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Weak Earnings, Europe Spook the Markets


The market got smacked right from the opening bell on Tuesday as the third quarter earnings season continues to come in even worse than expected. From high tech darlings Apple (AAPL) and Google (GOOG) the selling has moved into Blue Chip stocks often sold as safe alternatives. Du Pont (DD), 3M (MMM), General Electric (GE), Microsoft (MSFT), IBM (IBM) and McDonald's (MCD) have all missed estimates and gotten punished despite their generous dividend payouts.

"Although Halloween is next week it's getting pretty spooky out there," says Jeff "Killir" Kilburg, Founder & CEO of Killir Kapital Management, before quickly assuring viewers that he himself is unafraid. "Now is the time to dip in the waters because everyone is selling."

No matter what you hear in the Book of Macho Trading, stepping in to buy simply because there's a sell-off happening isn't an investment strategy. Not yet, anyway. And Kilburg admits that. The Dow is barely down 5% since October 5th. A sell-off doesn't count as a "correction" until a decline of 10%. And two weeks of fear is hardly enough to burn off any irrational exuberance in the tape.

Kilburg has two rebuttals to the "too soon to buy" argument. First, it's Fed week. Though the gains since the announcement of "QE Infinity" have evaporated, history has taught traders to never bet against the Bernanke Fed. The man has stimulated asset prices in ways not previously imagined. Kilburg wouldn't put it past him to do so again.

Thinking past this week Kilburg places a good portion of the blame on the much-discussed uncertainties created by the Presidential Election and the prospect of the U.S. running off the Fiscal Cliff at the end of the year. The confusion surrounding what's happening in fiscal America has CEO's cutting back spending now and making the fourth quarter and next year almost impossible to forecast.

Kilburg feels like he has a handle on when the pain will end. "November 6th," he says, referring to the election. "That provides some certainty for CEOs and business leaders across the globe to possibly implement some capital expenditures."

He's not pounding the table but suggesting those with cash on the sideline "feather in" to long positions. On days such as this, that's about as bullish a call as you're going to find.