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Independent Financial Advisor / Professional Investor- with over 25 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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  • As The Stock Market "Churns" - A Trader Mentality ? -Update 4/26 7 comments
    Apr 26, 2014 9:51 AM | about stocks: AAPL, CAM, FB, MSFT, GILD

    This past week the market was inundated with earnings reports - With 200 companies reporting the chart below indicates that the "beat rate is coming in at 62% or similar to last quarter.

    However it should be noted that the revenue 'beat" is reported at 50% , well below last quarter rate of 63%

    Bhirud Associates notes after-tax corporate profits at the GDP level are at their highest level in modern history. Profit margins relative to GDP also are at historic highs, and there's little reason to expect profits or margins to shift downward anytime soon, Bhirud says. This is because significant cost reduction is continuing on all fronts, i.e., labor, IT spending and administrative; effective tax rates are in a secular decline; and foreign profits are now significant contributors to overall profits.

    Last week I noted these positives :

    • Shoppers warm up to spring as March retail sales jumped 1.1%, well above consensus and the most since September 2012, while on revision, February's increase more than doubled to 0.7%. Leading the gains over the past two months was the release of pent-up demand accumulated during the unusually cold winter months.
    • Production picking up -Industrial production rose a slightly better-than-expected 0.7% in March, with strong gains in utilities and mining.
    • Durable goods rose by a more-than-expected 2.6% in March, following a 2.1% jump in February. Demand showed improvement across all categories.
    • Consumer Sentiment- Thomson Reuters/University of Michigan's final reading on consumer sentiment for April reflected a continued rise in collective confidence. Specifically, the reading rose to 84.1, hitting a nine-month peak and exceeding economists' estimates

    And some negatives:

    • Housing is tepid as March housing starts rose less than expected and, on a 12-month average basis, have held near the 920K level for five months, indicating the prior upward trend has reached a plateau. Still, upwardly revised activity in prior months suggests housing's sluggishness reflects temporary weather impacts, not fundamental weakening.
    • Many taxpayers were shocked at their bill this week This is because in 2013, many taxpayers faced multiple change resulting in increases on a variety of fronts including an increase in the tax on qualified dividends and capital gains to 20% from 15%. Deutsche Bank estimates these changes raised the tax bills of 3 million households by $50 billion, with $35 billion likely paid in April.

    A secular theme that I have mentioned before continues, as a positive -- the federal budget deficit is falling much faster than expected-it's now below 3% of GDP-and state and local government budgets are improving at a rapid rate due to the same trends. State governments received more than $846 billion in tax revenue in the latest fiscal year, a record high, with the Census Bureau reporting a 10% increase in individual income taxes to a record high $309 billion and a nearly 8% increase in corporate income tax receipts to $45 billion.

    The seemingly good news was dismissed and the intraday swings were quite noticeable this past week, after good earnings reports from (NASDAQ:AAPL),(NASDAQ:FB), (NYSE:CAT) & others led to a higher open on Thursday , the entire rally faded by 10:00Am.. Yet 1 hour later - the averages then regained their upward momentum, then flip flopped most of the day ending up with a small gain. So the "churning" continues. I was not impressed by that action at all - when I penned this comment @ 10:00 am on Thursday here on SA.

    The market sure seems to be marching to all of the short term trader "noise" that is making the headlines-- and now, as mentioned last week the "sell in May crowd" has successfully rolled out their seasonal program as they let everyone in on their message. One has to wonder who they are actually warning.. Do they expect a LT investor to pack up their portfolios in a suitcase, then come back in 2- 3 months ?

    It's trader mentality and trader "noise" at its best. Its manifested by the fact that good market news is being ignored and after a stock gets an initial bounce from a good report it comes under pressure. (all except (AAPL) . Short term, that is not a healthy sign.

    Why is that so ? I believe the scenario that is now underway is the fact that we have the "investors" who have been "long" this market, now hesitant to add more in earnest, as they simply don't need to. Just a nibble here and a nibble there. And the "newbies" that want to enter the market are like a deer in the headlights as they listen to all of the "negative " headlines out there, and thus don't even want to "wade" in.

    To oversimplify, there is no "staying" power. I simply come to this conclusion based on my unscientific survey with my own portfolio and the accounts I deal with daily .. I then conclude that other money managers are acting the same way ..as again, unofficially, the counterparts that I am in contact with are following the same course of action, or shall I say "non action".

    Therefore, that really leaves no one left to step up to buy aggressively to propel the market higher.. Enter the traders with their 20 minute mentality, and the market is whipsawed in different directions every two hours, on every "headline".

    Traders don't need to see or react to the good news that of course is long term oriented. All they need is a hint of a "trend" to trade on, therefore the news is in fact, disregarded, for now. They don't need to know or care about the latest "durable goods" number.

    Let's not underestimate the computer generated algorithmic trading that takes place, as that too exists to sniff out a trend and the programs tend to extrapolate moves, both up and down, and a data point like "industrial production" does not factor into their "game".

    Speaking of "noise", isn't it ironic how the demise of Chinese growth keeps popping up in the headlines. Yet when one looks into the "numbers" from both AAPL & CAT they reveal outstanding growth in, yes you guessed it, China.. !! Then (NYSE:YUM) reported that they plan to open at least 700 new Chinese restaurants this year, after their China division continued to rebound from last year, as same-store sales rose 9%..

