By R.F. Culbertson, Carnegie Mellon University
Our Thoughts:
I just Don't Trust This Market
Everyday I get asked the same question - "Why are you so glum, the numbers point to recovery". Everyone cites several recessions where in it took a long time before people bought into the idea of a recovery. What's different this time - JOBS. On Friday the CEO Report told us that 22% of all polled companies plan to lay off more people. The general public may not know how this economy works but they see: foreclosures, inflation, gas approaching $3 bucks, taxes rising, houses on the market for 24 months, a lot of bad things. And what is different this time around - it's the Internet!
The Market
The Market has wanted DOW 11K for months - but it's tough when the bulk of the American population doesn't have the means to invest, and most of the foreigners are trying to get money OUT of the US(S) Titanic not put money in. So, for the past 3 weeks we've been running in place. Consider this: 8 million people are out of work and 3 times that are "under-employed" - with the remainder being very scared of touching the stove - AGAIN. So, Friday (after an incredibly boring session) they circled the wagons and late in the afternoon, pushed and pushed and broke through DOW 11K - to end the day at 10,997.
Okay - now what? This week is the official start to "earnings season" and yes we're going to hear some tremendous earnings. Uncle Sam has spent trillions to keep things moving and companies have cut employees and expenses to the bone. But my guess however is that we are still in a topping phase. It takes a long time to roll over after a year of the biggest financial stimulus and Wall Street push in our history, but roll over we will.
Was Friday the top? I don't think so. I think we still have a climactic "blow off top" coming. I could easily see us gain 150 - 200 points, and then start a long process of stair stepping downward - lose 300, bounce for 200, lose 400, bounce for 300 and so on. After all, history shows us that "stocks" often rise up into their earnings, but interestingly the "market" doesn't have to follow along.
So we will lean long into the stocks that are going to release earnings - usually taking a position 3 to 5 days before the report will reward you - but we never hold over through a report, we always sell out the day ahead.
Tips:
I would be a lot more optimistic if:
- Uncle Sam wasn't spending the upwards of $24 trillion in stimulus,
- Banks were marking assets to market, instead of to "model" which the FASB has allowed them to do,
- Taxes were about to go down instead of up,
- There were NOT 7 million homes in a "shadow inventory",
- Good paying jobs were abundant, and
- Companies reported GAAP earnings instead of proforma.
Therefore, I've traded very little this past week and have only two positions open:
- MS purchased at 30.27 - with a stop in at 30.30
- LTD purchased at 26.02 - with a stop in at 25.99
I'll be trading stocks (approximately) 5 days prior to their earnings reports - and then selling the day before their earnings release - as these next several weeks unfold.
If you'd like to view my actual stock trades - feel free to sign up as a twitter follower - "taylorpamm" is my nickname on Twitter - fyi.
