Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

I'm Surrounded

Daily State of the Markets
Friday, October 26, 2012

Publishing Note: I am traveling on Monday morning and will not publish a report. Daily State of the Markets reports will return on Tuesday.

Good morning. It only requires a brief glance at the charts of the stock market indices (especially the NASDAQ) to see that the trend is now down. And in all honesty, given the state of the earnings parade, this isn't terribly surprising. When Google (NASDAQ:GOOG), IBM (NYSE:IBM), GE (NYSE:GE), DuPont (DD), 3M (NYSE:MMM), Intel (NASDAQ:INTC), Chipotle (NYSE:CMG), United Parcel (NYSE:UPS), Amazon (NASDAQ:AMZN), AND Apple (NASDAQ:AAPL) - especially Apple - all miss, well, even a card-carrying member of the glass-is-at-least-half-full club has to admit that things aren't going so well out there in the economy right now.

With each passing down day, it seems that the sentiment becomes exponentially more negative. For example, although the S&P 500 is just -3.6% from its recent bull-market high, the bear camp's proclamations remind me of the bad old days of last year's European crisis. And to hear my furry friends tell it, things aren't going to improve any time soon.

Maybe it is just the season, but it seems that I am currently surrounded by folks dressed in bear costumes. To be sure, one of my friends and colleagues is a self proclaimed "uber bear." And another provides me with anecdotal evidence designed to dampen my spirits via email. But as of this morning, I count two additional coworkers that appear to have joined the dark side. As such, whenever the market goes into an intraday tailspin (which has been each and every day for the past six days), I'm bombarded with suggestions that the sky may actually be falling this time.

Just yesterday, I received the following from a colleague challenging me to take off my rose colored glasses and look around. The note read: "My "anecdotal" feelings (what I see every day and read between the lines) are strong. This is based on the full networking meetings of the unemployed in my area, the empty storefronts, friends I have in both commercial and residential real estate, the many unemployed or underemployed young people under age 26 or so, what I hear from small retail businesses and restaurants, what the tradespeople say, etc.

The note went on to suggest that I reread the FOMC's latest statement which included some not-so upbeat gems such as: "Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.

For the record, I will admit that the economy is not in very good shape right now (far from it!) and that the earnings season is clearly weaker than expected. As a result, I will agree that some downside corrective action is in order in the stock market. However, I am also surprised at just how negative folks have become - and how sure they are about their less than optimistic outlook. It's as if no one can even comprehend the idea that the folks in Washington could actually avoid sending our economy over the fiscal cliff or that Apple might somehow find a way to sell a couple more iPads than the analysts' guesstimates in the upcoming quarter. But if I gave you a minute or two, I'm guessing that each and every one of you could come up with at least five strong reasons why things are bad right now.

Before anybody decides to go hide under their desks and/or load up their portfolios with some SH, SDS, or SPXU, I'd like to make a couple of points about things that I've learned over the past 30+ years in this business. First and foremost, I've learned that nobody cares what I think about what is happening or what I think might happen next. The bottom line is that unless you are a media star that needs headlines in order to sell your wares, this game is about staying in tune with what the market IS doing (and not worrying about what you think it SHOULD be doing). I've also found that the less emotion you invest in the market, the easier this job becomes. So, when and if you find yourself either really depressed or overly excited about the outlook, take note of your feelings and try to take 'em down a notch or two - it'll help you stay in the game.

And finally, as I've written lately, it is vital to keep in mind that the stock market is a discounting mechanism of things to come. Remember, the weak economy is not new. Unemployment being high is not new. A bad real estate market is not new. Yes, an earnings season that is weaker than expected IS indeed news - and because of the fact that the market had this wrong, we've got a corrective phase happening. But from my perch, the future of the market is tied to the outlook for the economy in the next 6-9 months. And assuming Congress doesn't send us over the fiscal cliff, there is a decent chance that the stock market might don its rose-colored Revo's in the first quarter. But silly me, I'm probably just being optimistic.

Turning to this morning... Stock futures are pointing to a lower open after both Apple and missed earnings. In addition, disappointing GDP numbers out of South Korea and weak data out of Japan are being cited as reasons for the weakness. However, it is worth noting that AAPL is trading above yesterday's closing price in pre-market activity.

On the Economic front... We will get the reports on GDP and University of Michigan Sentiment this morning.

Thought for the day... Always do right. This will gratify some people and astonish the rest. - Mark Twain

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Shanghai: -1.68%
    • Hong Kong: -1.21%
    • Japan: -1.35%
    • France: -0.37%
    • Germany: -0.41%
    • Italy: -0.85%
    • Spain: -1.08%
    • London: -0.72%
  • Crude Oil Futures: -$0.50 to $85.55
  • Gold: -$10.10 to $1702.90
  • Dollar: lower against the yen, euro, and pound
  • 10-Year Bond Yield: Currently trading at 1.772%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -9.52
    • Dow Jones Industrial Average: -71
    • NASDAQ Composite: -12.56

Positions in stocks mentioned: AAPL

Follow Me on Twitter: @StateDave

Download our Special Report on our New "Adaptive" Active Risk Management System for the Stock Market

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (NASDAQ:HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

Disclosure: I am long AAPL.