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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Dec 15th - Eye On The FEd ,Stocks For '14 11 comments
    Dec 15, 2013 2:28 PM | about stocks: JPM, C, BAC, GNW, GS, PXD, WLL, CXO, CAM, RIG, AAP, COH, CVX, INTC, CSCO, MRK, T

    With the bevy of good news on the economic front lately many are now anticipating the FED to act on reducing their asset purchases starting this week. Regardless of what happens on that front , most assuredly we get an abundance of commentary before, during and after. If there is no reduction, I'm sure the pundits will have a field day with that news. Of course the bears will chime in with "I told You so , the economy isn't that strong" ,and Of course they have been wrong for so long its not worth mentioning anymore. However before any announcement , let's not forget what the Fed actually said in their dual mandate. Improving employment (6.5% threshold) and the other target-- inflation is still no threat. We're not there yet.

    What will be interesting is to see the reaction from the market, is some reduction of asset purchases priced in as many believe ? This talk is old ,but I'm not sure.. The markets will try to disappoint the masses , so my view given where the averages now sit ( just 1.8% from the highs) , I am of the thought that they may sell off either way.

    No reduction, and it will be taken as a signal that the economy isn't that good, a reduction, and the "fed obsessed taper" fanatics will now believe the market and the economy can't exist without the fed.. In My opinion, either of those reactions to the implied scenarios will be a knee jerk reaction that has no basis in fact. Do not lose sight of the fact that the market can easily absorb a reduced level of Fed purchases, the entire program is less than 1% of daily trading.

    Staying in the spirit of the holiday season, I do believe in Santa and of course the Santa Claus rally history , (last five trading days of Dec and first two of Jan.) which produces this saying " If Santa Claus should fail to call; bears may roam Broad & Wall."

    Since 1896, it has gained an average of 1.7% during this seven-trading session period, rising 77% of the time. And supposedly forecasts how the averages will fare in the coming year.. I don't know why i included that here it just seemed like the right thing to do given the Holiday spirit, I find myself in . We'll see how it plays out ....

    Well enough of the "magical sayings" and superstitions of the market, What will really matter is if the corporate earnings keep advancing into '14..

    Here is some interesting data from Factset Research...

    The estimated earnings growth rate for the S&P 500 for Q4 2013 is 6.5% this week, unchanged from last week's growth rate of 6.5%. On September 30, the Q4 earnings growth rate for the index was 9.5%. All ten sectors have witnessed a decline in earnings growth rates since that date, led by the Energy sector.

    Part of the reason for the drop in expected earnings growth is the high percentage of negative guidance issued by S&P 500 companies for Q4. Overall, 94 companies have issued negative EPS guidance for Q4 2013, while 12 companies have issued positive EPS guidance. Thus, 89% of the companies in the index that have issued EPS guidance have issued negative guidance. This percentage is well above the 5-year average of 63%.

    At the sector level, eight of the ten sectors are projected to report a year-over-year increase in earnings for the quarter, led by the Financials (24.9%), Industrials (14.2%), and Telecom Services (14.0%) sectors. The Energy sector is expected to see the lowest earnings growth rate (-7.2%).

    Interesting to say the least and something to keep an eye on... I have maintained that there may be a good reason for that type of guidance that was handed out for this upcoming quarter. CEO's were dishing out their numbers for this upcoming quarter as the DC debt ceiling and sequestration event was going on.. I maintain that many CEO's had no need to go out on any limb and play hero (would you ?) given that fact and yet another debt debate on the horizon. (now apparently resolved) . They simply saw an opportunity to "play the Game" and they took it ... ( I surely would) .

    I'm not trying to pour cold water on this factset report , quite the contrary, as I have maintained all along we need the earnings to keep improving to get the next leg up in the equity markets. However,I simply suggest a reason that may play a part as the quarter does indeed unfold..

    I am positioning myself and my portfolio to take advantage of the economic and market environment we might find ourselves in during the next few months..

    Staying with Financials - JPM(56), C(51), BAC(15) , GS(168) and now I am looking at GNW (14). I believe all will have the chance to provide further gains in '14. They can be added on any weakness. JPM is at the top of the list because it provides a dividend ---a plus IF things don't play out as expected..

    E & P energy plays in the Permian Basin- CXO(100),PXD(179),WLL(59) -- they have all come down recently from their lofty prices after a huge run. There is talk already about oversupply from the region, now winter storms impacting production , that is short term noise. The price of oil will of course impact the group. I'll leave trying to predict the short term price of oil to the experts in that field. What I can see is the LT picture and it looks quite bullish for both this region and the companies that are there.. and its just getting started.. Super LT growth story..

