It's Not the News, It's the Reaction: Short-Term Disruption in Broad Markets

| About: iShares Transportation (IYT)

There comes a time in every rally where the results just aren’t good enough, no matter how good they are. Case and point, Apple (NASDAQ:AAPL)! They reported numbers that would make any mother proud, borrowing an old sports phrase. They couldn’t have executed a better quarter for sales revenue, product development and profit. If there were such a thing as the perfect quarter for a company, Apple put it together. Their reward – a lower stock price. The news sometimes, no matter how good, isn’t good enough.

The market seems to have reached its saturation point for the near term. That puts me on the defensive. First, let me preface my comments by saying this is a short term view. I am not attempting to project what the outcome will be 12 or 18 months from now, but what is taking place now and the impact to specific sectors and the stocks which make up those sectors.

Technology is currently the epicenter for the disruption in the broad markets. Call it overvalued, overbought or expensive, but investors are taking their profits and are willing to play another day. I have had multiple conversations with investors over the last week about this very topic. However, many now see it as a temporary pullback. I was told more than once yesterday that the selling in F-5 (NASDAQ:FFIV) was overdone and a buying opportunity. That is a warning sign of another kind – denial. It may very well be overdone, but when the bombs are dropping all around you, you don’t assume the enemy has dropped enough and it is over. You confirm it is over before venturing out into the open. The old adage of catching a falling knife comes to mind.

There has been good news from Apple, Intel (NASDAQ:INTC), IBM (NYSE:IBM) and others, but there has been not so good news from SemiLEDS (NASDAQ:LEDS), Cree (NASDAQ:CREE), F-5, and more. When the staturation point is established the good news isn’t good enough and the not so good news is worse. Who wins? Currently the bad news wins until which point in time investors see value and come to the rescue. We did see signs of that in yesterday’s market, around lunch time the buyers stepped in making a statement of perceived value. The challenge is being patient enough to see if the bombing is over.

Retail is another sector seeing challenges when expectations and reality collide. The sales for December were not up to expectations and the result was selling. The sector has found support near term, but earnings are on the horizon. If they exceed expectations maybe the sector moves higher. Why maybe? The broad market sentiment will play a large role relative to investor reaction. The news from Dillard’s (NYSE:DDS) relative to forming a REIT to realize the value of their real estate gave a brief reprieve to the sector, but earnings will have the final say. They are worth putting on our watch to see if the opportunity develops or we avoid another bomb.

Transports were disrupted by the news from Teekay Tankers (NYSE:TNK) earnings as the stock dropped 11.5% the last two days. The index fell 3% in response. Gatx Corp. (GMT) didn’t help with their news, putting the sector on watch as well. IYT, iShares DJ Transportation Index broke below the 30-day moving average which has been support since the bounce off the August low. Yet another sector showing signs of challenges short term. We hit our stops as a result of the selling short term, but it is a sector to watch concerning the overall health of the markets. Transportation stocks are an important indicator on the economy.

Agriculture stocks responded to the news on Mosaic (NYSE:MOS) as Cargill plans to divest itself of its ownership. The ripple effect in the sector has pushed values down on average more than 5%. Unless there is other data somewhere of a negative nature, this could be a buying opportunity on the pullback. These stocks are definitely on my watch list to capture if they play out according to plan.

The bond bears have ventured out of the woods again with the yield on the 30-year Treasury pushing to 4.62%. This is the top end of the trading range started in December. If yields break above this range that is negative short term for Treasury bonds. The next resistance is 4.77%. It doesn’t sound like much, but the depreciation to Treasury bonds would be 3-4%. That is added on to the decline of 16% already experienced. Watch the downside risk or play it with TBF, Proshares Short 20+ Year Treasury ETF.

Short term there is plenty of disruption in the broad markets. It presents you and I with decisions, opportunities and emotions. Take a deep breath, put them into perspective by sector, and determine how to handle each. The best opportunities are presented when the selling and negative sentiment subside.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional Disclosure: Money Strategies as a firm and its clients hold positions in TBF and INTC.