Is a market healthy or is it sick? Does it have a pulse, or is it just lurching back and forth? I think that this tape is remarkably healthy and let me tell you why. I have a handy way to calculate health vs. weakness.
Here's the eight positive signs that a market's healthy enough to invest your hard earned capital.
First, can we shrug off overseas worries? Yesterday, when the Greeks elected a government that wants to repudiate austerity, you were ready for the S&P futures to open down. Then, when Russia looked to be ratcheting up Ukraine tensions, you knew things would be awful. Sure enough, last night we looked to be down at least a half of a percent.
But by the time we opened, the market had reversed its judgment. Investors were willing to rethink whether the Greek election was relevant to us or, more importantly, might it be good for us because it could force the governments in Europe, namely the Germans, that recognize that too much austerity has political consequences. And while the majority party campaigned on the need to end the tyranny of austerity, it teamed up with an extremist right wing party to form a government. That kind of action is precisely what the European Central Bank most fears (that one of the bigger countries in the union elects an extremist government and they get social unrest). So, it looks like that buyers actually calculated that to be positive and were willing to buy weakness. A healthy market shrugs off foreign negatives.
Second sign of health? When an analyst downgrades a stock and it doesn't even seem to matter. Today we had a downgrade of Dollar General (DG) and the stock took barely a glancing blow. We have had two downgrades of Hershey (HSY) of late and it trades just a couple of points off its 52-week high. The oils have been downgraded endlessly, but they hang in and -- rightly or wrongly -- just don't see to get hammered anymore.
Third, the market has very little memory for the bad. On Friday we got a hideous earnings report from McDonald's (MCD) -- just terrible. It has a very lackadaisical sense of urgency, which, while an oxymoron, does seem to fit the bill. The stock takes a hit, for certain, but then it bounces right back and is almost were it was before the horrendous quarter. It sure seems to be headed there.
The same happened with Wells Fargo (WFC). Remember how horrible that quarter was supposed to be? Guess what? It is about to take out the level it was at when it gave you that so-called miserable report. It turned out to be just another buying opportunity.
Sometimes the reversal reaction occurs the same day. Norfolk Southern (NSC) reported a quarter that wasn't nearly as good as Union Pacific (UNP) last week. The stock looked down, as it should have been. But then it reverses and goes higher anyway. Why? Because the market is desperate for America First names, companies that do business here and have less foreign risk. Norfolk Southern fits that bill perfectly.
Now, I don't know if Seagate (STX) can bounce back quickly from its negative comments about disk drive pricing. We will know more when we hear from Western Digital (WDC) tomorrow. But the stocks are cheap and if you wait a few days I think people will forget what went wrong.
Of course, not all will be forgiven. UPS (UPS) was down, deservedly, a second day because it truly stunk up the joint when the logistics expert reported a quarter that was marred by bad logistics. Still, I think the pile-on, a second day of multiple downgrades, might have given you an entry point to catch a bounce tomorrow.
Fourth, this market loves supply. When you have a really terrible market, a company can offer stock and the print, the price it is offered at, is immediately violated and the stock breaks the print and gets crushed. But last week we got an offering from total Cramer Fave orphan drug maker BioMarin Pharmaceuticals (BMRN), 8.5 million shares priced at $93.25 and here the stock's rallied to $99.84. Not only that, but all of biotech -- this market's great leader -- is roaring. Isis Pharma's (ISIS) up another buck and a half. Gilead's (GILD) back to its winning ways. Biogen's (BIIB) rallying on some hoped for good results from its anti-alzheimers compound. Regeneron's (REGN) crushing it with its new cholesterol drug. The group's just got some terrific momentum right into earnings.
But then again, why not? It trades on drug approvals and they have been coming fast and furious.
Fifth, takeovers and mergers are back. This morning Rock-Tenn (RKT) acquired MeadWestvaco (MWV), a packaging rival, for $9.2 billion. Voila! Two major competitors in the packaging industry, notorious for dogfighting, merge. That could lead to a rationalizing of the whole industry and I suggest you buy a little International Paper (IP) before it reports Wednesday and then the rest after. Yes, it is very good news for this third competitor.
Energy Transfer Partners (ETP) just made an $18 billion deal to acquire Regency Energy, in order to further build out its pipeline network. This is the second company in a week to make a deal in the space. Last week's Kinder Morgan (KMI) purchase of a pipeline company controlled by Harold Hamm was the first one. Both are taking advantage of the stresses in the system.
And then two reinsurers, AXIS Capital Holdings (AXS) and PartnerRe (PRE) agreed to get together in an $11 billion deal. Again, this merger takes out capacity. You won't be able to pit Axis against Partner anymore to get better pricing.
Sixth, you just don't get one-day moves if there is good news. You get multi-day moves. A multi-day move higher is a terrific sign of a healthy tape.
Seventh, we are getting terrific pin action from a good report from one member of a sector, even if the others haven't reported anything to write home about. This morning the largest homebuilder in the country, DR Horton (DRH), reported a terrific number and flew up nicely. More importantly, it took up Lennar (LEN), which gave you a rare downbeat forecast. How amazing it is that Horton could actually turn the fortunes around of a company that just told you things may not be so good.
Finally, eighth, the IPO market is alive and well. Last week I took a lot of heat for recommending that people clamor for some Box (BOX), the software storage company, ahead of the deal. I can't believe the torrent of criticism I got. "Cramer, can't you read a balance sheet? Don't you know they are getting their butt kicked by Google? How can you recommend the stock of a company that's going to lose money?"
The only thing I wish I had done is be even more bullish than I was because this one was a total home run. That's what happens with a real good market.
Now, it doesn't matter if the market barely closes up or around here. What does matter is that at one point last night things looked dire. But by the time we opened the worries were gone and the opportunities ripe. That's the definition of a bountiful tape and one that gives you a chance to get in before it runs away from you.