You mean we can trade on fundamentals for a bit instead of Fed and Paulson-style intervention?
I'm impressed.
Bluntly, Texas Instruments (TXN) earnings sucked. The miss was bad enough, but their comments on forward demand were worse, and are responsible for the 2%ish sell-off in the Nasdaq futures this morning.
American Express (AXP) appears to be playing the same loss-reserve game that Wells Fargo (WFC) has played. Banks and other financial institutions never cease to amaze me with these games entering into an economic downturn. Their accounting and provisioning is about as good as that of our government.
You're supposed to add to reserves when the economy starts to turn on the premise that credit quality will be harmed by that event and you want to build reserves so you're ok and able to weather the downturn without hitting earnings beyond your reserves. That's how a logical businessman approaches this sort of cyclical event.
But in the world of "managing earnings" you cut reserves so your earnings report looks better, then you get walloped over the head with a clue-by-four months or years later when the reality doesn't match your unrealistic expectations.
The ratings agencies weren't fooled - AXP garnered a downgrade last night. It didn't stop the mouth-breathers from buying though. We'll see how that holds up in the coming weeks and months.
From a fundamental analysis perspective the underlying problem with the market here is the same as it was a year ago - valuations are too damn high. I have no faith that the operating earnings estimates for the S&P 500 are going to be delivered on a forward basis, and without that, I've got nothing to invest based on, since its always the earnings stupid that drives prices.
From a technical perspective the picture is even worse. We have a confirmed double-top, a DOW theory primary trend bear market reconfirmation, and a spike bottom. From a technical perspective this implies that the entire bull market move to the first peak is going to be retraced, which puts the S&P 500 down into the 500 area, erasing twenty years worth of gains.
The counterargument to this point usually comes from those who argue that inflation means you need to adjust those targets. This sounds good except that inflation hits costs as well as profits, and the common law of business balance means that 10% inflation will always hurt your costs more than it helps your profits - ergo, it should compress multiples, not expand them, and history says that is exactly what happens. Proof? Look at the inflationary spike back in the 70s/80s and what happened.
Could it really be different this time? Sure. It can happen. We hear that constantly - "this time its different." Well, perhaps some day it will be.
But history says that staking your fortune on such a belief is a poor gamble. In every case through history primary bear markets - ones that have confirmed on Dow Theory - the buying opportunity hasn't been on the initial decline, in that every time that low has broken and led to new lows.
It is only when a low is made and retested a few months later that one can reasonably take long positions. A retest that comes a week or a month later is too much, too fast.
How do you know when you've got a valid retest?
When the declines stop for a while - a couple of months at least - and the 20/50W moving averages start to compress toward each other. A retest of the low at that time that holds is a reasonable place for speculative (not core capital) entry on the long side, with a stop on your position three to five percent below the entry - just in case.
Historically, that trade has fairly high probability of being right.
Here?
Go back and look at the charts of the 2000-2003 bear market for what happened to you if you bought any of the several violent bounces prior to the successful final retest. Two of my personal friends were literally bankrupted by believing the mouth-breathers who the media trotted out during that Bear, including some very-well-known crooners, and bought what was claimed to be "the bottom".
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