Fed rally leaves bears in a bind
Without some kind of October surprise, they'll need a different approach to make up for Thursday's missed opportunity.
You can't make it back in cash. That's what we saw Thursday after the Fed spoke, a combination of buyers who could not wait any longer for the market to come down and buyers who were simply overwhelmed by the bullishness of Ben Bernanke's statements and went in with gusto.
The latter buyers are very understandable. They liked what they heard, they knew that mortgages were going to be the target, so they bought companies levered to housing, such as Home Depot (HD), which our fund did; Toll Brothers (TOL); and Bank of America (BAC), which is now the bulls' cause celebre.
But the people who have missed this rally, who need to make it back? They are in a prisoner's dilemma as long as no one broke ranks, as long as they adopted a rally that "it isn't even up more than 80 points." But as the market refused to surrender and the buying became more voluminous, they had no choice, because Thursday was a true rip-your-face-off rally, one even stronger than the averages seemed, one where the defensives really hurt you by barely budging and one where cash decked you and amounted to a short position vs. the S&P.
I get the prisoners' dilemma. While there's a Spanish bond auction next week that will allow the bears to trot around and try to strut their stuff, we're in conference mode, and there's not a lot bad that's in conference time.
If I were a bear, I know what I would go for: oil and gold. You can rationalize Franco-Nevada (FNV) (gold income player) or Occidental (OXY), the most levered to oil of the internationals, or EOG (EOG), the best positioned in the country for oil going higher, and you can still stay bearish. Oil, you can rationalize, is a play on Mideast turmoil. Gold is to say "I don't trust this rally; its inflationary."
These are the prisoner's dilemma stocks that could have the most upside here now that oil and gold are breaking out.
But you have to do something if you are behind. Without some exogenous October surprise, you may not have the big, big downturn you need. Perhaps we get some Rosh Hashana futures sell program or blowup that no one sees coming, but it now has to be of Apple (AAPL) proportions. Otherwise, what I see happening is that every percent decline brings in buyers, not sellers, which is quite a turnabout from where we were before Draghi corralled the Germans and brought them to their senses.
So look for little rip selling as we had Thursday and almost programmed-like buying down 0.9% by the sidelined prisoners, who want to cut a deal with the bulls before the market goes too low. They just can't afford to fall behind 25 to 50 basis points, which is what happened Thursday if you had too much cash and too many shorts.
The day when you can judge a rally as bearish, when it is up only 80 points, is the day when it doubles from there.
Different pattern. Treacherous for all but the biggest gunners out there, the Bank of America gunners, and, boy, are they dangerous.
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 HD and AAPL.
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Holy Toledo Batman,
Let's see the Federal Reserve said that even with zero percent interest rates until 2015 that the US economy was so weak that they were going to pour $80 billion into the housing market to keep it afloat $40 billion directly and another $40 billion as assets they already have mature.
This is another $1 trillion dollars they are throwing at the US economy on top of what they have already thrown at teh US economy of over $3 trillion. And they still fear the US economy will become even weaker.
Gee people the crisis bail out was suppose to only be $750 billion now it is over $4 trillion (not even counting the off balance sheet infusion of over $24 trillion the Fed has been doing in stealth mode) and we are still catch in a Death Spiral of LOST JOBS and an ever weaker and weaker economy.
Cramer why can you say any of this is good??? The US economy is going down the tubes faster and faster and you make it sound like a good thing.
With the fourth straight year of average wage decreases for the American worker how in the world do you think any of this is going help?
The housing bloom is merely investors buying properties and selling them to other investors.
We are in a much much bigger asset bubble than ever before and when it bursts there is no coming back for the US.
We have already lost the world reserve currency status so our debt problems are going to become more and more of a burden going into the future.
You think this is all good news?? You should be afraid very afraid of the total collapse coming.
Crammer you are as you say a MORON.. you only talk about things that have already happened in the market. For once I would like you to pick stocks before they move, you only talk about stocks after they move and your voice is soo wishy washy. You flip flop on stocks almost every week.
I wonder if you had no voice on CNBC if you would be able to move the flops you pick. It almost seems like you have taken what a penny stock mass email does except you push the higher end stocks you need to move day by day through CNBC programming. Strange that CNBC allows this.
"If I were a bear, I know what I would go for: oil and gold." -Bobo
If you weren't a despicable shill for the banks and wall street you would go for oil and gold. However most smart people know you are and your job is to get the suckers back into the market and paper. When helicopter Ben's money printing ramps up the dollar will lose anywhere from 30 to 40 percent of it's purchasing power and the suckers that believe you will lose their shirt. Meanwhile the smart money (not bears you con artist POS- smart money) will be dumping their money in commodities like gold and oil. Don't believe this lying crook. I warned you this weasel would betray you and here it is.
When it is time to tell the news the way it is for good or bad. All broadcasting companies are filtering the news that get released or are broadcasting to politically corrected releases. The average investor lacks accurate information about the markets, trends and troubles ahead. That is the reason the small investor is almost extinct since 2005, they were told to buy when all money managers were selling the recommendation. A lot of programs giving economic or investing news have done very bad informing investors accurate facts. An example of this situation is the schiller index and the actual numbers posted and the revised numbers. Same happens with the % sales of homes the actual might say this month is up 2.5% and 30 days after the post says negative 1,8%. Another example is the inflation according to the figures is a very low % (2.8 to 3) when you look at your regular expenses such as insurance, milk, chicken, eggs, gas, meat they are higher than 10% from previous year.
Please broadcasting networks stop accepting garbage information to be released to the public and give the investors what they need to put in an investment plan together. Something that based on factual information broadcasted by networks will allow small investor to do an informed decision. If you can not do this just use your program to give facts such as stock info closing even the minimum truthful info will provide good info for the future investor trading. This is better than receiving phony information to be taken into consideration for investment purposes.
The anticipation of the anticipation drove prices up, from here on out it is all about profit taking. What else is there to look forward too? Also, the unspoken truth (all stock traders know) that Fed and other actions in Europe will not fix the real issues, will now begin to take center stage.
great article JC - we as a firm are in that boat. qe II was tough to take and disturbing, but this latest global round of money printing is both irresponsible and downright frightening.
in any case, we may take some big lumps here is the short term, but during "normal" markets we avoided the 2001-2002 tech wreck and the 2008-2009 housing bubble burst and have solid, above-benchmark long-term returns. at some point someone is going to shout "fire" in this market theatre and many will get trampled on the way out the single exit (your "sell-sell-sell" button).
we refuse to be whipsawed by this money printing and hopium-fueled rally and will remain in alternative investments, reits, commodities, MLP pipelines, global bonds, gold miners, and TIPS. we'll see what the elections and the looming fiscal cliff brings, and what the bond vigilantes think about this lunacy. in my experience - what goes up must come down ...
great article and insight .....
Reminds me of the carnival game booths..as you walk by the hawker is showing you how easy it is to win! Just throw like this! Easy as pie! Win big!
The market has to go up..or nobody will play..hell..the hustlers can't hustle each others money! Values inch higher on minimal volume...almost like companies are buying their own stock to send prices higher. Easy enough to do if you have the cash.
Naah...that would never happen...
I'm not bitter...just tired of being told how the market is a sure thing and anyone on the sidelines is losing money. The market use to be a solid way to invest savings and gain a little more than banks offered in interest..but now it has become nothing more than a roulette wheel...and every smart gambler knows the house always has the edge.
Step right up..place your bets! Buy some stock! Up or down..the house wins.
If nobody plays the game..then what? That is what is happening,and the house doesn't like it.
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