The market continues to jump around wildly. Investors are sitting on the sideline waiting for the volatility to end. And they will have a long wait.
For those looking to make money in the craziness, trading is the way to go. Daily fluctuations in the market provide fertile ground for profits. In fact, success in this environment can result in a year or more of gains made in one or two days.
That may make little sense, but there is no sense in debating the reality that we now face. At the moment that reality is based on an economy that is sinking and sinking fast. Despite the best efforts of the central bank and the federal government, a long recession is now baked into the cake.
What does that mean for stocks?
It means volatility and uncertainty will rule the day. There is very little clarity in the market, and even the best at forecasting are having difficult viewing the crystal ball.
Hewlett-Packard's (NYSE: HPQ) news yesterday was a fresh reminder of that uncertainty. The company offered a preview to fourth-quarter results, ended Oct. 31, that defies gravity. At a time when every other company seems to be offering lower and lower guidance, HPQ came in and boldly stated that revenue and earnings will be greater than expected.
Even bolder was the prediction that first-quarter earnings would either meet or beat current expectations.
You heard that right.
With all this uncertainty, HPQ will do the impossible by not just meeting expectations, but beating them. Such a move was either very brave or very stupid. Honestly I can't tell which.
HPQ stated that revenue for the fourth quarter would be at $33.6 million, slightly above the expected $33.09 million. Earnings on an adjusted basis are expected to be $1.03 per share, above the $1 now expected. First-quarter earnings will be in a range of 93 cents to 95 cents per share.
How on earth can HPQ really know how the quarter will play out this early and with this much trauma in the economy? It makes little sense to me.
Nobody knows how the holiday season will go. Spending hit a brick wall in October, and that shows little sign of abating in November or December. It is only mid-November, right?
About the only thing I can figure is that HPQ is operating on a different planet. Either that or the company is selling its soul only to pay the price down the road.
Are they channel stuffing? Are they offering huge discounts to secure orders in the short term? What is their strategy, and how are they pulling off what the majority of the market cannot?
The news sent HPQ shares flying. They closed up 14.49% yesterday. But I wouldn't touch these shares with a 10-foot pole. The PC business is weak and one need look no further than industry leader Intel (NASDAQ: INTC) for evidence of that. Did INTC not state that they expected revenue to be down 10% in the current quarter? I'd believe INTC before I trust HPQ.
The trade here is to sell the strength. HPQ is likely to disappoint. The economy is moving so fast that predicting the short term is difficult. At best, they are doing this knowing they have done so at the expense of the future.
It's an interesting approach to the difficult operating environment. But I'm not buying it.
Jamie Dlugosch is a contributor to OptionsZone.com.
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