Market Montage

Since the May swoon the market has been in a violent pattern of indecision.  While the trend has had an upward bias since early June, there has been no consistency.  In fact since breaking out of a five session sideways pattern in mid June we've had a consistent pattern of 5-7 up sessions followed by 5-7 down sessions.  Each time Lucy sets down the football and Charlie Brown runs up to kick it (the 5-7 day upswings), it is snatched away (the 5-7 day downswings).  Obviously an exasperating situation for all involved – save for Lucy. …

The past 2 sessions we have had key reports from the likes of Intel (INTC), IBM (IBM), Qualcomm (QCOM) and the like.  The theme is the same – there are warts but with lowered expectations these companies are doing enough to placate investors.  Many of these names were diverging far worse than the market about a week ago when Cummins warned and took many global multinationals down.  Again, on Wall Street the game is set a bar at X and beat it – and the market seems to reward it.  Qualcomm even had an issue with guidance and is being rewarded so you just never know how the market will react.  What we are seeing is a lot of misses on the revenue lines of these companies as revenue is impossible to play games with – whereas EPS is beating.  Anyone who has worked in accounting for a public company, or analyzes these income statements quarter after quarter can see the all the levers that can be pulled to squeeze out an extra penny or three in EPS, especially with these huge conglomerates with operations globally. …

This is one of those reversion sessions – many of the sectors doing little are moving today such as semiconductors and transports.  Intel (INTC) was not that great yesterday but expectations were very low.  This is moving up a host of related names.  I am not sure why exactly some of the global growth names are going but most of these are very broken stocks – see Cummins (CMI) from a few weeks ago.  I think the thesis here is that expectations just have been lowered a lot so maybe the earnings VERSUS expectations wont be so bad.  Outside of that energy stocks are working.

Meanwhile most of the stronger sectors of the past week are sitting or negative – REITs, healthcare, consumer staples, etc.  It continues to be difficult to find a theme that can work week after week.

As for the S&P 500 we are back to this 1370 level – 1340 and 1370 have been key levels all year.   The old highs from early in the month were 1375ish so a break above that should see some capitulation from the short sellers.  But for the past 7 weeks buying a breakout or a breakdown in this market has been the losing trade.