Bookkeeping: Early Morning Buys

As stated late yesterday I could not get my orders for Shaw Group (SGR), Baidu.com (BIDU), or CF Industries (CF) in, in time for the closing bell. So I took today's cash and bought a big swig of Foster Wheeler (FWLT) and a bit of Apple (AAPL).

I am blown away I can buy the company with the probably the best earnings report of the quarter (FWLT) at the 50 day moving average - and again I mention this is the cheapest stock on 2008 estimates in the entire group; and I'd argue those 2008 estimates are too low. While these drops are causing short term price pain on the fund, these are going to be the type of buys that turbocharge returns once calm returns.

One reader said McDermott (MDR) was downgraded yesterday - I did not catch that - and that was the reason the sector was down so heavily. I am more of mind, when the market or a sector wants to go up, they will find an excuse to move it up, and vice versa. Just today McDermott got an upgrade but the stock is still down. So essentially these computers running Wall Street at these quant funds avalanche over each other once strong stocks take a dip, and exaggerate the moves downward (or upward). Now word is out, wow oil could fall to the 80s! (gasp) Perhaps all these energy contracts these global engineering firms have will get cancelled! Oh of course! No mention that when these projects were in planning/negotiation crude was in the $55-70 range, but now that it pulls back from 98 to 94 (with potential to move to low $80s? ohh scary), these projects could be cancelled! Or no more projects will be coming down the pipeline. Got it! :) Much like the oil service stocks, these companies will have demand at crude $65, $75, $85, $95, or $105 - the only difference will be investors perceptions and hand wringing.

The more I watch of late (past 2 years) the more it makes sense how pervasive these quant funds are on price action - when stocks are in uptrend they go far above what makes sense from valuation because these quant funds are momo traders in sheep's clothes... if its up, you keep buying. Once it falters you sell heavily. This would explain the crazy moves in stocks like Baidu.com, Sunpower and stocks that make no sense from any valuation perspective but just continued to go up the past month day after day in relentless fashion. Something I have to store away once the market gets back on its feet, since my propensity is to sell when I see things reach "rich" valuation. I have to remember the computers that run the street are more and more only going off of price action, and valuation is for old school "losers". (until it matters... like this past week)

Going forward my plan is to see if the S&P 500 can rebound to near 1490 and then adopt a bit more of a defensive plan (lighten up on some positions, raise cash and add to some of the UltraShorts). This market still seems headed in a bad way, but it has been so oversold it had to bounce at some point. We've almost had a full 'official' correction (10%) in the NASDAQ in 4 sessions. (about 8% in 4 sessions) Amazing to watch but again, so much of the index is now tied to Apple, Google, Research in Motion, et al - they drove this index up (along with recent moves in Microsoft, Intel and Cisco) and now they drove it right back down.

p.s. if anyone has detail on either the downgrade or the upgrade for McDermott please post it as a comment on this entry. While I still like the company long term, I am focusing more near term on the companies in the sector which reported stellar earnings and 'surprised' up - the ones I was buying yesterday and mentioned in this weekend's "2 Portfolios for Valentine's Day". In general those will be the ones to outperform in the next 90 days (people are so very short sighted in the market).

Long all names ex Microsoft, Intel, Cisco; long Foster Wheeler in personal account