(Marco Bonelli) The battle between liquidity and fundamentals!
Liquidity wins as long as fundamentals don't change. Once fundamentals change, the perception of the current fundamental picture changes or expectations for fundamentals are no longer realistic and change, liquidity only has a temporary effect and fundamentals eventually come out as the winner!
Global macro data and mixed to disappointing Q4 results and comments ("...below trend growth...") from FDX send a slight reminder that the current economic environment and the outlook might be too optimistic and expectations may have to come down. As a result, the rebound in bond prices from yesterday may very well continue.
Case study ORCL: Let's quickly highlight the stock price reaction after their earnings release from Tuesday night: Q3 results were better than expected and Q4 EPS guidance in line to better while revenue guidance disappointed. The stock traded higher in the aftermarket that day, opened at the high of the day yesterday and deteriorated throughout the day to close 2.3% down. Given the questionable macro-economic picture and generally weak guidance and cautious comments for this and next quarter, could this case study be a "perfect" sample for what will come up on a broader scale once the Q1 earnings reporting season starts and how will it effect the optimistic outlook for the second half?
It looks like the market faces reversals on all fronts: Bonds started reversing yesterday; crude-oil flip-flops back to the downside while commodities continue their slide, lead by metals; the Dow Jones Transportation Index erases all gains from yesterday, where the sector was one of the few outperformers and finally the Nasdaq that resumes the sharp slide in the last 30 minutes of trading yesterday. Especially in the Nasdaq, moves like this (solid advance during the day, break-out to new highs followed by a reversal to the downside) were quite common in the past three months and it usually took another day or two to eventually move higher - the only difference now is that prices are 5 to 15% higher and the margin for errors became pretty tight!
But hey, we have seven trading days to go; let's try to lock in an outstanding first quarter!
Trade well.
(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own.)
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