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Trading Geo-politics, The Fed And Earnings

With the recent fallout from the SNB announcement, the Greek elections, the January 28 Fed statement, and now with over 70% of the US companies have reported earnings, the major indices have been range-bound with very good volatility and, in our opinion, this leads to a great deal of uncertainty. When we see stocks like (NASDAQ: MSFT), (NYSE: CAT) and (NYSE: PG) — add (NYSE: BABA) and (NASDAQ: QCOM) — trade lower for a myriad of reasons (arguably the strong $), and it seems that sentiment is leaning toward a bearish stance. There will be your individual winners like the (NASDAQ: AAPL)’s and (NYSE: BA)’s of the world, but with a fragile energy sector and gold showing a nice base off the lows, we see further rotation thru various sectors, and with that, we stand by our fundamentals and play relative strength as compared to the market, keeping in mind that the longer we are range-bound, the more likely something is to “give way”.

The current holding pattern we are in combined with the collapse in oil prices is a continued cause for concern and with this quarter’s corporate earnings now being digested in a negative way (negative news seems more punishing than we have seen in some time), we see more negative price action in the broader markets. We understand that a pause is necessary and healthy considering the run the indices have had, but we are traders and simply digest the news and react to what the market is telling us.

Final Thoughts

When looking at reactions the markets have had to geopolitical news (CHF fallout/ECB Decision/Greek Elections) on those days or subsequent days after the S&P 500 has taken that news and broken to out near 6-month lows. AAPL and BA helped buoy a strong open yesterday (1/29) as the Fed Decision was digested in a negative way — or was the Fed news just another reason to apply additional selling pressure or continued profit-taking after a momentous run? We look at this from a different perspective and, of course, some may beg to differ but as of right now, which stocks or groups look more attractive — oil or gold, or taking a position in the S&P 500? Granted it will probably take more time for the oil sector to show better longer returns than the S&P, but we are looking at the rotation throughout the various sectors and will continue to play upon points of weakness.

There has been good volatility and we take a ‘less-is-more’ approach until earnings season ends, so after we trade our earnings plays and focus on the stocks that have range, volume, and good price action, we will identify the trend and, based upon the above criteria, will stick to our disciplines and add to our winners, cutting our losers and trade the way that got us here.


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