Three Stocks

Mastercard (MA)

MA has been on fire -- obviously people are living off their credit cards, but this suggests people are living better than the experts think.

Starwood Hotels & Resorts Worldwide (HOT)

HOT continues to rock. Word is, Sam Zell is ready to take over the company...let's hope he has more lick with this than he had with the Tribune.

Hewlett-Packard (HPQ)

HPQ technology stocks are on the move and this is the General leading the way -- IBM (IBM) and Amazon (AMZN) are playing a role too -- keep an eye on this stock which has become the would-be savior of the sector

Reality Check

Signs investors are taking greater risks abound. In addition to buying in the face of the jobs report that will surely be heartbreaking on Friday investors are bidding up individual sectors even as the underlying fundamentals continue to weaken. We saw it with home builders and metals stocks yesterday. 

But there is another trend emerging. In the retail space, the share prices of discounters like Family Dollar (FDO), Ninety-Nine Cent Stores (NDN) and Dollar Tree (DLTR) were under pressure yesterday while specialty retailers like American Eagle (AEO) and luxury retailers like Tiffany’s (TIF) have come on strong. This shows investors are easing out of their foxholes and taking chances despite the distinct possibility they could be early. 

At this stage of the game, investors are also realizing how much money can be made and understanding that it doesn’t matter that a $10 stock was once $100, but that it could maybe bounce to $15 for a big-time percentage gain.

Then there are bona fide winners like International Business Machines (IBM), Hewlett Packard (HPQ) and Amazon (AMZN) that finally found buyers willing to accept that great execution is more often than not a skill and should continue in the future. 

The semiconductors are acting fantastic, too. Talk about hesitation -- I’m so snake-bitten from the chip stocks, but when they get hot, they get hot. The rails act great as well perhaps reflecting the notion that a couple of trillion dollars means big business for transportation companies. The Dow Jones US Railroads Index, DJUSRR, powered through key resistance at 390 like a locomotive (I couldn’t help myself). The index is still in a serious downtrend but the next leg up could lift it to 520 or 21% from yesterday’s close. The rails are a great proxy for the economy so keep them on your screen and at least one in your portfolio.

Another group that continues to marvel is the insurance stocks which act like a government financial bailout is in but the industry will not need it. I’m not saying that is indeed the case because there are so many unknowns. You could also add the homebuilders to the list as they act great for an industry with rising inventory, depleted backlogs and tumbling prices for their products. A few people must believe there will be relief. 

Also, the auto parts stocks blew me away. Magna (MGA) was mind-boggling as were others in the space. I’m not sure what drove (you knew that was coming) the move, it was impressive and suggests the industry will be able to survive and build upon the ruins.

Reality Check #1

As much as I’ve implored investors to get in the market I believe I must constantly repeat the importance of being nimble. At some point news like that from Alcoa (AA) after the close could weigh down the market. Citing the economy the company cut capacity by 18% and announced it will layoff 13,500 employees. So while we are excited that tax credits for new employee hires will incentivize businesses, there are the lumbering behemoths that need to shed costs and can’t avoid making the bulk of those cuts human beings with children and mortgages.

Reality Check #2

The Fed minutes could have been authored by Victor Hugo as they were dark, gloomy and a sad commentary on the human condition. The bottom line wasn’t news per se but to hear once again there is substantial risks to the slumping economy. Of course “quantitative” measures have been taken and let’s hope these guys are correct in their assumption the moves would be useful in calibrating and communicating the stance of monetary policy. General Custer took a calibrated and communicative stance, too. Price declines are a real worry for the Fed so they will be working hand and hand with fiscal policy.

I don’t care where we go
I don’t care what we do
I don’t care pretty baby
Just take me with you

-Prince

Of course, the Fed minutes were released during the session, and Alcoa was only off fractionally in the aftermarket. Right now, investors are blinded by hope which is the same as being blinded by love or greed. It’s a myopic situation and one that could become dangerous. We have been issuing a ton of alerts to take profits (I think 18 in the last two days on our trading service) and we continue to offer new ideas, too. 

Stay in the mix but stay alert…don’t fall in love and don’t be greedy.