I'm Getting Sticker Shock

 | Jun 20, 2014 | 12:22 PM EDT  | Comments
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Stock quotes in this article:

cvx

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ppg

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unp

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eog

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wag

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mon

Holy cow, $131. Chevron's (CVX) at $131? That's what I said last night when a guest in our audience asked me whether it was time to let go of some chevron at $131 and cycle into another oil.

You know what I experienced when the questioner asked about Chevron? I experienced sticker shock, a revelation that, at last, Chevron had left behind a range that it had been stuck in for a full year of trading. I had known Chevron as a stock that needed to be bought every time it dipped below $120 and then sold every time it got to the high $120s. The trade was money and it had been money until right about now, when it broke through the range to where it had not been before.

We have been experiencing sticker shock all over the place of late. For eight months, PPG (PPG) dallied in the $180-190 area. Then, three weeks ago, it broke out of that range and hasn't looked back.

The sticker shock in the oils has been breathtaking. Have you seen the action, for example, in Union Pacific (UNP) or EOG (EOG), two of my long-standing favorites? Not only have these gone from creeping higher to galloping higher, another form of sticker shock, but they've split their stocks, making the prices even more unfathomable.

Now, we are of two minds when we see this kind of behavior. The older, staid veterans tend to be repelled by it. They like the ranges like old shoes and they don't want to try on a new pair. For many of these, a stock that has broken out is a stock that is now too expensive, like what we are seeing in so many of the oil and drug stocks. Professionals are a wizened and cynical group and when they see breakouts that they aren't in, they say, "oops, I missed that one." They can always counsel and console themselves by saying, "I will wait for a pullback," but once a stock has consolidated multi-year gains, as so many of these stocks have, and then blasts off to levels never seen before, they actually tend NOT to come back.

Individuals and chartists, on the other hand, are distinctly drawn to breakouts. Many in these two cohorts actually don't want to buy until they see a breakout in the range. They aren't shocked by the sticker they are drawn to it.

As is often the case, I come out somewhere in the middle. That's because I have always said that I don't care where a stock has come from, I care where it is going to. If I think that it's going higher, I have to be willing to swallow my pride, the pride that says I should have seen the move earlier. That said, I do sometimes just say I missed it, like the moves in Walgreen (WAG) or Monsanto (MON), both of which report next week. I can't take the sticker shock there and I either have to get a pullback or I just have to shrug and say it's gotten away without me.

The best of all worlds, I think, is when you are spotting a stock that has based and seems to be about to break out. That's how I feel about all of the aerospace names. They have spent time in the wilderness. They are ready to blast off. Same with the banks. Those are two groups that might soon experience sticker shock and that's the best place to find your ideas right now in this market. 

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