Equities Stuck in the Mud Going into February

Mixed sentiment and indecision weigh on markets

   

Equities scrambled for traction in the middle part of this week like a pack of SUVs on a muddy track. They failed to get rolling on Wednesday and are likely to spin their wheels for the rest of this week too, unless the jobs number on Friday is a blow-out success, which is unlikely.

Tech stocks are feeling the worst of the indecision, while electricity producers, beer makers and spirits distillers are among the few successful groups to finish in the black of late.

One major change of pace I am seeing is that earnings from major companies are moving stocks, as witnessed this week with the leap higher by Amazon.com (NASDAQ:AMZN) and the collapse of VMware (NYSE:VMW). That is a big difference from last year, when correlations were high and everything moved together. Now we are seeing an increase in differentiation, and that should reward stock-pickers.

Looking back over the past month, it looks like it was almost divided into two sections. The first week or so amounted to a massive sigh of relief that Congress and the White House did not send the country plunging over the “fiscal cliff.” Thank goodness for small favors, but you know it was kind of a make-believe problem that ended up having make-believe solution. How much of the rally was real and how much was pent-up emotion? We’ll see.

Then the second half of the month comes along and it actually seemed as if shares advanced as a result of better-than-expected earnings. That is not to say they were great earnings, but rather earnings that were not as bad as feared in the dark days of November and December. A great example of this was the report from Amazon on Wednesday night that could easily have been seen as a bomb in an environment featuring more negative sentiment.

Now we are looking forward to February and what do we see ahead? It’s kind of looking as if we have to endure Fiscal Cliff 2, which was supposed to be the debt ceiling debate. Instead, it is going to be the debate over which Pentagon and entitlement budgets get slashed, thus ripping the guts out of some government contractors. Sorry, Raytheon (NYSE:RTN), Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC), that means you.

The February void lies ahead at an interesting juncture of sentiment. The Investors Intelligence folks are showing that bullish opinion among the public has crested in a few short weeks to levels seen at major tops in recent years, such as April 2011. I am not the biggest fan of connecting the dots on these sentiment factors, but I won’t ignore them either.

At a time when it’s all about the stocks rather than the macro environment, it’s a good time to remind yourself to follow your instincts and to do your research.

InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days. 

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