It's getting harder to be negative
The obstacles to a market turnaround could be breaking down.
By Jim Cramer, TheStreet
Challenge your thesis. Challenge your positive view. Challenge your negative view. That's what I always do. That's what plays out in this blog.
Right now my view is that things are going wrong and it's because the earnings have to pass through the Scylla of a pro-labor president and the Charybdis of the Chinese government-mandated slowdown.
That means everything from Apple (AAPL) to Amazon (AMZN) from Bank of America (BAC) to Caterpillar (CAT) must go through that gantlet. But what happens if one of the two obstacles loses its power, loses its ability to crush us? What happens if one of the obstacles gets discounted in the numbers because the stock that is passing through the strait has already gone down enough to be considered a comeback name?
That's what could happen. We may have seen the latter start
Thursday with the bank and health care outperformance.
The banking group may be
saying that now is the peak in populist sentiment as the absurdity of the
Volcker rule and the inability of the AIG
hearings to tarnish all but Congress show the futility of demagogic fights that
the president wants to pick and the wrongheaded theory that private equity,
hedge funds and prop trading caused the morass.
This theory is that the Volcker rule addresses the last war, Long Term Capital Management, and that the bankers know that sloppy lending and mortgage standards needed to be stopped and toughened. The firms with private equity/prop/hedge survived precisely because they had that diversification.
Plus the survival of Tim Geithner, a Treasury secretary who
is liked because of his sophistication and experience through the crisis, now
no longer seems in doubt and the fated Volcker press conference may have been
the last reach of a president desperate to deflect Bay State defeat.
The absurdity of Wall Street owning Geithner when he pushes for endless dilution to get the Federal Reserve money back -- a brilliant solution, frankly -- and the notion that the big banks and not the endlessly ceased small ones are the trouble is too disingenuous for Geithner to swallow.
So those stocks went up.
Health care? Here's an odd one, because Obama didn't back down in his State of the Union address. Instead he stood by the notion that he "has the votes." He doesn't. He won't let it move down in the queue to focus on jobs because he doesn't know how. That involves managing Congress, which is clear to all but the lauding press as the real issue.
Which leaves China. I do not think that the industrials saw this China slowdown coming. I do not think they understand the severity of it. They do not understand that China's crushing not just infrastructure spend but even letters of credit. That means the companies don't know the damage. If they don't, we don't. The international-based stocks, which ran hard on China, do not discount this roadblock.
But when you look at the market you can argue that the banking, health care and soft goods sectors are ready to run in an oversold market. Tech's tougher. It has the patina of China but is really not as cyclical as we think. We keep confusing the spend for a Cisco (CSCO) or EMC (EMC), to name two obvious ones that have either been crimped or stalled, as cyclical when the industries they sell into have starved growth and therefore have to spend, particularly the financial industry.
That spend just began in the fourth quarter, and according to Avnet's (AVT) CEO, has tremendous momentum going into 2010. Intel (INTC), Texas Instruments (TXN), ON Semiconductor (ONNN), Xilinx (XLNX) and Altera (ALTR), to name some representative examples, have room to run, sans China. Apple was good. The new device revealed this week is only denigrated by those who do not play video games or focus on Facebook, which may very well be a minority as those social media uses are the drivers of the device. That and the now-beloved iTunes. Only Hulu seems to have enough power to stem the notion of paying for video content unless you are on the go and not tethered.
Oil, as epitomized by Schlumberger (SLB) and Chevron (CVX), have come down enough off China to ponder. I do not think Peabody (BTU), endlessly promotional, or Bucyrus (BUCY) or Joy Global (JOYG) or even CAT have corrected enough, but the latter is down 14 points from that artificial options-related high and will build a base here, in my judgment. We can watch this phenomenon by the swiftness which the Baltic Freight Index is dropping. And it is happening with lightning speed.
I focused on aerospace Thursday because it is not on Obama's enemies list and was simply technologically stalled, not financially stalled. That matters. So does the auto build, up from 8 million to 9 million to 11.5 million, using numbers that Johnson Controls (JCI) gave us.
That's the panoply. Fortunately, more test cases lie ahead in next week's earnings and the endless pull-down of gold, and more important, oil. It does seem that oil must touch the low end of the $70-$83 channel and bounce if this Charybdis is going to be stalled. Given the oversold nature of the market it is possible for a bounce to sell into coming soon.
Maybe those are enough sectors to break the market from the morass if Greece is just Dubai, and we will look back and marvel about the renewed buying opportunity we got this week.
I think that may be too glib. But the notion that the market will forever ignore companies such as Microsoft (MSFT) and Amazon does seem a little preposterous given their above-average growth, new product cycles and corporate (Microsoft) and consumer (Amazon) embrace.
Tough to be positive. But the declines make it tough to be negative. Sounds like a standoff may be developing.
At the time of publication, Cramer was long Apple, Bank of America, Chevron, Intel, Cisco and Johnson Controls.
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