July 16, 2014

How Long can the Titans Support the Broader Rallies?

titans of industryWithout a doubt, the titans as I call them, Apple Computer, Amazon, Facebook, Google, IBM, Intel, Microsoft, Netflix, and a handful of biotech companies are producing some solid results and continue to “gush” cash flow. Companies such as Apple, Intel, Microsoft, and IBM have consistently reinvented themselves turning out new innovative products on a consistent basis.  IBM for example has transformed itself from a lower-margin commodity business (building and selling PCs) to a higher-margin and higher value business of selling software proving it is indeed loaded with software-engineering talent in the same way Intel is loaded with chip-engineering talent.

Google has proven its chameleon like ability to provide innovative products and services via the World Wide Web.  Netflix and Amazon have grown by leaps and bounds by adhering and adding to solid business plans under their current leadership.  Both have moved from being simple online retail service providers to producing and providing their own award winning content.  Microsoft continues to hold the number one spot as the largest software company.

It seems that people are still underestimating the ability of these titans of business to “reinvent” themselves. At this stage in the business cycles the titans have more managerial, technical and financial resources than any other company within their sectors and in the case of Intel more than the rest of the industrial sectors combined.

So it makes total sense not to bet against them so long as there is too much capital ready and available to fund the necessary changes to continue to dominate.  There in lies the key to their ability to hold up an aging bull market.  The ability to fund and make necessary changes to evolve and supply the current market with what it needs and not only supply the market but dominate the market.

economygrindingSo, what happens when the wheels of the economy grind to a halt when the money supply dwindles and the availability to purchase dwindles on a consumer level?  I would anticipate that many corporations will simple disappear but it will be the titans that continue to produce and continue to move forward albeit at a slower pace in terms of producing strong earnings. If any of the titans’ sales fall due to the economy turning sour or worse a period of higher interest rates brings with it a more serious decline as the cycle swings from inflation to deflation it won’t likely have anything to do with the quality of these global dominators as being superior companies.  No, it would have more to do with the global financial systems imploding producing failures larger than what was seen in the Great Depression of the 20th century or during the financial collapse of 2007 – 2009.  When this happens the titans will not be able to hold up against a constant barrage of asset liquidations.  Does this infer that Intel, Apple, Amazon, IBM, Facebook, Google, Microsoft and a handful of additional companies are any less dominating – not at all.

bubbleburstingThe dot.com bubble bursting in 2001 drove the price of Intel from $76 to $12.95.  Microsoft dropped from $44.10 (post splits) to $14.85.  Cisco went from $75.40 to $9.55 without the benefit of any splits.  IBM lost over 50% of its value before taking a decade to reinvent itself and climb nearly 300% to current levels just below $200.  The declines were not statements regarding most of these companies’ abilities to produce superior products it had more to do with valuations and sustainability of inflated prices.

So while the even increasing burden of carrying the weight of the bull market rests squarely on the shoulders of the titans they won’t be able to prevent or stop the inevitable.  Remember it no longer is a matter of “if” but one of “when” and the when will become obvious when the ‘money spigot’ gets turned off.  In the meantime the shorts will continue to sweat and be forced to turn to other lesser able companies to bet against.

Wednesday’s trade was back to a slow grind.  The broader indexes did manage to push to new highs in the case of the DJIA and SPX and a new recovery high for the NDX.  The overbought nature of the markets remains firmly in place leaving them subject to another correction.  It has been several years now since we’ve actually seen corrections actually take a more serious bite out of the DJIA, SPX and NDX.  I suspect that will change as external factors mitigate or produce enough momentum to ‘scare the children’.  I was somewhat disappointed in the lack of trade opportunities as volume swung back to light and sporadic.  Even the release of the FED Beige book didn’t produce much in the way of 2-way trade.  Thursday and Friday’s attention should turn towards July options expiration.  Hopefully that will be with it some much needed volume and 2-way trade.  Until then, though, remember to keep an eye towards market awareness and make adjustments to your strategies to insure a more solid consistency of winning trades.  Don’t underestimate the market’s ability to push quickly in either direction.


mkt_header_05252013_shutterstock_116868523Steer the course and don’t compare yourself to everyone else.  You are not they and they are not you.  Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves.  Don’t be swallowed up by the chaos and false emotions swirling around.  Remember it’s just a number.

Trading the number remains key to being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them.

Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.