It's All About the Growth

If there is one thing to take away from earnings season, it is the fact the earnings day depends solely on outlooks. We see stocks rise and fall ahead of earnings expectations. When earnings actually come out, most stocks do not fluctuate as much as they used to. Earnings announcements are usually priced in at that point. The fluctuations come during the conference calls.

Conference calls are when you can truly gauge what a company has done and is planning to do. The best part of conference calls is when they give the outlook for the next quarter and the year. This is when a stock really starts to fluctuate and reflects what Wall Street thinks. At no point should you ever try and trade stocks ahead of earnings unless you are 100% sure of what is going to happen. A stock may trade up to earnings day and even trade up once they beat earnings by a penny. If that outlook is cloudy or poor, the stock will drop. If earnings are bad and the outlook is good, the stock will rise.

The game has changed at this point. We are looking for different factors to trade on now. To stay ahead of the game, we have to change with everyone else. The only way to make cash money is to stay ahead of the curve and trade intelligently. Use only the news you know and the news that will move the stock. Don't listen to the noise.

Stress Test or Stress Reliever

We have all seen things about stress tests in the news this week. Let's first define these so called stress tests before we figure out how they impact the market and financials. Stress tests are a way for the government to find out which banks need to bolster capital in case the economy dives down again. There has been talk from some banks (GS and MS) that the bailout money is no longer needed for them. Before they are allowed to pay back money, the government has decided to run 'tests' to determine if they have enough capital to pay back bailout funds and still whether another downturn.

These stress tests, besides evaluating capital, are supposed to show any weaknesses in banks. These banks will then have to show a plan and commitment to regain their financial health. Overall, this is supposed to restore confidence in the financial sector by showing investors how well off banks really are.

Today, the government announced a two tier model. Stress test criteria were released today and results will be shown in another week and a half. Most banks are thought to have enough capital to withstand any adverse economic conditions given the criteria. These tests will certainly show it. Favorable capital by these banks could show another rally in the market. Poor results could create another buying opportunity. Either way, it will be a time to make cash money.

Credit Crisis Only Thing Hindering Rally

Earnings season hasn't been all the bad. Earnings have declined, but most companies have met or exceeded expectations. The real story has been with growth. A lot of companies are becoming clearer with outlooks for 2009 and 2010. 2010 looks to be the year companies make their way back to black. I want to talk a little bit about BAC earnings and how the credit crisis is the only thing keeping the market from soaring.

BAC beat earnings but dropped 25% on the day earlier this week. Why? They reported a higher jump in default loans. This means that people still cannot seem to pay back loans. Until we get this fixed, the economy will be shaky and the market flat. The government is trying to establish a Credit Cardholder's Bill of Rights calling for more transparency to cut down on sudden changes in interest rates and time periods.

The government also said it is converting its preferred shares in bailout companies into common shares. Why is this so bad? This gives the government ownership stakes. Now the government will technically be able to vote on certain things and have more rights. This hints to some as nationalization.

Until this confusion gets settled in the financial industry and the government gets the credit freeze thawed out, I see no huge rally in the market. We had a good run (over 20%)and now we will hover around 8000 in the Dow until we see significant improvements. Hold tight as the rest of the earnings season plays out. If the Dow drops back down under 7500, we see a huge buying opportunity. But for now, keep patient and realize that cash money doesn't always come quickly. When it comes, it will not stop.

Volatility: Indicator of Market Movements

The past several months have been dominated by news that rocketed the market up and down. Volatility had reached an all time high. Nothing was for certain. The market was run by fear alone. All greed and optimism was lost. Now, volatility is down. The market is moving in short increments. Most importantly, quantitative data has been moving the market lately instead of just news. As a result, confidence has risen and optimism is slowly coming out of the shadows.

Although volatility has dropped, it is still high compared to historical standards. We have a long way to go to get rid of the fear and instill greed again. As volatility slows further, we can bet that the market is moving up as greed regains its hold over money and all that comes with it. I am not saying that greed is bad. It is now that we need to be greedy. We need to be mindful that greed will only take us so far before it takes over us.

