Sunday, January 17, 2016

RISK OFF: "And Then One Day, Bad News Was Bad"

This was the week everything changed...

Conventional "wisdom" on Wall Street is that bad news is good from a "contrarian" standpoint. For seven years that asinine position was reinforced by Central Bank dopium. But this week, it stopped working. Not everyone got the memo...

"What we've seen, is that the expectations bar is set low...normally when you have this kind of situation during earnings season you at least get a short term bounce in the market."

The contrarian call is to buy Energy stocks, however Exxon Mobil is historically overvalued relative to the price of oil:

"It was a bad time to be in Energy stocks, or any other stocks for that matter..."
Exxon:$Brent ratio

Meanwhile, it was trouble in paradise for Tech-Land

Barrons Jan. 15, 2016

"Last Thursday chip giant Intel reported results for its December-ended fourth quarter, which had been expected to be weak because of terrible personal-computer sales. Just two days before, research firm IDC estimated that shipments of computers in the holiday quarter had dropped 10.6%...the quarterly decline was the worst ever recorded, according to IDC. But all that supposedly was already reflected in Intel’s stock price. Following the release of IDC’s report, a chorus of Wall Streeters declared that the shares actually would benefit from airing the bad news and moving on."

This wasn't supposed to happen:

"To top it all, Intel warned about weakness in consumption in China, with Chief Financial Officer Stacy Smith saying, “Our team on the ground in China has gotten fairly cautious about what’s going on in China right now.”

Semiconductors peaked last May...

Alcoa -15% on the week
Monday's earnings news was not priced in