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My Gut Feeling for Today, June 24, 2013

Friday was a picture perfect session. The market rose at the open, spurred by two factors: index expiration and a bounce attempt. Then a natural attempt by the bears to repel the bounce was delivered on queue. Finally, the markets defended the bear attack and rose by the closing bell. PetSmart (PETM) finally traded down to levels where I was comfortable starting an investment position.

As for today, we will lose the Friday afternoon mojo and the open will be negatively impacted by the Chinese market. US 10-year Treasuries are also declining in price in the small hours.

All of the action last week and today comes against a backdrop of the end of the quarter. What looked like an excellent quarterly advance just a week ago has transformed into a lackluster quarter, with the possibility of the S&P 500 (SPX) posting a decline. The SPX ended the first quarter at 1,569.19 and closed the Friday session at 1,592.43. If we close the quarter in the red, it will be on emotion and fear as the second quarter’s earnings reports are certain to be strong and forward earnings estimates are being ratcheted higher by analysts.

Some might argue that the increase in future earnings will be offset by higher interest rates and contraction of the equity risk premium. That argument would be valid if the move in interest rates was larger and the absolute value of interest rates was several hundred basis points higher. Clearly, a 50 basis point move in the yield to the low 2% area for the 10-year US Treasury does not qualify for a substantial  theoretical valuation adjustments to stocks.

The Gold Bugs are getting their long overdue comeuppance. We could see a washout in gold with a tick near $1,000/oz., especially if the US Dollar continues to be strong.

My sense is that we are being caught in the crosscurrents of macros traders who are making big bets in overseas stock, currency, commodity, and US Treasury markets. At the end, stock valuation will become investors’ champions but until then, we need to be willing to accept the vagaries of short term fear and macro adjustments.

While the inclination to extrapolate from last week’s and today’s overseas trading is going to be great, I would not put it past the investment community to step up and start dip buying later today, especially after the first hour.

Finally, have you had enough of Paula Deen? I have but the media will milk (or shall I say butter) this one for a while.

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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long PETM— although positions can change at any time.                                                                                        

Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com 

Interact all day with Scott all day in with your Platinum subscription to Wall Street All-Stars.

You can email Scott at scottallstars@gmail.com

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