The Grim Fairy Tale

 | Jan 15, 2014 | 3:45 PM EST
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Sometimes markets go up because a lot of negatives that were supposed to happen failed to materialize. I think that's what's behind many of the movements in today's session.

Let's start with the banks. Here's a group, part of the largest sector in the S&P 500, the financials, that isn't supposed to go up. First, the banks almost every single quarter for several years, go down not up when they report. They always seem to have some number, some statistic, some statement, some government investigation that just hammers the heck out of them, and we resent that we owned them into the reports.

Last week, for example, I featured Bank of America (BAC) as a potential breakout, using the always terrific work by technician extraordinaire Tim Collins. Do you know what heat I took for that? Do you know how many people were skeptical about this one? We have done a ton of "Off the Charts" segments for "Mad Money," I have a whole chapter devoted to them in Get Rich Carefully, and I have never had an outpouring of sentiment against a positive chart before.

With all of the talk of Fed tapering and how that would be terrible for the financials and with all of the chatter of the weakness of the mortgage and refinance markets, it was natural to think that this was going to be a year when the banks, already laggards and dullards, would get hammered when they announced their earnings.

Wrong! Today Bank of America recorded a legitimate upside surprise. That's right, a bank substantially beat the estimates -- and not in a one-time way. In fact, I could go as far as to say it was a blowout, with an amazing growth in deposits, terrific investment banking and simply incredible net interest margins, the difference between what they pay you for your deposits and what they can do with the money.

It didn't matter that the mortgage market has been declining at would otherwise be an alarming pace because that business is way overblown as a profit center. Mortgages are, alas, a commodity. It didn't matter much at all that there was still a big $2 billion litigation hit.

The money Bank of America is making when it turns on the lights each day is staggering, and CEO Brian Moynihan has done many things right. It was remarkable. And it wasn't supposed to happen to this DJIA stock, which is why it could rally more than two percent on the day and more than 10% for the year already.

That's amazing, and, of course, it spread to the other banks such as JPMorgan Chase (JPM), which didn't report as good a number as Bank of America yet still managed to rally again in an impressive way.

Or take Intel (INTC). Today we got still one more upgrade, this time from the Bank of Montreal. Why? Because of a belief, now verified several times, that the personal computer market is bottoming. That's also the reason for the endless rallies in Seagate (STX) and Western Digital (WDC), two more supposed road kills and what were supposed to be the layup shorts for 2014. I am astounded at the action in these stocks. My charitable trust owns a position in Intel, and believe me when I say that I am concerned that the stock's moved up too far too fast. But my instincts are to stay along for the ride because it has been ages since Intel has done anything. It's too strong to believe that there isn't something very good going on here.

Or how about the newfound activism in tech stocks? When Elliott, a very smart activist, takes aim not at just one but two ne'er-do-well techs, Riverbed (RVBD) and Juniper (JNPR), it makes you go back over many of the hardware and software companies that have seemingly done nothing for years and years and yet suddenly could be worth a lot more than people think. This group has been so sleepy and immune to activism that it is ripe for a shakeup, hence one of the reasons why the PHLX Semiconductor Index has at last truly broken out here, up 10% for the year already.

I urge you to take a look at Xilinx (XLNX), a charitable trust name that had been stalled for ages because it said there had been a push-out of Chinese telco orders. Guess what: Those orders are now here. No more push-outs. And no more stalling out at the $45-$46 level.

Or how about construction equipment? For many people, including some very clever hedge fund managers, Caterpillar (CAT) was the short of the year. China is falling apart, right? Isn't it? The rest of the world is doing terribly. But here's one thing the no one has been talking about: Business has become quite strong in the U.S. of late, and inventories have actually gone down to more-than-acceptable levels. That's how a stock such as Caterpillar, which was down last year, has started to really get some momentum. I know that minerals are bad, China isn't so hot, and Europe is nothing to write home about. But if Caterpillar has a surge in U.S. orders to refill dealer inventories, this sucker is going a lot higher.

Or how about the oil tanker business? Don't look now, but day rates are soaring, going as high as $100,000 a day -- that's up about $80,000 from the end of the year. Lots of it is that oil that would normally have gone from Venezuela to the U.S. is now going to China, which is a much longer trip and that makes for higher rates. Plus, there are shortages in a bunch of places. Still, though, that's not supposed to happen.

Unlike the other instances that are moving up, Nordic American Tankers (NAT), a stock that I thought had been left for dead, is beginning to look mighty attractive again, particularly because the company's all-in costs are about $10,000 a day. The company is loaded up on ships and is uniquely levered to the day rates. Maybe the stock will at last catch a bid. Stranger things have happened.

Finally, there's cable. Universally we were supposed to be moving away from cable, right? The cord cutting, the device hopping, the lack of a need for all of that programming. Yet all you have to do is look at the move in cable giant Comcast (CMCSA), up a buck and change today and at another 52-week high, and consider the potential bidding war for Time Warner Cable (TWC) led by the once-bankrupt Charter (CHTR), and you know that the groups on fire.

Now, there are some negatives that were hard to get your arms around. The declines in mall traffic and consumer spending on apparel at brick-and-mortar stores have taken our breaths away. The shocking decline in the oil stocks, until the last two days, has been pretty gripping. I know I was taking a huge amount of heat for liking the group just two days ago, with catcalling all over the place -- something that, alas, may have marked an important floor in the sector. When the criticism turns hostile over a move, that usually means you are at a positive inflection point.

Still, though, when the negatives don't pan out, when good things happen when they aren't supposed to, you get the action we've had for the last two days and, for some groups, most of January. Sometimes the least banked upon is what causes the most upside.

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