The Dow Got Clobbered. What’s next?
The Dow was down 362, and 29 of the 30 industrials were down today (MSFT was the only one up on the day).
The CIBC report on Citi, and the somewhat disappointing earnings from Exxon were cited as the big culprits.
In the rest of the market, there were some downside earnings surprises. All this combined to make a sell off.
Financials were very clobbered, down 7%. The financial stocks are just terrible right now. Forget bottom fishing. These guys don’t even know where the bottom is… and until they do, I am staying away.
Watching the pundits on TV now, who are blaming Bernanke’s comments after yesterday’s rate cut. Bernanke basically said that this was it for rate cuts for now.
To the list of contributing factors I would like to add a theory: For many mutual funds, the last day of the fiscal year was yesterday, October 31. Alot of times, mutual funds will add positions in big winners that they missed on during the year just so they list them in their annual report as being among their holdings this year. Then, once, the fiscal year closes, the mutual funds close out the positions. There was alot of momentum in momentum stocks this week, and then suddenly, all the air was gone today. Makes me wonder.
What’s next? Financials will be a long time recovering. But everything else looks pretty good. Some look downright oversold. Some perspective: Exxon got caught in the squeeze between strong global demand for barrels of oil and weak domestic demand for gasoline. Their refining margins were crimped and they took a hit. But think about it: they reported over $9 billion in earnings this quarter. In 2002, their earnings for the whole year were only $11 billion. This is one of the greatest companies on the planet. And this refining issue is a short-term phase. Once it works through, and especially if demand for natural gas improves (the December contract is up over 20% in the last week), Exxon will be a high flier again.
Where Exxon got slapped, Crocs got shot, set on fire, and thrown off a building. Crocs, the plastic shoe company, had not-great inventory numbers and just average earnings, and for this got a 35% haircut today (down over $26 a share). They announced they will start selling at Foot Locker soon, so I would expect alot of bottom fishing here… but long term, it’s kaput… it is the beginning of the end for the Crocs fad. Hopefully the bounce will be just enough to get out of my call options and into some attractively priced puts.
The rest of the market should do ok over the next month or so. There is alot of worry right now, which tells me sanity is driving… and with that the market is heading higher in the short term.
Disclosure: As of publication I am long options in CROX, and long XOM. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.
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