Could today break the pattern? The pattern of more sellers than buyers? I know it sounds simplistic but we have a lot of what I call asymmetrical selling right now, meaning that when the news is bad, the sellers are much more powerful than the buyers and when the news is good the buyers just aren't paying up anymore. Today, finally, the market opened down with more disappointment, again more sellers than buyers, but it's been able to hold. Could this be a new pattern?
I say let's examine what's been happening so you are ready if the market can't sustain its increases.
The best example of this market's flawed behavior? The airlines. For the longest time whenever oil fell there would be an immediate increase in the price of the airlines. It was a "can't miss" correlation and you knew that they were the lower oil horse to bet on.
That's because, unlike pretty much everyone else and every entity out there you saw the effect of declines in fuel costs immediately. They went right to the bottom line. So you could just raise numbers, raise numbers and raise numbers some more.
But then we got a strange confluence of uncertainty that's spreading like wildfire through the group.
First, you had each airline report earnings. The numbers were very good, but this time around the analyst community didn't get to raise numbers as they have over and over and over again. That's because the community had gotten religion. After ages of being surprised by how good the numbers were, the analysts had taken the numbers up large. So we didn't get much of a pop at all.
Then we got this little spike in oil to $49 from $44 and what happens? The group gets clobbered. Just crushed. Not only that, today's pummeling comes on the heels of some seriously positive chatter coming out of Raymond James, which took United Continental (UAL), Delta Air Lines (DAL) and Spirit Airlines (SAVE), all of which reported terrific quarters, up from buys to strong buys. One can only imagine how far these stocks would have fallen if the analyst how downgraded the stocks. And believe me, this trajectory is not lost on other analysts and you get the sense that someone is going to break ranks and downgrade the group.
Then there's another factor that concerns me: the reaction to a missed quarter. Typically, in 2014, when a company missed a quarter you caught a couple of down days and then you got stability.
Now, you have to consider the case of a stock like Microsoft (MSFT). Did the company do the number? Yes. Did the company have some hair on the quarter, so to speak? Yes, there were some lines that weren't that terrific. Was guidance tepid? Most definitely. As was the body language on the call.
But the truth was it simply wasn't that bad a quarter. Normally, we would say, okay, the stock had already fallen to $46 from $49 before the call as some anticipated, after the reaction to Intel's (INTC) good quarter, that perhaps Microsoft's results wouldn't be that strong.
The reaction, however, to the not-that-weak quarter is nothing short of breathtaking. This stock has been in what can only be described as freefall, dropping now to $40 from $49 with no sign of stopping. Keep in mind this company has boatloads of cash and yields 3%, with plenty of flexibility for more buybacks and dividend boosts and a lot of new products in the pipeline.
Nevertheless, there are way more sellers than buyers. I am seeing the same pattern play out in American Express (AXP). This is, again, a true blue chip. It delivered on both the top and the bottom line. It also took out a huge chunk of expenses. If it weren't for one line about how December retail sales were slow, I think it would have gone higher. Plus, the stock retreated to $87 from $94 before the report.
Didn't matter. It wasn't enough. The stock then makes a beeline to $80. Just a bone-chilling fall where there seems to be a deluge of sellers and no real buyers. This kind of freefall is usually reserved for companies that miss on the top and bottom line and cut forecasts, not beat on the top and bottom and affirm forecasts.
And then there's the situation where a company blows away a quarter, just obliterates the estimates and yet can't muster more than a one-day move. We have seen a host of these situations where the buyers seem to forget why they bought but the sellers remember why they sold: because there's no new data points and the stocks seem expensive.
I loved the quarter from Facebook (FB). You had terrific accelerated revenue growth. You had number bumps galore. But you didn't have anyone of import change their mind about the stock. There were simply no converts. Those that loved loved, but the fence-sitters took action. And it couldn't sustain the rally.
Apple (AAPL) had what can only be described as the greatest blowout in American history but, again, there were no people who changed their minds that I could see. Just more people anxious to take their profits and go home. If the single best blowout didn't lend itself to a new high rally then what happens to stocks after garden variety blowouts -- admittedly an oxymoron. Most companies couldn't hold a candle to what Apple did, so how can their stocks hold up, let alone go up, by comparison?
Then there are the breathtaking punishments of stocks that truly miss their quarters. The beatings meted out to Qualcomm (QCOM) and SanDisk (SNDK) were extraordinary, but they missed big. Sandisk was emblematic of what you fear most. A preannouncement, a guide down and then a report that called for a further guide-down because of a lost customer. That's how you get a once-loved stock to fall to $75 from $100 and I still don't see buyers.
Or how about the companies that actually did a good number but after currency ended up with an uncertain outlook that called into question their safety? Two reliable companies with quintessential safety stocks, Procter & Gamble (PG) and Johnson & Johnson (JNJ), just didn't deliver what Wall Street wanted and support just vanished. These are big-cap, loved stocks with terrific balance sheets and seasoned CEOs that had begun to really distinguish themselves as long-term turnarounds and that had genuine momentum.
Geez, the momentum just disappeared like air from a helium balloon.
Then, finally, you have situations where genuine "look at me" good corporate news seems to mean nothing. Did anyone even notice that Costco (COST) offered a $5 special dividend last week? It's like it didn't happen. Like it just meant nothing. This is a unique vow of confidence and it was just been overlooked.
In fact, the only stocks that seemed to really fly after good news were those that were most heavily shorted going into the quarter. I saw a big short base building up, for example, in Boeing (BA) because it had missed the last couple of quarters and because the conventional media thought that the company would have to say that lower oil has hurt the order book because airlines could continue to milk their gas guzzlers because of the decline. That bearish theme had become common parlance. However, Boeing said nothing of the sort. Instead, Boeing pointed out that a flush airline with fare increases and full planes is an ideal customer no matter what.
Secondly, Amazon (AMZN) reported a number that shocked people, but more important, talked about how gross margins improved and how the company raised prices for Amazon Prime and all that happened was a dramatic increase in customers. The bears are still fighting this one but the narrative has changed for the better.
Lastly, the short squeeze in Netflix (NFLX) powered that stock much much higher than people thought. Make no mistake about it, though, the move was based on a short squeeze as the expectations for Netflix were so high going into the quarter.
No matter. They crushed the sign-ups, crushed the bottom line, and crushed the shorts. That's the kind of story that has legs.
Which brings me to my real conclusion: After last year's magnificent performance, I think a lot of short sellers, as Doug Kass suggests, have left the building. There just seems to be no base of natural buyers, namely those who had bet against a company and then were anxious to cover lest the stock start going up again.
Ultimately, that's how more sellers than buyers manifests itself and how the stocks of even the best companies reporting can't sustain much lift, and the ones that are just delivering or worse, failing to deliver, are just, well history. At least until this now gruesome era is over.
