Friday, April 24, 2009

Respect the Trend

Earnings continue to please the market. You can go right down the list: Microsoft, Ford, Schlumberger, etc. For people that follow the markets closely, it is frustrating. The market is taking any kind of news good or bad, and putting a positive spin on it. To me, it has a feel that its gone too far, but I know better than to think it can't go further. Personally, I like to wait until periods where I feel comfortable with the market action before I commit more than average capital.

I helped Trader Mark write a synopsis of the casual restaurants and their earnings yesterday. These companies, such as PF Chang's, Buffalo Wild Wing's, and Famous Daves, are performing well (on a relative basis). The past quarter, they have been restructuring to cut costs. This involves things like running specials, negotiating new contracts with suppliers, and cutting workforce. They are also benefiting from a couple of other factors: A) Lower raw material costs due to a drop in commodity prices and B) Consumers are "trading down" to lower cost restaurants like these neighborhood chains.

To me personally, this doesn't seem sustainable because the economy and job market is very uncertain for a lot of Americans, thus they are saving more money. But in this market that doesn't matter. These stocks continue to get bid up. I'm not buying them, but someone is.

The market has a feel to me like Wall Street is trying to pull the average investor back into the market. The longer this rally continues, the more likely people will think "the worst is over" and they are more likely to buy stocks, homes, cars, etc. Wall Street is basically trying to lure that money back out. Maybe we've bottomed, maybe we haven't. Its doesn't mean we're looking as positive GDP and everything is great again either.

Its a funny game, but its what we have to deal with.

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