Stock Trading: Markets Sell Off On Poor 4Q Outlook Of Companies

THE FINAL NUMBERS - Earnings Concern

NEWS: Today the attention finally moved away from the credit markets and was focused on a barrage of third quarter earnings. The Dow (^DJI) finished down 231 points or 2.5% after gaining over 400 points on Monday. The S&P 500 (^GSPC) gave back 30 of the 45 it gained yesterday, losing 3.1%. Finally the NASDAQ (^IXIC) was once again the big loser, crashing 4.1% or 73 points, and is now down 15 points on the week.

THE BOTTOMLINE: The markets gave back a big chunk of their gains from Monday as investors grew weary about the fourth quarter outlook of the companies that have reported thus far. I believe many of the companies are using the poor economic environment to their favor and have nothing to lose by low-balling the fourth quarter guidance. Some stocks will still be able to rise on poor guidance (see Yahoo in after-hours trading) because the recent sell-off has priced in even worse news. Then there will be stocks that get punished for not meeting analysts’ expectations. At the end of the day, if you own individual stocks, which most of you do, be prepared for a wild ride the next couple of weeks as earnings announcements come at your full force.

Relative Strength

NEWS: During today’s market sell-off there were a few notable investments that avoided the selling pressure and stood out amongst the losers. The most interesting was the HOLDRS Regional Bank ETF (RKH), which only lost 0.4% as the SPDR Financial ETF (XLF) dropped 3.0%. A stock that was able to squeeze out a gain today was Dollar Tree (DLTR), adding 0.6% on the session.

THE BOTTOMLINE: When the market falls as it did today, many investors believe the sectors to hide are the commodities, especially gold. Today gold was one of the harder hit areas, falling 3% on the session. Because I believe the worst is behind us as far as major sell-offs, the better strategy would be to begin looking at the sectors that have been able to beat the market during both up and down periods. The two examples above are one-day wonders, but if after further review, the research reveals more good news, they could be viable options.

Dollar Tree is a stock that I discussed this past weekend on Fox News Channels, “Bulls & Bears” television show. The topic of the segment was recessionary-proof stocks and what better than a company that sells things for one dollar? I am not sure what you get for $1 these days, but if Americans continue to let the media send them into panic mode, look for long lines at the dollar stores. Competitors of DLTR that have also done well recently include: Family Dollar Store (FDO) and 99 Cents Only Stores (NDN).

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