The market is moving on earnings data and economic data. These are the things we need to move the market in a quantitative and intelligent manner. A lot of people are worried, including myself, that they have missed the movements in some companies. The S&P has risen over 20% so yes, there are companies that have risen too fast too quick. However, we need to remember that the Dow is still down 6000 points from its high. I would want to miss a little movement in the market and then buy rather than buy and see the market fall again. If you think the stock is still too high, wait for a pullback and then get in. Timing the market will give below average returns and stress that we do not need in our lives. We have to look toward the long term because that is how we will make cash money.

Uncertainty in the Market

The Dow has been hovering around the 8000 mark for several sessions now. Soaring above that mark would suggest a lasting bull market rally. Stopping right there gives this rally the look of another bear market rally. Earnings have raised to market above and lowered it back down around the 8000 mark. Wells Fargo and Goldman Sachs have each given a great earnings report. Some retailers have had decent reports. Intel gave a great report. So why has the market not moved above 8000?

The similarities in earnings reports this season have shown a slow first quarter with better than expected numbers. The casualty resides in the outlooks for these companies. No one knows what the economy holds or how their companies will react. This is why the market has held the 8000 level.

Obama spoke again today for no reason. Why? I do not know. He seems to keep saying the same thing every time. "We are in a rough time right now. My steps are working. We will get out of this soon." Do we really need this? He is insulting our intelligence. We should be hearing Geithner and Bernanke speak. People who actually work with financial markets. Obama doesn't know anything about money. Get him off the podium.

If you want to judge where the market is headed, keep watching earnings roll in. JPM and C report later this week along with GOOG. These companies should provide some insight. Look for the 8000 mark to hold until we see very significant information regarding the economy, whether good or bad. It has turned into a waiting game. Remember, any game is a game you can win cash money. Stick with it.

Which Sectors Will Come Through the Recession Ahead of Class?

Each sector has a different way of responding to recessions and financial crises. Usually the stock market tends to start recovery about 6 months before the economy. Financials tend to lead the charge. Will financials lead yet again with the bailout? The reaction is to say no. Financials are what has dragged the market down. Other sectors have a better chance of a quick recovery. I like to think that since the financials dragged us down, they will pull us back up. Look at the rallies. Have the not all been led by charging advances by banks? Have not all stumbles been led by bad news in the finance industry? Say what you want but the financials are what has been determining the market.

The market as a whole looks completely undervalued. It is hard to separate the good yet undervalued companies with those who deserve to be trading low. We have seen some good signs from the consumer sectors lately. I like to look at the consumer discretionary sector as one that will help lead any rallies with an increased consumer confidence. Energy is another sector that will no doubt rebound with the economy. If there is money to be made, corporations will exploit what they have to. As far down as energy is right now, I have to think that energy has become a long term strategy despite any 'green' attempts by Obama. The world is dependent on oil and will not change overnight. Technology is a sector that everyone has been weary about since 2000. Nevertheless, technology is the future. Technology is the face of cash money. Healthcare is a hard sector as I do not fully understand everything Obama wants with healthcare. However, with so many people reaching retirement, I cannot help to think that healthcare is quickly becoming a staple of its own kind.

The market has a long way to go. Pick only the great companies in the near term until we get back on our feet. Then, feel free to speculate and buy fast growing companies. At this point, it is good to be long anything. We have answered the question regarding when a bottom is here. Now the question changes to how long will we sit here before we make the steady climb back up. Patience is the key in this market. Any sector over time will make you money. Only the few select sectors will make you cash money. Choose wisely.

Should I Stay or Should I Go

The question asked by everyone this past week is, "Is the rally for real?" I have addressed this question a couple of posts ago. However, conditions change constantly and questions have to be reposed and answered again. It is clear we are in a rally. The S&P has risen 25% in exactly one month. So, yes we are playing with a substantial gain right now. The new question becomes, "How long can we sustain this rally?"

Wells Fargo suggested it has a record gain in earnings this past quarter which did wonders for confidence and the market. Will other banks provide the same assurance? A couple of consumer discretionary companies have surprised with their earnings. While earnings have still been down, they have been better than expected suggesting a turning economy. Technology companies will start reporting next week. What we really have to pay attention to is earnings. These numbers will dictate where the market will be for the next month. Even more importantly is expectations of where this earnings will go next quarter. Any improvement will certainly be taken in full strides along with the market. Earnings will be the sole driver in the market for the next couple weeks. Pay attention to major banks and discretionary companies. They will show where consumer confidence is headed. Any good news is essentially cash money.

