Not surprisingly stocks were about breakeven on Tuesday as investors held their breath for earnings season. Then after hours Alcoa stunk up the joint with a pretty hefty miss. Gladly Alcoa is not a great bellwether for the US economy and investors will likely not overreact to this one earnings report. By next week Friday we should have a much better sense of the quality of this earnings season.
Let’s roll back to the broader market picture. Yes, the S&P 500 was about breakeven Tuesday. However, there were major pockets of profit. In particular, small caps (ex. TNA) and growth oriented stocks continued to bounce back from the severe beatings they have taken the last two months. This means that more investors are pondering the notion that there may not be a recession and willing to take on more risk.
This is a sound move if indeed there is no recession. It is quite foolish if a downturn does unfold.
Long story short, these are not easy times to know with exact certainty what to do. Whenever that is the case, then better not to be 100% long or 100% short as you could end up 100% broke. Rather, it is best to first consider if you are leaning more bullish or bearish. Then make a smaller than usual investment in that direction given the odds that you could be dead wrong. When things become clearer then you can add to your positions.
The above philosophy explains why we have not been 100% long or short for over two months. And likely it will stay that way for a while as there is good evidence pointing in both directions. Meaning there are bullish signals out there. And there are bearish.
On the bearish front, investors are reacting negatively afterhours to fresh news that Slovakia has rejected the European bailout fund expansion. The word is that they are going to revote tomorrow and it will likely pass.
Some say it doesn’t really matter if it passes or not. Nouriel Rubini (aka “Dr. Doom”) is in that camp as he claims the current fund is about 4X too small.
And here is another bearish signal to consider: Bonds Show 60% Odds of Recession
So yes, we are bullish short term to see if earnings season can spark a bit more of a rally. Gladly that bet has been a good one to date. Yet we need to stay vigilant to all the data points as these are uneasy times.
Meaning: Be prepared for anything. |
发表于 2011-10-11 18:51
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