A deep post-decline analysis

Nothing refreshes like a look at the charts.

By Jim Cramer Feb 25, 2013 10:19AM

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Stock market report CorbisAfter 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.

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.

Cramer 

 

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.  

 

 

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39Comments
Feb 25, 2013 11:55AM
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Banks are getting free money from Bernanke, who is robbing the middle class. Savers are becoming homeless, retired people can´t count on other sources to survive. In the beginning, it may benefit banks, but...until when? Concentration of wealth is nearing that point where the wealthy won´t have with whom to play any longer. Impeach Bernanke or face disaster soon !!! 
Feb 25, 2013 12:38PM
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The banks have billions in capital and access to billions more -  ultimately this capital will be distributed to the public again much as it was in 2005 onwards fuelling the housing boom/bust .....where will the capital head? Who knows ...I suspect at some point into the markets via cheapo margin lending and then back into real estate once people have "forgotten" the last bust !!

cramer is starting to sound like oscar pistorius --- he is talking sh*t and hasn't got a leg to stand on !
Feb 25, 2013 12:00PM
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" 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.  

Feb 25, 2013 12:04PM
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"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.

Feb 25, 2013 11:37AM
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Lending is coming back ? The (TBTF) Banking Cartel is going to lend us the money they robbed from us under the "BULL "S" Bailout ! Good luck !  Housing drives the economy the numbers are being manipulated ! 30 million homes in the banks shadow inventory ! Another 10 million in some stage of default, foreclosure or severely underwater ! There is your housing recovery ! Believe what the criminal banksters tell you !
Feb 25, 2013 1:50PM
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There is no question this current government is harmful and has few clues as to how things work, only a desire to buy friends with your money.  In the meantime the lenders are lending.  I know a number of people that are refinancing out of old mtgs into lower interest mtgs saving hundreds in payments/month.  This is going to have a positive effect and its building steam.  I just got refinanced on a rental house at 3.99%, my former rate was 6.25%,  That's putting several hundred dollars in my pocket that used to go to the bank.  I see trucks with house lumber on the roads, not tae way we did in the 90s etc but they are showing back up.  I also think commercial truck traffic and highway traffic is general are picking up here in central MN.  I don't think there is going to be any stock market crash, there will be no collapse of civilization and markets will remain orderly and on a strong upward trend.  Metals will remain in a trading range to keep them in relative value to other commodities but they are not going off by themselves on a rocket trajectory.  Things are moving higher.  If you aren't invested you will be left behind. 
Feb 25, 2013 11:58AM
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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.

Feb 25, 2013 12:49PM
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Cramer a regular Snake oil Salesman ! Sacrifice the SHEEP to feed the WOLVES !
Feb 25, 2013 5:59PM
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I don't particularly think the banks are liquid ...my thoughts are they are just the street level pushers of cheap capital (money) ....what I've noticed over the years is that that cheap cash is used to inflate hard assets which ultimately are sold at the top to the people who can least afford them and using their FUTURE earning power ...i.e. credit (its not enough any more for the greedy to steal whats in your pocket) ....the hard assets are then deflated and are only available to be purchasedby cash buyers ......then it's just rinse and repeat ...the big difference is that the super greedy used to work these cycles over a 20 year or so period but now it shortened to 5 - 7 years and will shorten even more as our attention span shrinks.

I am waiting for the next manipulated real estate boom and will look to buy the downside in 6 - 8 years time --- just in time to retire in the Caribbean !! ;)
Feb 25, 2013 12:04PM
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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... 

Feb 25, 2013 3:46PM
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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.

Feb 25, 2013 11:55AM
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careful....this hack pushed HARD for aapl at 700,aa at 18,gold at 1900
Feb 25, 2013 2:26PM
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Remain vigilant, the small rallies you are seeing are not that important for now...They are selling on all rallies attempted...Still over 2 and a half hours to go, plenty of time for these scumbags to cause a lot more damage...Be careful...More later.
Feb 25, 2013 6:14PM
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We warned you on friday after the close to be cautious this week, that it would be interesting; we knew manipulators wouldn't stay action less for long, well, today's last 30 minutes was theirs and only theirs...They brought us down 216 points, why? Because they could, and it could have been 300 if the closing bell didn't ring. Please stop listening to the crooks that want everyone to believe this is Italy's fault, that's just a distraction...We can always say Obumme'rs lies earlier today are also to blame...The fact is that when manipulators take over on and off the floor things can change in a NY minute and today they did. There was nothing anyone could do about it sadly. We were outnumbered and that's all she wrote. Lets see if we can come back a bit tomorrow, have no doubts these cheating crooks will want to continue doing their thing, after all they have been quiet for about 7 weeks.
Feb 25, 2013 12:47PM
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We are comfortably in the red now, what a surprise and the liar in chief opening his trap to bs the American people doesn't help at all....Like we always say, the socialist arrogant may fool the people, he doesn't fool the markets...Like we said earlier, low volume and plenty of manipulators makes it another uphill battle...Lets see if this afternoon things can get a bit better.
Feb 25, 2013 11:34AM
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Be alert this morning....Yes, we opened up over 70 points but wont last long, at least we don't believe so....Plenty of manipulators and the first call to sell already came and down we go...Be cautious, volume not optimal and with so many crooks, never a good thing...More later.
Feb 25, 2013 1:03PM
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"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?

Feb 25, 2013 6:26PM
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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 !!

Feb 25, 2013 5:43PM
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I hope Obama believed in the Sequester early on...Who would want to challenge that ??

 

I'm goddamn tired of being "held up by a gun" by Obama or Congress ..

 

Especially by Congress,,,Wimpy bastards..

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