Okay, the message this market is trying to send today is probably not directed to the new President or anybody personally. Still, the immediate decline of the market post election should not be a surprise to anyone as the market has just got ahead of itself. Hopefully, our trading actions Monday and mornings Journal led you right and you stayed dry and/ or took advantage of the slide in Solars and high betas noted. Other than the pretty dramatic point decline, what concerned us some was the stuff coming after the market close, in reality, it really shouldn't be that much of a surprise after what we've seen this earnings season. We have rate cuts in Europe Thursday to possibly guide a change of tone from today, but we also have important Economic data looming here.
Alright, lets discuss one thing at a time here. Perhaps, some just took things for granted during the past 6 or 7 trading days and were in La-La land. Prior to today, the market volatility had finally come down to a reasonable level, but it's the average over a time frame that matters. It hasn't been long enough to draw a conclusion, it simply hasn't receded long enough to bring money off the sidelines. Maybe, some market participants were naive to think that only really bad news can bring a market down so fast. We thought Tuesday's rally was suspicious enough that we had to cash out everything by mid-day and potentially risk losing out some more gains. As it turned out it was a good move. "It may be brief though..". Everybody knew that market needs to pullback some in order for it to be healthy over time, but we were just somewhat puzzled over the "steadiness" of the move and were thinking maybe the markets nature had finally turned for a change, so we kept trading it till Tuesday. Well, today proved that we may be heading back toward the more volatile side of Mr. Market. We'll see and deal with it, if it comes. Frankly, even if this market pulls back toward SPX 930 level, it still should be considered healthy action. However, after some unhealthy earning news in after hour, it's hard to say if we would simply go through any intermediate support level and challenge the previous low soon enough. We say, keep your mind open and don't conclude anything yet.
Speaking of the unhealthy earning report, Despite a solid Q, CSCO delivered a very gloomy outlook as guidance came down sharply. New FQ209 guidance of down 5-10% y/y vs prior guidance up 8.5% y/y is a shock as it's well below any growth estimates. Order growth abruptly slowed during Oct, falling 9% y/y vs 7% y/y growth in Aug. Order growth slowed in nearly all customer segments and geographies with U.S the hardest hit. For starters, CSCO has not really mattered in this market for a long long time. Why should it matter this time? , Well, in a bull market, being conservative will never get you any points. CSCO has always given conservative (honest) outlook and nobody really cared what they have to say when everything else is rosy as hell. In a pessimistic environment, when all signs point to a looming deep recession, a conservative company sometimes gives the most accurate account of what may actually be happening or about to happen. CSCO is a one of the biggest hardware companies out there and everyone in IT industry knows the importance of its role. The forecasted revenue shortfall is simply huge for a company their size. It means, that shortfall in revenue is going to affect hundreds, if not thousands of other business. This basically foretells where this economy may go in the next few months. You may just call CSCO, the crystal ball!
Bad news aside, is there anything to look forward to in this market? Well, we know what to avoid now and what's volatile to trade. We are now back resorting to trade on dips, as oppose to chasing potential highs. Some of the EPS plays, we alerted during last couple of days showed some incredible strength despite the overall ugly action. Currently, MYGN and EMS remain our favourite and CMP, AGU are secondary plays. It feels like there isn't many institutions (hedge funds) involved in this market these days, so we have to be extremely careful calling a move without them. When a stock is not being supported by big money, the increased volatility will simply drive many people insane. So, take a smaller size and always be on defensive.