Stocks Pullback to Start an Impactful Week of News

Monday, October 04, 2010

stock market downStocks see persistent selling before stabilizing mid-day

The S&P 500 closed down 9 points (0.8%). E-mini traders in Chicago must have been depressed after the Bears were beaten down to their third string quarterback in an overall awful showing for their offensive line. Or perhaps the market was due for some selling as we begin a big week with earnings season beginning and the monthly jobs report on Friday morning. Shorts are positioning against the 1,150 level and longs think 1,120 will hold. The selling was controlled and continuous throughout the morning before finding some buyers at 1,130.

Q3 earnings season kicks off on Thursday

Alcoa (AA) gets the ball rolling for Q3 earnings season on Thursday after the close. The numbers are not going to be great, that much we know. The Q3 data will be based on revenues and earnings from July through September, a rough patch for the US economy following the late-April break in equity markets as we fell with the European debt crisis and heightened worries of a double dip recession. Many companies across the spectrum witnessed their slowest few months of business throughout this summer since early 2009, the beginning of the initial rebound in the global economy.

Ultimately though, the only important outcome will be investors' reaction. Can we ignore these reports? The Q2 earnings season response was marked by the negative macro economic environment overwhelming the generally positive micro results from individual firms. Can the spin on Q3 become the flip scenario? Perhaps the positive macro outlook (ie. avoiding the double dip) can outweigh the review-mirror look at the micro from Q3. This is all just a hunch but I think after some initial selling to give the market a healthy pullback after September's strong rally, market sentiment could quickly shift as investors look forward believing the correction from April's high discounted too much pain and the outlook is, in fact, quite bright for 2011. Take these thoughts with a grain of salt.

Oils get whacked despite crude's recent surge

My trades in the oil sector didn't cooperate today vastly underperforming the market. I hit out of Tidewater (TDW) with the continued weakness in the name. This idea is just not working out like I thought it would and I'm not going to be stubborn with it. I am much more comfortable in technology stocks but I'm trying to discover opportunity in other sectors as the leaders take a rest. Crude oil itself closed flat fully holding onto last week's gains. Perhaps I should have simply bought crude rather than messing around in companies. I'm taking a closer look at Murphy Oil (MUR) and Hess (HES) as names more directly levered to the price of oil if the sector can find a bid this month as I've been expecting.

Brandon R. Rowley
"Chance favors the prepared mind."

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