Trader Talk

Modest Rally Is The Perfect Reaction

And the bell rang and what happened was a very modest late day rally. Perfect. A big selloff, and fear levels would go way up. A big comeback, and the bears--who have gained a great deal of traction in the past week--would be throwing stones immediately. Very modest rally is just the right reaction.

Still, don't put too much into the oversold bounce in retailers and financials. We will not hear from retailers until next month (their quarter ends in October, for the most part), and financials are unlikely to stage a major rally short term.

Be even more skeptical of the home builder rally: 1) there have been four attempt to buy at the bottom since August--all have failed; 2) the group is hugely shorted, so short covering is a fact of life. On the other hand, there has been lots of speculation one or more of these stocks will get a strategic capital infusion (i.e. somebody will buy into them). There may be some truth in this.

A bit more worrisome is the notable drop we have seen in energy stocks in the past two days. This is due to: 1) Schlumberger's disappointing commentary, because the glut of natural gas is depressing prices for pressure-pumping services, and 2) Concern that even a modest global slowdown will reduce energy demand.

Listen carefully to what AmEx says after the bell. I told you: the Street is afraid chargeoffs for bad debt will increase, and charge volumes will slow. The question is how much. If none of this happens, stock should rally.

Also, Texas Instruments and Apple is important. Remember, techs have NOT been a disappointment this quarter: according to my colleague Jim Goldman, one third of the tech sector has reported so far, and NOT ONE has posted a negative earnings surprise--yet.

On earnings tomorrow, I want to hear from: DuPonton raw material costs, UAL on business and consumer traffic, UPS on international and domestic shipping trends, and Whirlpool on the housing market.

Questions?  Comments?