A deep post-decline analysis
Nothing refreshes like a look at the charts.
After the first down week in ages, nothing refreshes like a look at the charts.
When they are all going up pretty much in unison, the charts do not have a lot of added value. But when we have a decline, particularly a midweek decline including an intraday calamity, they have terrific value. We can see what's gotten vulnerable, what's pulled back and ready to go, what's overextended and what's just plain old broken down.
For the record, I use the S&P's Trendline (hard copy) Daily Action Stock Charts, as I have for 26 years, hand delivered Saturday. They measure stocks using 30-week and 10-week moving averages. While I am not a chartist, I always respect the profession, as Karen Cramer, whom I worked with for years and years, was a fabulous technician and she took these very same charts and generated a host of charts that she liked and didn't like and then told me to find research on any of them to come up with potential trading ideas.
I like to divide the charts among those I think represent pullback opportunities, those that seem overextended, ones that appear to be on the precipice, and stocks that are breaking down hideously. I then try to find patterns among them that can justify the depictions presented. Of course, not everything shoehorns, but often the buckets make sense because of specific group issues that have arisen into the selloff.
So, let's start with the best-in-show charts, looking for ones I think, to borrow a phrase from the old research department at the old firm that was Pru, are twice-blessed: good-looking chart matched up with intriguing fundamentals.
The best-looking group coming out of the selloff, BY FAR, is the banks, specifically the regional banks. I am struck by how so many of the regionals, Fifth Third (FITB), First Horizon (FHN), Key (KEY) (an Action Alerts PLUS name) Huntington Bancshares (HBAN) and even Wells Fargo (WFC) look. I think that's the tipoff that lending is coming back. Watch this group after Bernanke talks at 10:00 a.m. ET Tuesday on Capitol Hill. Given the immense number of downgrades and number cuts the group has withstood, there might be something bigger going on here than just the same old pat worries about shrinking net interest margins.
Second-best looking? The cyclicals, which were pounded hard last week over worries about China's newfound weakness (liquidity being withdrawn) as well as Europe's endless woes, including another dip down, this time in France.
Here the two most intriguing charts are from Manitowoc (MTW), which many know I believe will be split into two companies, food service and cranes, and Terex (TEX), the crane company that reported a subpar quarter. These are signs of commercial real estate progress, in keeping with the recent spike in architectural billings, an important indicator of future growth, and they buttress the beauty of the regional bank charts.
The other cyclicals that are strongest jive with the return of the truck business as a driver for industrial production after multiple months, such as Paccar (PCAR), Eaton (ETN), Parker-Hannifin (PH), Nucor (NUE) (steel used in trucks and commercial real estate as well as cars) and Cummins, itself the trucking king. We always want to see these stocks go higher because they portend a healthy commercial transport sector down the road.
Housing got crushed this week, something that was predictable because of how overextended it was going in to the Toll Brothers (TOL) report. I have railed several times already about how I didn't see the Toll report as being consequential at all, other than it showing tremendous strength. I think the market agrees because former darlings Sherwin-Williams (SHW), Stanley Works (SWK), Weyerhaeuser (WY) (an Action Alerts PLUS name) Newell-Rubbermaid (NWL) and Whirlpool (WHR) all seem tempting to me, with pullbacks precisely to where they are most compelling. I think this group, which reported among the best quarters, is still in the early innings because we are lucky if we build a million homes this year, which remains well below average.
- Also see: Cramer: time to adjust not sell out
Tech's also making a serious comeback here, one that has to be noted if only because we are all so transfixed by Apple (AAPL), and I have tried and tried hard to get away from that fixation as it has become a hedge fund/media parlor game.
Of these the most beautiful are two stocks that reported strong earnings and have fallen back on trend lines I believe will hold are Cisco (CSCO) and Oracle (ORCL). If you recall, Cisco truly had an excellent quarter and if CEO John Chambers had left it at that, instead of giving cautious commentary, I believe the stock would be headed back to $24.
Oracle's business is just very strong and while last week Hewlett-Packard's (HPQ) turn to shine, it is worth thinking about the fact that HPQ had been trying to nip at Oracle's heels when it comes to large-scale software and consulting and yet CEO Meg Whitman had nary a mention of that division.
