The Bullish Paradox

 | Aug 09, 2012 | 3:50 PM EDT
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We are seeing a mixed picture, which is leading to higher prices. Take American Express (AXP): The company said things slowed in July. So you should want to sell the companies you think are paying with American Express, right? But every company I use my American Express card for is on fire. The retailers I like are ridiculously strong.

China is doing horribly, so why not short Vale (VALE), instead of buying it, as we did in Action Alerts PLUS? Because we are in the perfect bullish paradox, as I heard it described by some nameless soul during some early morning TV watching. The worse it is in China, the more they have to stimulate, so buy. If it gets better, well, buy.

We know that housing's getting better ever so slowly. It's not getting better because of employment growth, though. It is getting better because of pent-up demand as well as diminished supply. We have worked off a lot of the foreclosures in a lot of areas. We have also had families bursting at the seams in the houses of parents. So household formation plus reduced supply spells better earnings for the homebuilders.

We heard from Avnet (AVT) last night that the last two weeks of June were horrendous and July was no better. Horrid for tech. But then Cisco (CSCO) got two upgrades; terrific for tech.

It goes on and on like that. For every bit of bad news, there seems to be something good.

But what's most noteworthy is that we don't expect anything good. We are so used to everything either being one way or the other. We don't have that kind of environment. So the negative pin action on disappointments such as Monster Beverage (MNST) or Chipotle Mexican Grill (CMG) or Priceline (PCLN) simply gets blunted.

Therefore, you get some decent earnings news with a backdrop of gently rising rates and a quiet Europe and the next thing you know, voila, you have the hated rally that you see on your screen.

Random Musings: You cut numbers enough, a la Alpha Natural Resources (ANR), and even a horrendous quarter can drive the stock higher. 

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