The Breakfast Club
By Todd Harrison Jul 13, 2004 8:37 am
I can't believe I ate the whole thing!
Good morning and welcome back to the ducks that quack. The meat of the order is coming to bat and the critters decided it was now time to chat. They gathered at Ollie's, game faces in tact, and dealt through the deck that they all felt was stacked. The waiter served food, and coffee was poured, as they dreamed of the Minx and the looming reward. Their favorite booth was where it was held, their mouths full of food and their bellies all swelled.
Boo: So lemme get this straight--most indices are breaking or broken, the stimuli is in the rear-view mirror, rates are rising, earnings are decelerating, complacency (as measured by volatility or sentiment surveys) is widespread and there are bubbles brewing in asset classes around the world. HEY NOW--LET'S GO BUY SOME STOCKS!
Hoofy: The earnings appetizers were a tad tart--so what? The main courses are just coming out of the kitchen and lotsa traders have already dropped their chopsticks. A little fear is healthy--you know that--and while the equity crowd is getting loud, the credit side is smiling wide. Field position is the key, Mon Frere, and the Minx is on her heels.
Sammy: No offense, fellas, but I've been watching you guys go back and forth the entire year. And for what? Entering today's session, the S&P was up .22%. That's POINT two two percent. I've seen more interest in midget volleyball! The Minx is weeding out the overcapacity in the financial arena. Trust me, it's only just begun--and if you don't map out a cogent strategy, you'll be one of THEM.
Daisy: (demurely sipping on her latte) There are so many opinions.
Sammy: Exactly--which is why you need to be very careful who--and what--you listen to. Most folks derive their investment philosophy by assimilating information sources and (in some cases) factoring in their unique circumstances. What a lot of people fail to do--and what will ultimately differentiate performance--is intelligently juxtapose their risk profile and time horizon. Further, they don't allow for a sufficient margin of error in their approach.
Boo: That's exactly my point! There is a lot of risk out there and volatility/sentiment levels are sanguine. Let's pretend for a second that geopolitical fragility doesn't warrant an increased risk premium. There is a ton of supply on the on deck circle and more being called up from the minors every day. The faux recoveries can only be masked for so long by artificial determination and that inflection point may be upon us. That, in a nutshell, what is all this inventory chatter is about.
Hoofy: But why can't this just be a six month sideways basing on the heels of a mammoth rally? I would argue that this action is entirely more healthy than a parabolic frolic. Further, I would take a trip to the track to see the Iron Horse. You don't have to agree with his educational insights but you best respect his view--it's been white hot for years on end.
Snapper: I think it begins and ends with the financials today. When Merrill (MER:NYSE) reported less than thrilling earnings and offered a guarded outlook, Boo was so excited that he almost spit up his Krispy Kreme. But be careful with the frisky financials, my friends, as their tricky traders. This group often sells "great" and buys "hate" and while that may be dicey under XBD 120 (resistance), it should be respected.
Sammy: And keep in mind that the Mother Chip is set to sail tonight and we'll see alotta posturing in front. The word on the Street is that Intel (INTC:NASD) is choking on inventories but, again, the recent price action suggests that it wouldn't be a complete shocker. As I said earlier, define your time horizon and understand your objectives before risking your hard earned capital.
The critters looked down at the empty plates and pondered what had been said. They've been here before and knew that earnings during expiration week were emotional marathons. "I've gotta hop fellas," Hoofy said as he finished his glass of milk, "I'll catch you on the other side of the bell." With that, the bull rose, took his dairy diva by the hand and strolled out of Ollie's. There was work to be done.
Good luck today.
No positions in stocks mentioned.
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