a big believer. This sure sounds like a Fed policy that's counterproductive, as opposed to overly stimulative.

We could also see a backup in credit-card interest rates. If so, large-ticket home furnishings purchases from companies La-Z-Boy (LZB) and Bed, Bath & Beyond (BBBY), which both have nice bids under their respective stocks, would become sooo 2012 (kindly imagine a valley girl voice).

Elsewhere, Alcoa (AA) has suddenly broken out, seemingly out of the blue, with little fanfare -- because it's only relevant four times a year (I say this tongue-in-cheek). The move is a classic Fed-plus-China-asset-reflation trade.

Conflicting thoughts: Beware of the Fed potentially failing to ease in line with market expectations -- whether in language, amount, or at all -- and of China possibly failing to prime its economic pump to a stronger degree. In this scenario, Alcoa's so-so fundamental story -- despite the CEO selling it hard on the second-quarter call -- would be exposed amid the unwinding asset-reflation premium. Hmm.

Separately, McDonald's (MCD) August sales were cheered. That didn't take much, considering the company's weakening fundamental trends of the past two quarters.

Conflicting thoughts: Overlooked in this glorious news was the fact that U.S. sales were roughly in line to consensus and that Europe missed, in spite of increased investments in value and marketing. In fact, I'm wondering about profit margins in this type of month. With these investments set to spur same-restaurant sales into a slowing global growth environment that should favor trade-down, shouldn't McDonald's' numbers have packed punch? Hmm.

Things You Are Missing in the AM

● As far as I am concerned, Texas Instruments' (TXN) mid-quarter update supported early-inning warnings from companies, and shouts, "the global economy is in limbo and at risk of downside surprises." Specific areas of concern included, first, "timely actions" to reduce costs. This implies weaker-than-expected demand will be around for a bit, and that management does not want to miss on another quarter. The second worry is that most orders are tracking below mid-range of expectations. A single part of the business, wireless, is holding the company afloat, instead of broader strength.

● The Fed is likely to cut its economic forecasts Thursday to justify fresh easing. How does that play in the election? President Obama has been surging in the polls of late, but reduced targets from the Fed once again -- led by a person the president reappointed -- could be a benefit to Republican nominee Mitt Romney. Watch oil-related stocks for a bid. By the way, do you even remember what the Fed did with its growth targets months ago? Here's a reminder. (PDF)

● Be mindful of the architecture of easing: If the Fed just buys Treasuries , leaving out mortgage-backed securities, there will be disappointment.

● Reiteration: Retail stocks are looking too toppy for my tastes, especially into the slow months after the back-to-school season and before the holidays. I have no bones to pick here in putting on a short in Decker's Outdoor (DECK).

This is a weird environment to be investing. It has a strange feel -- no attention is on corporate sales and earnings, and new incoming information is painting a worrying picture. I continue to lean more bearish, but I do acknowledge the backdrop presents opportunities on the long side. After all, negative company-specific news and the "Fed easing priced in" manta are not sparking mass sector selloffs, nor defensive behavior in trading.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Sozzi had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Economy | Stocks

More from Stocks

It's Official: That Hairy Animal With Claws and Sharp Teeth Is a Bear

James "Rev Shark" DePorre
May 20, 2022 4:31 PM EDT

Along with the media proclamation of a bear market, we have some improvement in the charts of many smaller stocks, but ...

Applied Materials Slips on Miss: Where Will the Chips May Fall

Bruce Kamich
May 20, 2022 1:00 PM EDT

Let's see what the charts say.

Consumer Confidence Is Shot

Bret Jensen
May 20, 2022 12:00 PM EDT

Until things start to improve for the average consumer, it is hard to see significant upward moves for either the markets or economic activity.

I'm Cautious on Marvell Technology Ahead of Earnings

Bruce Kamich
May 20, 2022 11:52 AM EDT

Let's review the charts and indicators.

Retail Stocks Are Moving Fast: Here's One That Might Be Worth Catching

Jonathan Heller
May 20, 2022 11:30 AM EDT

It is refreshing to visit a store that has the items in stock that it claims to on its website.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login