Previous Rallies Aren't Your Ally

 | Jan 10, 2013 | 7:14 AM EST
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When will the macro give the micro a break? When will the stronger news we see, the sweeping data like the 14% increase in Chinese exports we got last night, translate into higher earnings for the companies doing business there?

When will the more stable interest rates and slowing of the rate of decline in business in Europe impact our companies' bottom lines in a positive way?

Or does the prospect of chaos in Washington offset whatever good there might be to come when we eventually get it?

Or, worse, do the stocks already reflect that turn and then some and can only go down when we see the actual numbers across the tape?

That's what I've been pondering when I see, for example, the interplay between the commodities that are rallying off the broader Chinese news and the stocks behind them.

Let's take the reaction to Alcoa (AA). You had revisions upward in every product line, mostly because of an increase in the rate of growth in China coupled with a more gentle decline in Europe. These results produced some pretty good numbers relative to expectations.

Nevertheless, the stock had gone to $9 from $8 in part because people expected that the turn in China would help them and that they wouldn't be as hurt by Europe as they had been.

We got exactly that and nothing more. It wasn't enough.

Today I am looking at oil going higher and I am thinking we could get the same thing when the oil companies report. A better commodity price because of a better global environment, led by China, produces slightly better earnings, no more than that.

So, again, maybe the stocks just don't have room to run.

In the meantime, making things more treacherous are the downgrades by analysts who seem, daily, to pronounce as over the moves we see. Case in point: Vale (VALE). We are getting some pretty positive import data out of China about iron ore demand. That directly impacts Vale. In the meantime, HSBC two days ago downgrades Vale, noting the same trends but saying that's why the stock's gone to $20 from $17.

Is there any thought, perhaps, that if China goes from 8% growth back to 11% growth that Vale might not yet be anywhere near where it could go and that it did, indeed, trade at $35 two-and-a-half years ago? Does that range matter?

Apparently not.

Isn't that your concern, say, with Cummins (CMI), with Caterpillar (CAT) or with Joy (JOY) or even Coach (COH)? All have been rallying on the big macro Chinese data.

But could they be Alcoas, too, or more dangerous than Alcoa given that AA didn't hurt you on the better-than-expected news? Do you think that China's improvement this quarter hits Joy Global's news or did the ten-point run it just had include that better macro environment and if it hasn't translated into orders the stock gets whacked?

Wasn't there a big inventory of Caterpillar earthmovers building in China? Did that suddenly get worked off? When Alcoa says truck sales are picking up steam in China isn't that why Cummins just moved to $113 from $97?

Can they even take away Coach's three-point gain that can only be attributed to a more sanguine Chinese outlook, as nothing good is happening in the U.S.

Are all of these Vale or Alcoa?

That's what you have to worry about if you come in here and start buying. Worry that these stocks are susceptible to a one-two punch of no real translation from the macro to the micro and then the concomitant downgrades from a fearful analyst community, with one eye on Washington that always gives them pause.

Yep, it's hard to resist this rally. But remember the analysts aren't your friends and the rallies that we have had already aren't your allies either.

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