Isn't it funny how much the world changes in two minutes? Specifically between 8:29 AM and 8:31 AM. The market was broken, and even after a material selloff was only bouncing along at +2 on the S&P in premarket. This was below the 50 day moving average and things looked dire. Then one economic number and the world changes. I won't even get into the GDP figure, it's like the litany of other government report (CPI - inflation, Labor - employment) that are deeply flawed... not to mention the fact it will get revised multiple times in the months to come. [May 10, 2008: Finally Some Mainstream Reports are Figuring Out the Spin from Government] [Apr 23, 2008: Barry Ritholtz on Disappearing Economic Indicators] [Jun 10, 2008: PIMCO's Bill Gross on the Inflation Fantasy]
As long as we keep borrowing from the future to buy cars and homes for our people, heck we can have positive GDP for as long as the eye can see. Mirages are cool like that. Notwithstanding the fact these numbers will be revised in 30 and 60 days and almost every report during this
recession recovery has been revised down ... i.e. give the market a better than expected number so it can rally, then quietly revise it down 30 days later when the market is on to the next thing.
To see how screwed up GDP is for example, in quarter two, 2008 - during "Bush rebate" quarter, one part of our government said inflation was X%... that is the department that figures CPI, our official inflation. However, the guys who generate GDP decided to ignore the department that figures out CPI and used their own inflation figure which was a fraction of X%. Why? Because by using a lower inflation figure they could bump up GDP.
We wrote an entire piece about that on the blog when I used to care about the complete farce that is government reporting. (garbage in, garbage out) So instead of a negative GDP we had a positive GDP and the GOP could claim there was no recession on their watch - very important going into an election! So in essence, one part of our government does not even use the official figures from the other part because it doesn't make the numbers look pretty enough. And you want me to actually analyze these numbers? It's a joke - I refuse.
The Onion said it best: The Onion: Nation Ready to be Lied to About Economy Again
Or as Hugh Hendry says: "My notion was, you had Bernie Madoff doing US GDP accounting.
Anyhow, many of our smaller or foreign stocks are doing the exact opposite of what they did Wednesday. From -10% to +10%... easy as that. I am going to do a very quick trade on a position we started Wednesday and let me explain why. I had a long standing limit buy order for Fuel Systems Solutions (FSYS); when I put the price in some 6 weeks ago, it was in a sensible place in the chart... but when it hit late Wednesday, the stock was in a vulnerable spot. Now of course all the world is benign again Thursday morning so "buy buy buy" is the order of the day, but the stock has rallied 10% (we're up 8.5% from our entry point) and is hanging around its 50 day moving average.
So from here if we're just going to repeat the pattern of the last 3 months and roar into year end, we'll want to be in this name of course. But if we are just in a very oversold short term rally, the stock is still vulnerable. Of course I don't know the future so I am employing this strategy - we have a quick and easy gain which I am going to lock in. If Fuel Systems Solutions continues to recover and jumps back over the low to mid $35s WHILE the S&P 500 also breaks back north of 1070, this whole selloff was just a bad dream and away we go to the races. If the stock stalls here, then we exited a very unusual entry point and can re-assess later. I still like the stock fundamentally and will keep a 0.1% stake, but we're taking the rest off here near $34 for a very nice gain in half a day.
Again, I'll file this one under better lucky than good. The student body has run right so any purchases Wednesday look "genius" and any sells look "stupid".
To repeat Wednesday's mantra - whatever happens between S&P 1047 and 1070 is just a white noise area, the next major intermediate strategy for our time frame (not daytrading) will be on a move outside of this box. But we can make some trades around the edge in the meantime.
Long Fuel System Solutions in fund; no personal position