We’ve all had a subject in high school and/or college we could not conquer. Mine was 1991 era CADD (computer aided drawing and design). I was good at algebra, calculus, typing, and held my own in physics. But no matter how many hours I spent pouring over the computer and studying what it was I need to do, I could not grasp the concepts –basic 11th grade concepts. I stayed after school, I’d come before school hours, I’d miss lunch, my teacher would try to explain the stuff to me…next to nothing. Now, every so often, I’d have what I thought was a breakthrough and do something right…only to slip right back into the fog. The bigger force of not understanding in general could not make up for the mini-bursts of understanding tiny points. This is sort of what happened Friday in the stock market and may be signaling a change through, say, the end of the year. It started relatively early when the jobs report came out much stronger than expected at every level. In turn, this sparked a rally in the dollar- almost a full yen and about 1.5 euros. The ‘dollar’ trade has been used in almost inverse correlation with every major asset out there. Yet financial stocks were strong Friday, gold traded higher, bonds were marginally weaker, and stocks barely budged with the S&P 500 closing ahead 0.4%. So, what gives? There are four main forces at work. First, we are beginning to get the pile-on effect of money managers chasing performance after trailing benchmark indexes for most of three years. Second, earnings growth is exceeding expectations as has been evidenced by the 90% or so of the S&P 500 companies which have reported earnings. Third, if most people are getting a low rate of interest on their cash accounts, they are almost forced to seek out higher risk returns. Finally, the fact that there will supposedly be $600 billion in new currency created out of thin air (with other nations threatening to do the same) is only inflationary. Thus it causes prices of all assets to rise. The fact that the dollar had a slight contra-move cannot shake the titanic forces of money managers, earnings growth and particularly the Fed stepping on the gas full throttle in Equity Land. So, as we move forward, the relationship between the dollar and stock performance is likely to fray on a day-to-day basis with the market largely buffeted by the depreciation of fiat currency overall and the mountain of money being put to work by money managers and the Feds.
Markets in Asia were higher overnight with Toyo up 1.1% and Hong Kong ahead 0.4%. Prices turned a bit lower in Europe with Frankfurt down 0.2% and London down 0.4%. Gold and oil are down slightly, bonds are weaker by a touch as well, and the dollar is nicely ahead once again against the euro. On a cold sleet-filled morning in Metropolis, the dollar is seemingly the lead cog this morning in leading futures down slightly but not dramatically (in-line with the theme of the blog today). News flow is relatively low and there is no economic news this morning. Look for a quiet day overall with a focus on the casinos, small caps which had momentum on Friday, and BA on its news along with the stocks relevant to the story (PCP, et al).
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
AERL- closed near a high after issuing good preliminary 2011 guidance
KS- closed near a high
IOC- closed near a high after pricing its share offering
GS- closed near a high
UEIC- closed near a high after posting good earnings
DLB- closed near a high after posting good earnings
TTMI- closed near a high after posting good earnings
IRF- closed near a high after posting good earnings
GXDX- closed near a high after posting good earnings
ROSE- closed near a high after posting good earnings
SOLR- raised earnings guidance
DECK- closed near a high
CTV- rumored to be about to receive a 2nd takeover bid
LULU- closed near a high
FWLT- closed near a high for the 2nd day in a row since posting earnings Thursday morning
TGA- closed near a high
GPRE, MGM- featured on “Mad Money” on Friday
ATHX- received FDA OK for Phase II trial of Multistem
Bad-The following stocks have bad news and/or a weak technical pattern
JKS- closed near a low after announcing their 3.5 million share offering would be priced at 36
DNDN- closed near a low on continued downward momentum from last week’s earnings report
PODD- closed near a low after competitor DXCM indicated a delay in the expected approval timing of the CGM enabled OmniPod pump
BA- deliveries of 787s could be delayed up to 10 months
MDVN- poor earnings
CO- closed near a low after pricing a follow-on underwritten public offering of 8.05 million shares at 4.50
RBCN- closed near a low in a major reversal after posting earnings
Earnings:
MON NOV 8 BEFORE
FTR KWK LPX
WCRX
MON NOV 8 AFTER
CLNE HOLX LDK
MDR MR PCLN
RAX SLXP UDR
VVUS
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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