We're in a performance-grab moment. That's where we are looking not for stocks that can protect us or that are good hedges against certain events or are bond-market equivalents, although those are working. We're looking for stocks that can outperform an up index.
You get these periodically when so many are caught looking the wrong way and the market switches violently and puts on large percentage-point gains. Suddenly, everyone who was defensive is forced into being offensive, so they pile into stocks that have decent stories and they use intraday weakness to buy. Without the debt ceiling debate and with a steady hand at the Fed and a definite up trend in Europe, coupled with a bottoming of the Baltic Freight Index and a disappearing of the emerging-markets panic, the bears are struggling to find something to hang their hats on.
You can't just say "it's too overbought," even as the same oscillator I follow that hit -5 not that long ago -- the level I always stopped selling at -- is now at +5 the level I stopped buying at. (That's the S&P's proprietary oscillator, if you want to obtain it from S&P.)
For the record, I am uncomfortable with this level of buying, but I get it and I know it can get really exaggerated.
All of these changes are manifested in the mid-morning surge where desperate money managers put money to work lest they, once again, fall back behind the averages. You can see it happening when you look at stocks that go higher without any news flow, stocks like Tech Data (TECD) and Lockheed-Martin (LMT). You can see it when stocks fall and then start rallying the next day, like P&G (PG) or Starwood (HOT), as buyers say, "wow, a chance to buy something while it is down." Right now, I bet there are people salivating to pick up some Under Armour (UA) the moment it settles. I wouldn't be surprised at all if VF Corp (VFC) or PepsiCo (PEP) caught bids on Monday. They are high-quality names that are down too much already.
It's tough to think like this because lots of the stocks that are down actually deserve to be down. I don't know how you glom on to a retailer knowing how February's so bad. Same with the autos, although we own General Motors (GM) for the trust. You might get hit with some negative news if we don't get better weather over the next few days. These lost weekends play havoc with the numbers.
Other groups, like managed-care stocks, which were going down because of fears of price wars and because of a lack of new business formation, are now just levitating up.
To me, it is best right now to stick with catalyst stocks, as these halcyon moments don't tend to last too long. Of course, the issue is that we can't figure out what happens that knocks it all down, but at this point I would rather raise cash and not apply it. But then again, we've been doing that for a day or two and it really hurts!