    Oil service Undervalued names in this sector with potential for '14 RIG(48) undervalued & thrown away, pays a great 5% dividend -take advantage of tax selling by adding a solid div. play. CAM(55) - strong fundamentals , recently announced share buyback indicates the value here as it sits at the low end of it's trading range ..

    Technology AAPL(554) , Fundamentals, valuation, catalysts, its all there for another run back to the $650 level in '14. I've had the story right since I added @ $390 and its not over yet. One of my favorite names for '14. CRM(51), A large cap growth story that takes advantage of the "cloud" play . My pick to kill the short sellers next year. The stock has huge short position and is most hated. Certainly not a valuation play , its strictly momentum , & growth that I believe will continue as there are catalysts to move the stock higher and may have the shorts scrambling by mid year ..

    Internet - EBAY (51)- sits at the low end of its trading range, & I believe its paypal division is the key here. Strong holiday sales have not been recognized in the share price just yet. CTRP (47),leading online travel operation in China. Growth & more Growth, 25% revenue growth can be seen for quite some time as China continues to elevate their population to the expanding middle class. My favorite growth story .

    Retail AAP(109) - A specialty retailer here, that will be driven by its recent acquisition of General Parts International which will be completed early '14. It's a game changer for them .. My favorite in this space. It has a premium valuation given its historical norm , however it can be justified by its growth and what the new acquisition will add to the bottom line.. At $109 , I will wait for a pullback, so far that hasn't happened. But it may be presented to us with an overall market correction.. COH(55) , Im going to throw Coach in here as a turnaround play for '14. Its been bashed and trashed due to all of the hoopla from the competition created by KORS , however i have seen positives lately that may produce a higher share price . Its not overvalued and pays a nice 2.5% yield. In my opinion Lew Frankfort is one of the best CEO's in the retail space , and I believe he will get it going again in '14

    I plan on adding to my CSCO (20) position in the next few days as I see an opportunity to take advantage of the "tax selling" that is taking place. With a FCF % yield of 10+%, over 3% dividend yield that is growing. A solid conservative choice that will add value to a portfolio.. It also will be a play on the "dogs of the dow" theory for next year.

    Others that fall in the "dog " category for '14 that I own MRK(48),T(33),CVX(119),INTC(24), names that are div aristocrats , with CVX a standout name for growth also.

    This is not an endorsement to throw caution to the wind and add names indiscriminately. I try to pick my spots , adding a little at a time .. as its difficult to pick the exact moment to take a full position..

    There will be the names mentioned here and other opportunities presented as time goes by and by no means is a complete list. A substantial market correction may add a few more favorites that I feel are overpriced at the moment . As always it's best to keep cash on hand to put to work when that opportunity arises and it's prudent to keep the plan flexible. The market is dynamic and as I sit here now I do see more volatility as the market sorts out the changing economic environment with the Fed and other factors . We will be in transition mode with interest rates, and of course the corporate profit scene will have to be monitored. If we do get the expected earnings improvements as I envision, combined with a sell off because of fear and noise , it will be a "perfect storm" for the bulls to dip in again as I believe the secular bull story is in place.. and that is how Im approaching it for now ..

    Best of Luck to all !

    Disclosure: I am long AAPL, JPM, BAC, CAM, CRM, C, PXD, WLL, RIG, INTC, T, MRK, CSCO.

    Additional disclosure: I am long numerous equity positions - all of which can be seen here in this blog

    Themes: FED , Stocks for '14 Stocks: JPM, C, BAC, GNW, GS, PXD, WLL, CXO, CAM, RIG, AAP, COH, CVX, INTC, CSCO, MRK, T
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Comments (11)
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  • Rico Kastilani
    , contributor
    Comments (161) | Send Message
     
    F&G,

     

    So you're expecting a near term pullback/sell-off... How big of a drop are we looking at here on the DOW?

     

    Also are you still bullish on the first half of 2014? If so, what are the catalysts? As I honestly don't expect much growth in corporate earnings. What will propel earnings?

     

    Rgds,
    Rico
    15 Dec 2013, 11:43 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » Rico,

     

    to be honest i have, along with many others, been expected a pullback in the averages for a while and of course to date, have been wrong..