IBM (IBM) ran and ran hard after it reported and it has now pulled back to levels that I think can support a further advance. Two worth noting for their out-of-synch natures are Western Digital (WDC), which remains incredibly strong despite weakened outlooks, and Cypress Semi (CY), a dog of a semiconductor company of late with a 4% yield and a fighting chance to do a ton of touch-screen business with all about Apple. If anyone has any insight into whether Google's Chrome touch screen uses proprietary Cypress technology, I would be most grateful to find out.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long KEY and WY.
More from TheStreet.com
" Impeach Bernanke or face disaster soon !!!"
I'd rather just put guards on the exits and reconcile the Fed. We don't want to have to chase crooked bankers down when we can conveniently roast them in their own corrupt institution.
"Lending is coming back ? The (TBTF) Banking Cartel is going to lend us the money they robbed from us under the "BULL "S" Bailout !"
Fully agree. After a decade of corruption in banking and credit, the odds of reviving something so fully destroyed isn't possible. Better to fling these losers off the roofs of the ivory towers and start over. The short salers and no-docs and all the other hokey program recipients are still on the books. Anyone who doesn't see the similarity between our national credit portfolio and those nuclear reactors in Japan is blind. Both have contaminated the whole sector and we are yet to know the full effects.
You go, Jim. There's nothing like some analysis when every pair of open eyes is damning the target. With less than 25% of Americans using banks for more than a checking account service, you can bet your analysis that their days are numbered.
Short term CDs (6-12m) are a safe place to leave cash laying around, easy to get out without making a decision to sell any stocks,real estate or other investment that are down in value.
Who cares about losing .50-.75% if you need money and need it now...?
The old saw of "having your eggs in one basket";...Holds true..
And CDs "can be" a decent investment...
CONSIDER...2007-2008...Where 3% beat the hell out of most investments in 2008 for the year; Where many and most lost 20-70% in Market (WS) issues...
The "only year" where my wife's "stash" made the rest of us look stupid.
If it were not for our recession and inflationary controls...CDs would still be appealing, for many.
DON'T be a HUMPTY DUMPTY...
We call it as we see it people, manipulators took over sometime after 1030 hrs, what you saw at 1300 hrs, the DOW recovering and almost breaking even was just another sucker's rally seen a mile away, its unreal that we have people that still fall for those...The goal we hear as usual is to bring us down triple digits and they have plenty of time to do it...Once again folks, cheating pays in Wall Street and don't think for a minute this is Italy's fault, this is what these crooks want everyone to believe, tomorrow may be Spain and wed Germany...Unreal...More after the close.
"What has happened is investors (read savers) have been buying gold, stocks, foreign currencies, and investing overseas in an attempt to protect their savings from the FED."
Active RIA told me to play nice so I'll try. First, all investors are hoarders not savers. Savers save up to grow. They use savings to leverage bigger down payments as to increase the potential size or value of an asset purchase. If this were not true, every asset would have the same price. All the stuff listed in the quote undermines the economy because it takes currency and cash flow away from the economy. We suffer today from a huge bubble in hoarded junk with a strangulation of cash flowing capital on Main Street. America doesn't own the Federal Reserve nor is it part of our government, so you are not hedging against the Fed, you are directly hurting America. The Fed is as well. The sequester has the potential to wake everyone up. Likely all those hedges will sink and the subsequent thinning in both government and government contractors will pierce the bubble but not hurt Main Street. For instance, let's say Wal-Mart stock drops along the cascade default caused by the sequester cuts. They are forced to close stores. A whole bunch of Minimum Wage workers dump into society but so does a huge overstock of goods that must move or will lose value as they age. If you are stuck in gold, guns, ammo and foreign investments, you will have no liquidity. Those things are over-invested. If you aren't in stocks or bonds either, you must have cash. Even though the cash is fiat from Bernamke's folly, it's still cash and could be used to purchase the makings of enterprise. Start ups at the bottom tend to thrive and live during the recovery. Everything else gets hit, trimmed, dimmed or dies. Read your history, it's not a mystery. This has been a bad Game of Drones because- unless you can liquidate RIGHT NOW and redeploy it, you are counting on being able to have liquidity when things freeze up. Does that make sense?
CGT! maybe YOU haven't been keeping up with Europe and ESPECIALLY Italy ??
What the hell do you really do for a living ??
Have you got a DISCO BALL in that basement...?
Obummer's lies ??? Whaaaaaattttt !!
Always remember grasshoppers
Obuma was FOR the sequestration BEFORE he was against it !!
What leadership, what transparency !
Don't you feel better now that Dear Leader was for sequestration before he was against it ?
Bt the way , lefty , looney , lemmings- care to challenge me on this tiny point ?
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.