A Flight From Safety

 | Aug 07, 2012 | 12:26 PM EDT
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There's a monster rotation going on, truly huge, and I think it is related to a potential darkest-before-dawn Europe trade as well as a recognition that perhaps Obama is going to win big and there will be a higher tax on dividends.

The combination of "safety last" and aggressive buying of cyclicals and growth stocks can be seen all over the place. Kimberly-Clark (KMB) reported a beautiful upside surprise last week, and it has been sinking like a stone. Emerson Electric (EMR) reported a downside surprise, and it is rallying. Joy Global (JOY), which has been horrendous, is rallying hard, along with the steels and the metals. But there's profound weakness in Church & Dwight (CHD) on a miss, and that's a fabulous company. Plus, the chartists are having a field day, because now all of these look like head-and-shoulders tops, while the cyclicals look like head-and-shoulders bottoms.

Just as pronounced is the rally in broken growth stocks led by Fossil (FOSL) and Chipotle Mexican Grill (CMG). I had been very negative on Chipotle after that so-so quarter, but I think CFO Jack Hartung cleared that one up and made you feel that the bottom has been put in, both in the stock and in the fundamentals. That's been on fire, bottoming close to the levels I predicted here.

Don't forget the action in Fossil. That had been a casualty of Europe, so this comeback means a rally in PVH (PVH), Ralph Lauren (RL), V.F. Corp (VFC) and Michael Kors Holdings (KORS).

As this is technically only day one of the rally in the growth stocks and day two of the rally in cyclicals, as well as day two of the selloffs in defensives, I think it has more to go.

IF Europe is putting in a long-term bottom, as the bourses are saying -- forget the bond markets over there for a nanosecond and focus on the stocks -- if the CurrencyShares Euro Trust (FXE) is bottoming and if the dividend trade is pausing, than you could have a rally that looks the exact opposite of what happened last year at this time.

Fitting, because, alas, it would be fooling the most people at once, just like last year. 

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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