Earnings Season: Nothing But a Confirmation

The market was down considerably yet again today. Why? Should investors start getting worried again? Short story, the rally is not over. Do not look at this as a sign to sell, but consider it an opportunity to buy more at a lower price. Remember dollar cost averaging? Now is the perfect time to implement that method.

The day kicked off with a survey of CEO's and how much growth they were expecting. Almost 70% expected a decrease in sales and earnings during the last quarter. This does not bode well for this earnings season. Upfront, you have nothing to look forward to. Alcoa affirmed what everyone thought as their earnings dropped yet again as the price of aluminum is down over 50%.

I want to give a shout out to all the morons who do not pay attention. Earnings are supposed to be BAD for the first quarter! These earnings are not forecasts for the next 3 months. These numbers come straight from sales during the recession. Yes, numbers from a recession are supposed to be bad. Another thank you to all the morons who sell upon the confirmation of all we have expected for the past 3 months. I am glad you all sold stocks when bad news was forecasted and then sold again once the forecast became reality. You need only to sell once.

Once again, this is not another rally. The market is not about to fall off another cliff. We are going to pause and bounce around a little bit until we get all the earnings out of the way and restore optimism so we can enjoy the sliver of what used to be again. Use this earnings season as a way to get back into the game again. Do not let anyone scare you into thinking otherwise. We all knew earnings were going to be bad. It is just being confirmed with the down days in the market. This is the perfect time to start making cash money again.

The Glass is Now a Quarter Full

A global recession, record low consumer confidence, financial and housing crises, along with very poor earnings have thrown the stock market for a loop. We went from seeing a record high of 14000 in the Dow to a bottom (hopefully) of 6500. We went from a full glass of 1% milk (don't want to push the 2%) to a quarter empty glass of chunky, spoiled milk. The past few weeks, however, have changed the view to a quarter full glass of skim milk, showing an improvement with a long way still to go.

Many people think this rally is for real. So do I. The worst is behind us. However, we all need to pay attention to earnings season that kicks off Tuesday. We should see some poor results concerning the first quarter with optimism in conference calls toward the near future. These poor results will confirm what the economy has been going through. While we should not throw these numbers away, the numbers we want to see is estimates for the coming quarter.

If you were slow to get in this rally or haven't made that jump just yet, sit tight. Earnings will no doubt push these prices down a little bit further. Then you should jump. Never get into a stock based on earnings estimates and speculation. Experience tells me that is the stupidest thing to do. Estimates are estimates for a reason. Plus, Wall Street does not make sense when numbers come out. No one knows for sure what numbers are going to come out or how Wall Street will react. Stick to the fundamentals and you will be alright. Any market is a market to make cash money. Don't play the odds, just play the game.

Accounting Changes: For Better or For Worse?

The Dow soared across the 8000 mark today as new accounting standards were set in place by FASB. These changes, led by mark-to-market, are supposed to help banks value their assets to a closer true value. Altogether, these changes were made to give investors a better perspective of how these banks look on a balance sheet.

Mark-to-market is the most talked about of these accounting changes. Mark-to-market require that assets must be put on balance sheets to the current market valuation. For instance, if Bank of America had to foreclose on a house that was bought for $400,000, that $400k was the amount put on the balance sheet. However, the housing collapse caused that house to now be worth $250,000. Mark-to-market makes the balance sheet look like it lost $150,000 in assets. These sort of valuations caused balance sheets to look completely out of whack. This has caused banks to have a lot of write downs as they struggle through the housing and financial crisis. Changes call for the balance sheet to reflect the original $400k instead of writing down to reflect the current value.

Changes this rule is supposed to be a good thing as balance sheets look stronger and investors would be willing to put more money in as these companies look less risky. This would free up capital and stimulate lending. On the other side, these banks would not look as undervalued and investors might not want to put money back in financials. Balance sheets would lose appeal as they do not reflect true values.

I think balance sheets should reflect current values. If they don't, we are investing on a lie. These companies are in worse shape than we can now see. However, we cannot prevent this rule from changing so as long as the market jumps in reflection of said changes, I will not complain. You might not agree with everything happening on Wall Street, but there are plenty of ways to capitalize on these decisions and make cash money.