Canada, New York, and Mali all are making the market news cycle. Ebola and terrorism, or, rather, what many are thinking is terrorism, but what just me a local nutcase.  

The market did react when the news of the Canadian parliament shooting came across the wire on Wednesday and it reacted this morning to the news that both New York and Mali had their firs Ebola victims. To some degree, all affected market movement temporarily, but as I suggested recently, it appears the market cares less about the latest panic and more about earnings. Before we get to earnings, I want to reference something about market reaction to news.

  • According to Nanex, when the Ebola headline crossed, a single algo began selling more than 1,000 E-Mini futures contracts (a contract valued at 250 times the value of the S&P 500 stock index) every 2.5 seconds. So, in 30 seconds 12,300 contracts would have been sold. And in a single minute that means this algo would have sold more than 25,000 contracts. The word you’re probably looking for is, wow!

Nanex is a high-end software trading platform that specializes in delivering market data, lots of it, fast to your doorstep.

  • NxCore (pronounced n’core) is a high-performance ticker plant that brings the whole market to your workstation or desktop computer. NxCore excels in delivering and databasing all the quotes and trades transmitted by the exchanges, even in the hyper-active U.S. Option market (OPRA) which now transmits over 4,500,000 quotes per second, and 8 billion quotes per trading day.

My point here is that we all should take these swift and sudden market shifts with a grain of understanding. High-speed computer trading can create an illusion that the market is falling apart when it is not. What we are now seeing is quick buying after these news-driven sudden drops in the market.

Keep in mind, the “flash” panic is only relevant in the moment of its happening; otherwise, all things being equal, the market will revert to caring about the fundamentals, such as earnings. Now, back to back to our regularly scheduled program …  

Microsoft beats, Proctor and Gamble (P&G) stays even, and Amazon sinks on earnings. A mixed bag, for sure, but of the three, Microsoft is by far the most important, P&G is the most boring, and Amazon is the most interesting and probably the one the market least cares about as any kind of bellwether.

I remember when Amazon first came on the technology scene. In its first five years, it never made any money, but its shares soared. In fact, check out this Jeff Bezos quote lifted from a quarterly financial statement in 1997.

  • The Company believes it will incur substantial losses for the foreseeable future… the rate at which such losses will be incurred will increase significantly.

I could never understand it then, but now I do. Back then, and today, it was and is seen as an iconic figure in the New Economy. Its blend of technology, marketing, ease of purchase, and product delivery represents all of the technological promise that was the hype back then and is the reality today.

Yet, the company lost lots of money this past quarter ($437 million or 95 cents per share) and, sure, it took a 10% haircut on its stock price, but it is not tanking by any stretch. That 10% cut dropped it from over $300 per share to around $280 per share. Not bad for a company losing money at a $1.7 billion annual rate.

So what’s up with that? Why is Amazon still a darling to investors on Wall St. and to the average retail investor? Consider this …

  • Investors don’t care about EPS because Amazon is an $80 billion discounter growing about 20% per year. They generate about 8.5% cash flow from operations. For the sake of comparison Target (TGT) is about the same size on revenues and is growing at less than 2% with the same cash flows.

Jeff Bezos has never and still does not seem to care about the stock price. This man plows forward doing his thing and, somehow, it always pays off in higher share price. As I said, Amazon is interesting, as are the earnings coming out and economic fundamental picture shaping up.

  • United Parcel Service Inc. said its revenue rose 5.7% in the latest quarter, boosted by a higher number of deliveries from overseas, and added that it expects shipments in December to jump 11% from a year ago.
  • U.S. new home sales at six-year high; recovery still fragile

UPS is a bellwether for the US market and for the US economy, and when its revenue rises and it raises its projections, the market takes heed. Perhaps this is one reason the market is pushing strongly into the green after a news-driven, lackluster opening.

As to the fragility of the “recovery” in US new home sales…  I might ask, “What recovery?” The housing market is back and has been for quite some time. Anyone suggesting otherwise, as they gloss over the part about new home sales at a six-year high, is eating too much medicinal marijuana, I suspect.

Trade in the day; invest in your life …

Trader Ed