    What we do know -- China's population is eating fried chicken while talking on their I phones, as they watch the caterpillar heavy equipment build new infrastructure -- Apparently things aren't all that bad over there. :)

    By the end of the week, the market as measured by the S & P was capped and sold off at the 1885 level, finishing with an ugly day on Friday closing @ 1863. It's all about the Ukraine -- or at least "they" say it is..

    In the meantime, the Dow has yet to confirm the new highs that the transports just posted. Once again leaving us with a Dow Theory non confirmation.

    In summary - the market ignored all of the good news and good earnings reports were shuffled aside. That could leave us with more trader "whipsaw" and consolidation as the "current market players" play a tug of war at the current S & P levels.

    Moving on to individual names -- The rotation in sectors within the market continues -- but two names that are on my "Stocks for 2014" list moved higher after positive reports this week -

    In the oil service sector --Cameron (NYSE:CAM) - The company's first quarter indicates the operational turnaround, I recently highlighted is taking hold, as they reported another solid quarter with this press release..


    • First quarter earnings per share of $0.75, excluding charges and discontinued operations
    • Record first quarter revenues
    • 15.2 million shares repurchased during quarter
    • 15.2 million shares repurchased during quarter

    And then (AAPL) surprised the street with a blowout quarterly report

    • Revenues: $45.642 billion, up 4.7% year over year
    • Profits: $10.223 billion
    • Earnings per share: $11.62, well above consensus
    • Gross margin: 39.3% (well above guidance)
    • iPhones: 43.719 million units, up 17%, better than expected
    • iPads: 16.35 million, -16% (lower than expected)
    • Macs: 4.136 million, up 5%
    • iPods: 2.761 million, down 51% (as expected)
    • iTunes, Software and Services: $4.573 billion, up 11%
    • Accessories: $1.419 billion, up 3%
    • Revenue guidance for Q3: $36 to $38 billion
    • GM guidance: 37%-38%

    Add the 7 for 1 split, increased share buyback program and 8% dividend increase and shares were up 43 points or 8% after the report. I have maintained throughout the persistent negativity that this stock is very inexpensive.

    Recently commented on (NASDAQ:GILD)- did not disappoint either, as earnings and revenues blew past every estimate.

    Here's the Y/Y breakdown:

    • Revenue +98%
    • Net income tripled
    • U.S. product sales +160%
    • Euro product sales +25%
    • Antiviral sales +119%
    • Cardiovascular sales +9%
    • Generated $1.57B in operating cash flow

    Gilead finished Q1 with $6.86 billion in cash and equivalents.

    However, there was a muted response to this report, as the stock barely nudged. In my view, that is due to the prevailing sentiment on the street regarding the sector .. I suggest looking past that convoluted short term view that is prevalent and see the value that (GILD) presents .

    These are the type of reports an investor needs to "listen" to while the market struggles.

    (NASDAQ:MSFT) joined the winners circle after the bell on Thursday with a stellar report. Microsoft's transition to "mobile-first, cloud-first", is coming along fine with strong Office 365, Azure cloud based sales. For those that may be concerned with market valuations, and all of this tech bubble talk, here is a name that is the answer for you.

    I mentioned the increased M & A activity that I believed would be picking up in 2014 . A report that comments on just that .


    And a company that will be a beneficiary of this trend Lazard (NYSE:LAZ)

    Watch this one for weakness, and take advantage of any sell off.

    So while the "stock market" "churns" here - there are "select stocks" that did well this week, and as these selections showed, the equity choices one makes going forward, will impact their bottom line more than ever.

    Stocks that have reported quality earnings and are guiding "in line" or higher and their fundamentals haven't changed or are improved, yet their shares are under siege, should be on the top of a shopping list..

    When the dust settles and "investors" pay attention to that news - those shares will be higher down the road.. A key attribute that all must have to be successful in investing is PATIENCE.

    Best of Luck to all !!

    Disclosure: I am long AAPL, CAM, FB, MSFT, GILD.

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

    Stocks: AAPL, CAM, FB, MSFT, GILD
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Comments (7)
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  • maykiljil
    , contributor
    Comments (963) | Send Message
    F & G,


    Thanks a lot. Very good report.I liked it.


    "A key attribute that all must have to be successful in investing is PATIENCE." That's the key IMO.




    26 Apr 2014, 11:00 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10757) | Send Message
    Author’s reply » MJ


    enjoy your weekend !!
    26 Apr 2014, 11:47 AM Reply Like
  • BlueSkyForever
    , contributor
    Comments (3043) | Send Message
    thanks for the update F&G, excellent!


    (GILD) is just amazing. Hope it continues.


    Stuck with (AAPL) thru losses, now in the green. It did try my patience but glad I stuck with it.


    (SWKS) has been doing really well, sells to both Apple & Samsung.


    I don't mind if we stay in the sideways mode for another 6 months. I'll just keep buying more on dips as the dividends come in : )


    Can't go up all the time, and we need time for the economy to keep improving, people to spend more etc. so our stocks earn more profits. It's the kind of market dividend investors like the best.
    26 Apr 2014, 01:01 PM Reply Like
  • astarr66
    , contributor
    Comments (263) | Send Message
    Excellent weekly digest. Thank you.
    26 Apr 2014, 02:30 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10757) | Send Message
    Author’s reply » Blue , Astarr


    thanks for stopping by
    26 Apr 2014, 04:34 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (9190) | Send Message
    Good read again!! Helps put everything into perspective. I was wondering how earnings were overall.
    26 Apr 2014, 07:18 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10757) | Send Message
    Author’s reply » Thanks LMH ;)
    26 Apr 2014, 07:36 PM Reply Like
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