Dead cat bounce

As if to underscore my thoughts about near-term slowdown, orders for big-ticket manufactured goods plunged in October by the largest amount in more than six years. Orders fell a larger than expected 8.3%.

That phrase keeps popping up: larger than expected. Unemployment was larger than expected. Housing start reductions were larger than expected. Home price drops were larger than expected.

While the numbers were distorted by a sudden drop in airplane orders, the drop was widespread: autos, steel, computers, and so on. Excluding transportation, orders were down 1.7 percent, the biggest decline in 15 months and the third drop in this category in the past four months. My takeaway is that things are slowing down, not falling off a cliff.

My own theory is that most large ticket items were purchased over the past couple of years thanks to fantastic offers from manufacturers. "0% financing, no payments for a year." Those purchases really just pulled in sales from the future, and that future starts now.

Other slowdowns are not really demand driven. Steel has been in oversupply for some time thanks to over investment by China. Which is why the ATI and Nucor valuations have looked insane to me.

In any event, expect select buying today after yesterday's drop, but I don't think we've seen the last of this.

On a positive note, most of the stocks on my target list are looking strong.