As if this market hasn't produced a compelling phenomenon pretty much every quarter, we've got a new sign that the beast is rocking this house: the multi-day up extravaganza, where investors can't buy enough stock in one day after a positive event, they have to keep coming back, day after day, to get their positions on, no matter how big the company might be.
It's become a defining trait since the year began and is playing out spectacularly Thursday with a host of big capitalization stocks.
Let's go over what it means to you and your investment decisions because it is redefining the landscape on the fly. I have never seen anything like it.
Case in point: UnitedHealth (UNH) . Two days ago, UnitedHealth kicked of earnings season with what has now become a pretty traditional bang. The company blew the doors off the numbers, gave you a sensational guide up and pledged to use a significant amount of its newfound bounty from tax cuts toward data analytics, technology and innovation, which have become the hallmarks of this unrivaled health insurer. So what happens? First the stock jumps four on the good news. Then the next day, another four. And then today still four more points.
Now you might think that's impossible. How can the same good news be reacted upon day after day after day? Doesn't everyone know already?
Ah hah, I am glad you asked because as a former block trader, meaning someone who buys large amounts of stock at once, I can tell you that we are truly seeing something amazing. We are seeing a company with almost a billion shares not have enough liquidity to sate all the buyers at lower levels.
It's like if a bunch of Godzillas are unleashed at once trying to beat each other over the head to get in as much stock at once.
Typically, if someone wants to buy, say 100,000 shares of UnitedHealth, it could be done on the line, meaning a broker will make you an offering for say 50,000 shares and then work the order, meaning complete your buy of 100,000 shares by the end of the day. When I say make an offering I mean that the broker's so confident that there are sellers around, that he will short you the stock as a favor to get the rest of the order and keep you happy.
Now, what I am seeing is that there simply not enough sellers to get your orders in anywhere near where the stock is going to open or trade by the end of the day. No matter how high the stock goes -- and we are on our third day of highs, the buyers can't complete their orders. They can't get a big enough stock in at lower levels to have a big enough position to matter, and when you are managing, say five billion dollars, you need a lot of stock on the sheets, as we call it, or in the portfolio to make a difference. So you keep buying and buying to finish your order, competing against others doing the exact same thing.
What's so remarkable about this is two-fold: none of the buyers seem to give up and walk away and no sellers seem to appear at pretty much any price level. It's almost as of the owners don't want to miss out on what's to come and the buyers are desperate to have these shares because they are so convinced that they are going not to just $245, a few points from here, but maybe $250 or $260 or $270. It's a crazy case of FOMO on the next big move even as you created one with your own buying footprint.
The stock of ASML Holding ASML has been victimized by a severe case of the buyers' FOMO. This semiconductor equipment maker reported such dramatically positive numbers that the stock jumped $13 on the news. Then it sped up another $4 and change today on no new news. That's strictly managers of large amount of capital not being able to get all of the stock they wanted in on the first day and have had to keep buying and buying, no doubt betting that their average buy price will be lower than the last buy.
The FOMO got so heated that the buyers turned to rabid buying of the stocks of Lam Research (LRCX) , KLA Tencor (KLAC) and Applied Materials (AMAT) . Then they bought the stocks of customers Texas Instruments (TXN) , Micron Technology (MU) and Analog Devices (ADI) . It was a binge without a gorge.
We've seen this phenomenon day after day with the stock of Boeing (BA) , the aerospace company. I remember going into the interview with CEO Dennis Muilenburg in early December with the stock in the $270s and I decided, what the heck, I can see this monster going as high as $400. The moment I blurted it out though, I immediately caveated myself, saying that perhaps as early at 18 months from now. Darned thing just hit $350. The fact that it is having a down day might actually trigger an analyst to raise his price target tomorrow to start the phenomenon all over again.
We've had bouts of buying like this with all sorts of big capitalization stocks like those of Caterpillar (CAT) , FedEx (FDX) , and even Walmart (WMT) , the $350 billion market behemoth that trades like a small-cap teen retailer. Walmart's part of a one-two punch pattern I am seeing where it initially announces big pay raises for employees courtesy of a reduced tax bill, and now, according to a crucial upgrade by Goldman Sachs, the company is on the verge of what might be an even bigger buyback than it has already had as well as a monster boost in the already outsized dividend. I know Apple (AAPL) announced the equivalent of an American Marshall Plan yesterday that could unleash a massive amount of capital to create jobs. However, the stock's still going higher and I think that it could be a harbinger of another huge buyback authorization and perhaps an inkling of a further boost in, again, an already large dividend.
Now I am sure that there are some of you out there who are thinking, now wait a second, isn't this the classic sign of overexuberance? Isn't it indicative of wild, desperate buying that is a sign of a top?
I say, wait a second, what it is indicative of is a shortage of stock -- so many shares of so many stocks have been retired -- and so many existing shareholders are owning, not renting stocks, that you have to propel a stock higher with your own money just to matter to your portfolio. Those who buy 100-share lots will never have to worry about this. But those who buy 100,000 shares at a time? If there is good news, I mean real good news, I say no way no how until you've budged the stock yourself.
Now, for those of you who say, "nope I am not paying this game, I am not going to take part in a Godzilla stampede, I have an idea for you: take a look at the stock of Goldman Sachs GS. Put away the fact that I worked there and I have fond memories of the place, this stock, sells at the biggest discount to its group in the history of it being public. You are paying a price for a near-term miss that I can tell you will be solved because the company has too many smart people coming up with new ways and new technologies to capture more business. Goldman knows how to trade volatility and right now we have had an exceptional lack of volatility, which is terrible for their earnings. Plus, employees who are paid in stock -- and there are plenty of them -- have a limited window to sell and that window closes soon. That's help driving the stock unnaturally lower. I say that it wouldn't shock me, judging by the body language on the conference call, if Goldman isn't about to become the biggest trader in the volatility of the most volatile markets of all, the always proliferating cryptocurrencies and when they do they will bitcoin money.
What's really amazing? This gang-tackle buying isn't happening in a vacuum. Today the indices got whacked and it didn't even matter. Now that's FOMO with a hashtag and it's only going to get more heated as earnings season goes on.