It is one of the worst times this year to be buying some of the fast flyers. Indeed stocks like Baidu (BIDU), Intuitive Surgicals (ISRG), Google (GOOG), Apple (AAPL) are tempting as they defy the broader market and march on. But every rulebook says not to open new positions in these stocks at these levels when they sit so far above their 20, 50 and 200 day averages. On the other hand, there are some compelling stocks that have pulled back and one can arguably state that Under Armour (UA), down to $54 from summer highs of $70, Jacobs Engineering (JEC), down from highs of $87 just last week to $79 and EBay (EBAY), down despite a great quarter, are all worth looking at. If you do decide to buy these, I recommend buying only a small position. I am once again, a little uncertain of this market, and any margin exposure can be detrimental to your portfolio.
Now, lets change gears. Earnings season is upon us and it is not usually a good idea to buy/sell a stock to guess which way it will move post earnings. It really is a coin toss considering that the earnings number, while the only semi-predictable number, is by far not the only number that determines price action of a stock immediately after earnings. Depending on the type of business, operating margins, revenue growth, forward guidance and language on the earnings calls are among the other factors. So far, tech stocks have done really well this season with Apple, Google, Intel (INTC), Yahoo (YHOO) and EBay all blowing the cover off their estimates. Meanwhile, industrials like Caterpillar (CAT), financials like Bank of America (BAC) and generally most of the names in transportation, drugs and energy have not been impressive. The next couple of weeks will probably tell a better story about how Q3 earnings turn out, but the laggard performance of Caterpillar and the transportation sector is making me less enthusiastic, specially considering that transports are often the leading indicator for our overall economy.
With the weaker dollar, and global growth, earnings are still coming out at a decent clip, however, GDP is expected to slow down even further and a lot of the economists are suggesting that we are already in a recession. The bull market marked its 5 year anniversary earlier this month, but then October is usually a good month to be long stocks. Lots of contradictory signals and commentary out there. It is definitely not as easy as Sept was. Good luck navigating...
-- Faisal Laljee
Full Disclosure: I am long YHOO, BAC, JEC and UA