July Bull and Baird Blog

July 16, 2013

Equities start the day lower as some earnings finally come pouring in. The Cola of Coke missed, the Sacks of Gold beat, and the Johnson of..umm..Johnson also beat. We’re riding an incredible winning streak of 8 days in the SPX (14 days in NDX) and as the great Crash Davis said “a player on a streak has to respect the streak” so why bother trying to time it? Yesterday was the slowest volume day of the year because hey, summer, but even that wasn’t enough to stop the freight train that are stocks. So what could stop this chuckwagon? Let’s toss around a few ideas and see what shakes out. Oil might: it’s sitting at $106 and that changes the slope of US Consumption. Sentiment might: AAII bulls are near the highs and the readers over at Bespoke are expecting great things. Earnings might: but remember we are going into them with depressed expectations. Something we don’t know about that appears out of nowhere might: but I could also win the lottery so this one is hard to handicap. In the grand scheme of things nothing has changed. We are muddling along with 1% growth and an easy Fed, the same story that’s been told for years. Streaks come and go, and yes this one will end, but nothing about our current environment leads me to believe we are sitting at the top. Let’s see what the day brought us.

After the open we witnessed the NAHB Housing index surge to 57, its highest reading since 2005. Builder sentiment is unequivocally ROCKING !! (remember our thoughts on residential investment and how impt it is) I guess rising rates aren’t a problem yet are they? Just a fantastic number. Unfortunately this data point wasn’t enough to buoy investor sentiment because the market spent all morning in dump mode. You know what’s goofy about the stock market? Besides how insane and inefficient it can be? (my Chicago teachers may revoke my degree off that) Lately, when we get any kind of sharp selloff, price action is more about a lack of bids than too many offers. The structure of the market is such that liquidity just vanishes and anyone trying to sell can push a stock down 1% on nothing. It happened to me a couple times today where I stare at my screen and say “really? You’re gonna move like that on 25k shares?” It’s a layer of frustration to both traders and clients that is a direct result of the downward spiral in volume. Oh well, enough ranting, by lunch we sat on 1,673, down half a percent. Both of those earnings winners I mentioned earlier were lower at the halfway point too. Maybe expectations aren’t as depressed as I think? Hmmm, bears watching.

 

The 2nd half of the day brought fresh lows, but a small bounce at the end kept us from the gutter. The only major loser worth talking about is TSLA which fell 14% because it was overbought (Baird rates outperform). We closed at 1,676, down 37bps on a day where all the streaks finally came to an end. Which is good, now I have one less thing to track! The next few sessions should ramp up interest as Bernanke gives his semiannual testimony and tons of earnings pour fourth. So let’s see what companies have to say and if Big Ben keeps his dovish tone. If they do, we are fine, if not, we correct. Simple game right?

Final Score: Dow -21bps, S&P500 -37bps, Nasdaq -8bps, Rus2k -44bps.


News Highlights:

·After hrs earnings movers: CSX +4%, YHOO +1.5%
·Tough to find newsworthy links tonight, but I have a few. The first one shows that the right stocks are leading. “The good news, in this regard, is that small cap and mid cap "growth" stocks are now overtaking their "value counterparts. This is indicative of a strengthening risk appetite and possibly a wider belief in true economic recovery. For much of the first half, the rally had been led by the "bond-like" defensive stocks and large cap Old Man names. This changeover is welcome and speaks to a possible sentiment shift”
·The next link is a list of things worrying fund managers right now: What’s #1? Hint…it’s a country that likes to build ghost cities and lend endless amounts of money to people buying their 5th condo. But I’m sure that will all end well.
·CPI was out today so who wants to see a 5 month view of inflation? *crickets*
·Charts like these show why sentiment isn’t too frothy: Wall St’s consensus equity allocation is still crazy low.
·True
·I had no idea it could be this color
·Good one Obama
·QOTD (on Short Selling) from Hedge Fund Manager Philippe Laffont: "If there's enough red flags, sooner or later it's like a sand castle, there's too many bad pillars. Sooner or later, the castle crumbles.The short side is more about pattern recognition and seeing odd things. If there's enough odd things, that leads you to believe the company is wrong.There's a second type of short, which is opposite of your long, which is: if Google does well, the Yellow Pages are probably not going to do well. If Apple does well, that's probably not great for Nokia/RIM. So that's the sort of thesis/anti-thesis winner vs loser. There's a whole big other group of shorts that are like strange anomalies that you have to pick."

 

We’ll end tonight with a crazy bouquet toss. Yes, I am talking about that horribly boring tradition where a bride throws her bouquet to a bunch of drunk friends. However, this time the bride did it in an AWESOME way.

 

http://youtu.be/2ak7FODKqwo?t=20s

 

Have a good night.