Last week we saw fireworks with the meat of earnings season, as many of our go-to stocks reported earnings and saw volatile action that resolved mostly to the upside. This week’s calendar was not so jam-packed with blockbuster earnings from our list, but there were still some heavy hitters on the American corporate landscape that reported on the state of affairs. Numbers came through generally strong, but the end of the month, combined with the upcoming elections and Fed, led to a whole lot of nothing in the indices, but there was still plenty to take note of.
Market Leaders Indecisive
The market gorged itself on delicious set-ups like Chipotle Mexican Grill, Inc. (NYSE:CMG) last week, and while Chipotle trickled higher, other leaders rested on the couch for some much needed digestion. Another ‘Mutual Fund Monday’ opened markets near move highs to kick off the week, but the rally fizzled out and the feeling started to develop that this would be a tight-range type of week. Leading tech stocks like Apple Inc. (Nasdaq:AAPL), Google Inc. (Nasdaq:GOOG) and Baidu, Inc. (Nasdaq:BIDU) were not noteworthy, with Google the strongest among them. Netflix Inc. (Nasdaq:NFLX) popped on Tuesday, but also came in a bit to close the week. In the financial sector, Goldman Sachs Group Inc. (NYSE:GS) again flexed its muscles as the unquestioned leader. The foreclosure continued to be a national embarrassment, with further details emerging about the extent of systematic fraud and outright lying that characterized the mortgage and banking industries. Bank of America Corp (NYSE:BAC) found a short term bottom, but struggled to hold onto to any gains.
RIMM, RVBD, PWER, LVS Join the Party
Riverbed Technology, Inc. (Nasdaq:RVBD) joined our go-to list, and were not hesitant to point it out even after a sizable earnings gap. It could emerge as a leader in the cloud space, and it will be one to watch going forward as it added to gains this week. Research in Motion Limited (Nasdaq:RIMM) got back in our good graces. The stock had lagged for so long, but a nice igniting bar through the $51 area, combined with the well-received Playbook tablet and positive comments from industry analysts, told us the stock was poised to run back to the $59 area with little resistance. The stock closed the week just below $57. Las Vegas Sands Corp (NYSE:LVS), now there is a beast. The stock felt extended in the 30’s after rally from $2 only just more than 18 months ago. Fundamentals still looked good though, and anyone who stayed aboard this raging bull got paid as the stock went parabolic on a monster earnings report. Power-One Inc (Nasdaq:PWER) was a great options risk-reward play into earnings, and it has reasserted itself as a name to watch. Ford Motor Company (NYSE:F) also reported strong earnings but failed to really ignite, but we feel good about the undoubted leader in a recovery American automotive industry.
QE2 The Talk of the Town
The Fed made it clear the the Jackson Hole retreat that it stood ready to step in if the economic recovery faltered, and prudent investors took note of that ‘Bernanke put’ and bought strong stocks for the telegraphed two month rally. We are in an inflationary climate that is good for stocks, and any attempt to fight that trend was foolhardy. The Fed has done everything in its power since the beginning of the Great Recession to stimulate growth, and now with interest rates zero bound and a liquidity trap, the FOMC has relied on language to be its sharpest tool. A massive QE2 has been ‘priced in’ to this market, according to most observers, but in reality, it was one of two conditions that was priced in to this rally: the economy would begin to recover or the Fed would print money. Both scenarios are bullish for stocks, as David Tepper famously noted on CNBC. The economy has indeed shown signs of improvement, most notably with consumer confidence coming it at 50.2 vs 49.9 expected and GDP growth increased sharply from last month. Nobody is under the illusion this economy will snap back overnight, but we have to be willing to stay the course for now without mortgaging our future or endangering the fragile recovery.
With economists doubting the wisdom of massive QE2, the Fed seems to be backing off the realistic idea of asset purchases denominated in the trillions. We expect QE2 to come in light or previous expectations, and for the Fed to reiterate its commitment to stepping in if the recovery falters. A healthy pull-in is entirely possible, which would be healthy for the market. Bill Gross, supposed Fed bedmate, shunned the pillow talk and jumped into the great debate in his month Pimco investment newsletter, using such strong words as ‘Ponzi scheme’ and black hole to describe the Fed and the current state of the economy, respectively. Lost in his frank diatribe, though, was his underlying message that our political system is at the heart of our problems. Short-sightedness and self-interest got us into this mess, and the Fed has been forced to take unprecedented action to avoid calamity.
Day Trading is NOT Dead
Mike Lee yesterday delivered an outstanding rebuttal to recent article stating that ‘Day Trading is Dead’. I am around many people everyday who prove that statement to be absolutely incorrect, Mike among them. Has intra-day trading evolved? Of course, it always has. Has it become more difficult? I don’t think anybody can deny that. But is it dead? No chance in hell. Each person, no matter the time frame, must deal with evolving market structure and the implications of highly computerized markets. For every individual, that adjustment will be different. Guys like Mike Lee and Steve Levay have proven their ability to remain consistent using a short term momentum strategy, exercising tighter discipline and more closely following their personal rules. Scott Redler has incorporated a higher degree of sophistication into his trading to remain successful, preparing more tirelessly than ever despite helping to raise an infant son. Marc Sperling has also more ardently devoted himself to his craft, getting out of his comfort zone, increasing his options trading activity and exploiting an even wider breadth of opportunities in this market. For me personally, focusing on a larger time frame is right move. Technical analysis is still a powerful tool that should be a part of everyone’s trading tool belt. Even if you have a more long-term investing approach, TA is a timing mechanism that allows you to quantify risk. No matter where you stand, it is naive to say day-trading is dead because, as Mike Lee so eloquently wrote, to say day it is dead would be to deny his very existence.
Closing Time
So here we are at the end of October with the market up around 13% for the last two months (traditionally weak months, mind you). The looming Fed announcement will be interesting for sure, and the rest of the year feels like it will bring a lot of action. Make sure to go back and read other articles from this week I didn’t touch on in this post because there was a lot of great and diverse content this week, from Brandon’s analysis (here and here) of the recent WRG High Frequency Trading conference to precious metal market manipulation to the debate over the merits of financial blogging. We are working to build something here at the T3 Live blog that can add value to anyone’s participation in the market, whether that be as a day trader, swing trader or long-term investor. Thank you all for reading and for commenting (even if you dissent). The discussion is makes this blog that much better, and going forward we hope to continue to foster an open line of communication with our readers. Have a great Halloween weekend, and lets get after it again on Monday!
