Stocks on a Straight Razor

In the epic film, Apocalypse Now, mad military genius Colonel Kurtz, played by the incomparable Marlon Brando, is recorded rambling about a "vision" that is replayed to Captain Willard, played by Martin Sheen, who is being briefed on a mission to assassinate the renegade commander.

The vision is of a snail crawling along the edge of a straight razor, "crawling, slithering, surviving..." says Kurtz. "That's my dream. That's my nightmare."

It is an ironic surreal image and a foundational point early in the film, serving as a metaphor for the precariousness of the American war effort in Vietnam, Colonel Kurtz's tortured mental state, and even Captain Willard's ability to carry out his horrific mission.

That image of a snail crawling along the length of a straight razor came to mind as I looked at a chart of the markets over the past several days, markets that are up from their year-to-date lows, but are struggling to form a base from which to eventually move higher.

There is nothing new in the challenges that confront stocks right now. Downgrades of Freddie Mac and Fannie Mae announced this morning remind us that the fallout from the subprime mortgage crisis shows few signs of abating, as does word that the White House and Congress are looking into ways to bail out "underwater" homeowners, whose mortgages are now worth more than the houses for which the loans were originally sought.

Add to that fears of stagflation. It is now widely believed that the Federal Reserve has placed itself in the untenable position of asserting its willingness to provide additional monetary accommodation (i.e., continued rate cuts), while insisting that it will remain vigilant toward inflation. Unsurprisingly, this commitment to keep two virtually incompatible promises has failed to inspire the markets.

The question during all extended market corrections--including the current correction dating back to the fall of 2007--is this: what will it take for us to reach that moment, immortalized in yet another landmark film from the 1970s, when investors collectively throw open their windows and shout to the skies: "We're mad as hell and we're not going to take it anymore"?

That sort of capitulation--like the odd valedictory tone of Hillary Clinton's final remarks in her debate last night with Democratic primary rival and new-found front-runner, Barack Obama--is what the world needs now. A thumbing of the nose at subprime mortgage writedowns, a yawn in the face of political uncertainty as the 2008 elections draw near, a Bronx cheer directed at the legions of commentators on Bloomberg, CNBC and Fox Business who will probably continue to insist that the U.S. economy is a recessionary basketcase well into the next recovery in stocks.

We are not there yet. And the technicians tell me that another nail-biting test of the year-to-date lows might be required to truly panic us into becoming out better, more bullish, less fearful selves once again. The only question is what you will be doing when that moment inevitably arrives--as it did in the spring of 2003, the fall of 2004 and the summer of 2006. Will you be buying or still hiding?

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Tito Ortiz, former light heavyweight champion of the Ultimate Fighting Championship (and one of many celebrities currently appearing on Donald Trump's The Apprentice Reality Show), tells the athletes he trains as part of his fight team, Team Punishment, was that they must punish themselves in the gym so that the actual fight will be a breeze by comparison. While that is probably a bit of an exaggeration, the same thing does apply to testing trading strategies. The absolute worst time to discover that you need to work on your cardio, or practice keeping your hands up to protect your chin, is after the bell has sounded for round one. And the worst time to discover that the trading system you had been working on for weeks, months or even years is not as robust as you thought it was is after you've already committed--and lost--thousands of dollar trading it.

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Stocks in the News

Those stocks making financial news headlines this week included the world's largest retailer, a pair of wildly popular consumer gadget tech firms, and a trio of gold mining companies with unsurprisingly bullish quarterly reports.

Wal-Mart (WMT@WMT | Quote | Chart | News | PowerRating) beat estimates, as sales of groceries and consumer electronics drove quarterly revenues and net income higher.

Rising computer and server sales from Hewlett-Packard (HPQ@HPQ | Quote | Chart | News | PowerRating) helped buoy investor confidence about the potential for renewed technology spending by businesses in 2008.

Medco Health Solutions (MHS@MHS | Quote | Chart | News | PowerRating) revenues soared courtesy of gains in its mail-order prescription business. That Medco Health Solutions managed to see revenue gains even as it increased its use of lower priced generic drugs was particularly impressive to Wall Street analysts. Medco Health Solutions is one of the top PowerRatings stocks that we own as part of our Live Blue Chip PowerRatings portfolio.

With sales of its wildly-popular navigation system topped $1 billion in the fourth quarter, Garmin (GRMN@GRMN | Quote | Chart | News | PowerRating) beat last year's mark by some 99%.

Profits were up but modest guidance disappointed Wall Street as NutriSystem (NTRI@NTRI | Quote | Chart | News | PowerRating) reported earnings this week. The price of the stock was nearly cut in half on the news.

Research in Motion (RIMM@RIMM | Quote | Chart | News | PowerRating) announced that it was experiencing a surge in subscribers, raising their fourth quarter forecast for new BlackBerry subscriptions by 15-20%.

Barrick Gold (ABX@ABX | Quote | Chart | News | PowerRating), GoldCorp (GG@GG | Quote | Chart | News | PowerRating), and Newmont Mining (NEM@NEM | Quote | Chart | News | PowerRating) all reported strong earnings growth in the fourth quarter, handily beating analyst estimates. Soaring prices for gold bullion were credited for the gains at all three gold mining companies.

What to Look for Next Week

Monday: Existing Home Sales
Tuesday: Producer Price Index / Consumer Confidence
Wednesday: Durable Goods Orders / New Home Sales
Thursday: Jobless Claims / Money Supply
Friday: Personal Income / Farm Prices

Best Performing Stocks (PR 8-10) of the Last Five Days

Here are some of the best performing, high Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 9 or 10.

Hormel Foods Corporation (HRL@HRL | Quote | Chart | News | PowerRating). Long Term PowerRating 10
Scana Corporation (SCG@SCG | Quote | Chart | News | PowerRating). Long Term PowerRating 9
H.J. Heinz Company (HNZ@HNZ | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Allied Waste Industries (AW@AW | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Quest Diagnostics (DGX@DGX | Quote | Chart | News | PowerRating). Long Term PowerRating 9

Worst Performing Stocks (PR 1-3) of the Last Five Days

Here are some of the worst performing, low Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 2.

Buffalo Wild Wings (BWLD@BWLD | Quote | Chart | News | PowerRating). Long Term PowerRating 2
NVIDIA Corporation (NVDA@NVDA | Quote | Chart | News | PowerRating). Long Term PowerRating 2
Crocs Inc. (CROX@CROX | Quote | Chart | News | PowerRating). Long Term PowerRatings 2
First Solar (FSLR@FSLR | Quote | Chart | News | PowerRating). Long Term PowerRatings 2
Centex Corporation (CTX@CTX | Quote | Chart | News | PowerRating). Long Term PowerRatings 2