Trading Geo-Political News/Fed Statement/Earnings Season

Major indices are range bound with very good volatility leading to a great deal of uncertainty.

With the recent fallout from the SNB announcement, the Greek elections, the January 28 Fed statement and now with over 70% of the US companies having reported earnings, the major indices have been range bound with very good volatility and in our opinion this leads to a great deal of uncertainty.

When we see stocks like MSFT, CAT and PG (add BABA and QCOM as of early am 1/29) trade lower for a myriad of reasons (arguably the strong $), then it seems that sentiment is leaning towards a bearish stance. There will be your individual winners like the AAPLs and BAs of the world, but with a very weak energy sector and gold showing a nice base off the lows, we see further rotation through various sectors and with that, we stand by our fundamentals and play relative strength as compared to the market, keeping in mind that the longer we are range bound, the more likely something is to “give way”.

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The current holding pattern we are in, combined with the collapse in oil prices are a continued cause for concern and with this quarter’s corporate earnings now being digested in a negative way (negative news seems more punishing as we have seen in some time) we see more negative price action in the broader markets. We understand that a pause is necessary and healthy indeed considering the run the indices have had, but we are traders and simply digest the news and react to what the market is telling us.

When looking at reactions the markets have had to geo-political news (CHF fallout/ECB Decision/Greek Elections) on those days or subsequent days after the S&P has taken that news and broken to S&P to near 6 month lows. AAPL and BA helped buoy a strong open yesterday (1/29), and granted the Fed Decision was digested in a negative way or was Fed news just another reason to apply additional selling pressure or continued profit taking after a momentous run? We look at this from a different perspective and of course some may beg to differ but as of right now which stocks or groups look more attractive …the oil/gold stocks? Or taking a stance or position in the S&P? Granted, it will probably take more time for the oil sector to show better, longer returns than the S&P, but we are looking at the rotation throughout the various sectors and will continue to play upon points of weakness.

There has been good volatility and we take a “less is more approach” until earnings season has ended, so after we trade our earnings plays and focus in on the stocks that have range, volume and good price action, we will identify the trend, and based upon the above criteria we will stock to our disciplines and add to our winners and cut our losers and trade the way that got us here.

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