     

    December is usually strong, and with the futures this morning indicating a rebound from last week's selling its hard to imagine we will have a bad December.. For now , i am cautious near term.. If you go back and look at my initial thoughts on '14 , I laid out a scenario that could take the averages down 10% or so before rebounding. However, trying to nail that down exactly is very difficult.. I expect a pullback of that magnitude will be on us when no one expects it.. If i had to guess it might come in the early part of '14 ..
    As of now I will play it the same as I have in the last 3-4 months , look for stocks I like for the LT that are not overextended, adding in small chunks.. Perfect example are the Oil names i mentioned , they have come down to "buy" levels . In contrast a name like AAP which i like for '14 is just a bit overextended for me .. and therefore I wait..

     

    Corp earnings will improve was the "global" economy improves . Most didn't see the economic improvement we have just witnessed and I believe are underestimating next year as well..

     

    Selectivity in companies will be key in my opinion, a name like AAP indicates that as it has a catalyst with their recent acquisition that will boost their earnings considerably . CTRP will take advantage of the growing chinese middle class. Both are examples of themes i like for '14..

     

    Best to you
    16 Dec 2013, 08:56 AM Reply Like
  • hneumann
    , contributor
    Comments (560) | Send Message
     
    Global economic growth is still fragile, because of 'Peakoil'. When I read that oilprices will stay low the next years, obviously people forget that not so long ago it was less than $10/barrel. Economic growth was supported by rising oilproduction while oilprices could stay low because of big spare capacity. Now most oil exporting countries are producing all they can while oil consumption is rising.
    17 Dec 2013, 08:21 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (3530) | Send Message
     
    Good read :).

     

    First time I've read exactly WHAT the Santa Claus rally is, in spite of many references to it.

     

    Interesting idea on why forecasts have been low. Many media articles these days are predicting higher SP500 for next year. Even MarketWatch managed a few bull articles. So the factset report's data isn't scaring off advisors.

     

    Reading your last paragraph brings up the thought... the next data point that isn't good news, with the taper already begun... may bring a little more dip than they've been bringing pre-taper, i.e. opportunities. (Or it may take till the 2nd round of tapering to trigger that shift.)

     

    What are your thoughts on Office Depot? They just bought Office Max, & got a new CEO. While as a customer I've found they tend to lag Staples, I've talked with their headquarters twice on issues, and they've been responsive and on the ball. Some shifts in policies and presentation could do a lot for these stores.
    19 Dec 2013, 07:09 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » Land,

     

    I don't follow office depot , so currently have no opinion ,, i'll take a look and see if they interest me ..

     

    I'm of the opinion now, that the correction all ( including myself )have waited for , will come "out of the blue" when no one expects ,
    The best guys around , have called for corrections since Feb '13 due to perceived events , but of course nothing but small dips have occurred .. I think i will take up that thought process into '14 , so my advice would be to always have a cash pile set up to go in and pick up bargains .. .
    Best of luck ....
    19 Dec 2013, 08:36 AM Reply Like
  • MSF INVESTMENTS
    , contributor
    Comments (4025) | Send Message
     
    You may want to add $Sprint = $25.00 in 2014 with a dividend.

     

    Lahiem
    21 Dec 2013, 06:07 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » (BAC) has broken out , great addition on ANY weakness -- PT $20

     

    (PXD,(CX)),(WLL) on sale here ,, all because of a report that Bakken crude is more flammable ---& the recent railcar accident n N dakota..

     

    These 3 are great LT stories..that are just beginning ..
    3 Jan, 09:35 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » added more (CTRP) today @ 45
    3 Jan, 03:01 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » added (CTRP) today @ 39 as the reaction to some increased competition in the chinese travel space is way overdone ..
    9 Jan, 10:36 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » Update on the "Santa Claus rally "

     

    Since 1896, it has gained an average of 1.7% during this seven-trading session period, rising 77% of the time. And supposedly forecasts how the averages will fare in the coming year..

     

    S & P was @ 1828 on 12/23 , the last 5 trading days of '13 and the first 2 of '14 show the S & P gained a modest 3 points,, a gain
    nonetheless and if the lore holds true --Santa has made his call and the bears will not roam Broad & Wall in '14

     

    Now for more Wall St. lore, we now wait for the January barometer ,"as January goes so goes the rest of the year ". This indicator has an astounding 89% accuracy rate ..only being wrong 7 times in 64 years ...

     

    Food for thought for those that may be a bit superstitious ;)
    3 Jan, 04:30 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » Financials off to a great start, earnings coming in as expected.. -- (BAC) , target is 20 , (JPM) target is 68-70 ...
    15 Jan, 10:36 AM Reply Like
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