We have skirmishes everywhere, and the battlefield is shrouded with smoke. You can't tell who's winning, the bulls or the bears, yet you know that on any piece of good news this market wants to go higher, not lower, even as, in the end, investors were handed a second straight hammering with stocks selling off most of the day.
What makes me write that? Simple. It's the way stocks react to news and the pin action off that news. Let me give you some real-life battlefield commentary, right from the turret, so you know why I think the bias is to the upside, even as the bears seem to be taking the day.
Let's start out with a simple example: Wayfair (W). You might not know Wayfair unless you are a catalog shopper. It has what I can only describe as eclectic furniture for the home. I have bought goods from Joss & Main -- I don't even know how I got the catalog -- and if you think that catalogs are passé, watch catalogue printer R.R. Donnelley (RRD) strut its stuff tonight on "Mad Money."
Many investors felt this was one of those busted initial public offerings. It came public in October at $29, immediately ran to $37, and then literally cut in half in December when some were perplexed why they weren't doing better right out of the chute.
Today the company reported a spectacular quarter with 55% growth and buyers swarmed in to pick up the once thought-to-be-damaged merchandise. Believe it or not, if you held the stock through the downturn, you are now back to even.
But it's the pin action that impresses. You know I have been a big fan of Restoration Hardware (RH). It's one of those stocks that you can't judge short term. It's not fair. It's like judging another premier retailer-restaurant, Danny Meyer's Shake Shack (SHAK) by the next few quarters. You just aren't going to do well because it is not about the near term. It's about a long-term vision of a different kind of retailer, one that caters to the aspirational shopper.
The point, though, is that Wayfair and Restoration Hardware are both catalog retailers of home goods. So, Restoration hardware rallies and rallies hard off good sales at Wayfair. That's bullish pin action.
I am not content with just watching these two and saying, "OK, that's a nice correlation." I want to spin it another step. Have you seen the recent catalog for Anthropologie, one of the three legs of Urban Outfitters (URBN)? It's a terrific cross between Wayfair's Joss & Main and Restoration Hardware's less expensive merchandise. My takeaway is that if this trend continues you have to go with Urban, which reported a pretty good quarter anyway.
Or take the bullish action in McDonald's (MCD), the fast-food king. This morning brought negative research from a major firm, saying that when we get the same-store sales numbers for February from McDonald's, we are going to see some real disappointment. You would think that could crush this stock after the amazing non-stop run it has had ever since a new CEO came in promising simplification, something that would placate the restive franchisees who hold the real power at this company. But no, instead the market takes its cue from another piece of research from another house, a kind of mindless momentum call that change is going to come, so you should continue to pay up for the stock -- might as well have been written by Sam Cooke.
Who wins this skirmish? The bulls, and the stock goes higher. Then you get a story out of McDonald's that says it's going to phase out the serving of chickens treated with antibiotics. Put aside that I didn't know they were treating the chickens with antibiotics, so the sigh of relief over here is a little muted. I figured, once again, it's time to buy Hain Celestial (HAIN) and White Wave (WWAV), which specialize in natural food and drink. Sure enough, they are roaring ahead, aided by a Buy initiation for both by another research firm. Believe me, they wouldn't be going higher if McDonald's weren't shining the light toward their end of the supermarket aisle.
What's the next derivative? Simple. Whole Foods (WFM) has been resting after a monster run. It's sitting there ripe for the pickin' down two bucks from its high and the first real break after that excellent quarter. Time for Whole Foods.
Who else? How can you not be salivating to buy the offspring of McDonald's that got it so right when McDonald's was getting it so wrong: Chipotle (CMG)? I like this setup: Here's the highest-quality fast-food play down 10% from its high after it reported a spectacular quarter but with muted guidance. If McDonald's is starting to take out whatever it was pumping into chickens to please the public, how about buying shares in the outfit that took an earnings hit because it pulled pork. No, Chipotle didn't serve pulled pork (which, by the way, I make after marinating in Coca-Cola), it stopped serving pork because the pigs were mistreated. I like that setup.
Or how about the nascent rally in pharma? We have a nice run in uber-Cramer fave Bristol-Myers (BMY) when it got an important OK from the Food and Drug Administration for the expanded use of a new lung cancer drug. That sent the other big pharma companies moving up, again -- not an easy feat given how large these stocks are. Biotech was strong from the get-go. We can conclude that this is all part of a larger trade, a search for something that works when the economy is slowing. Understand that I don't subscribe to that thesis, although I confess to believing that February was a weak month because of the weather. No matter, when we get data points that show a slowdown we will not say, "Ah ha! It was cold!" we will say, "I am selling economically sensitive stocks and buying pharma." Except if you do that, the people who bought today will sell today because they were a step ahead of you. They took the risk; you didn't. They get the reward; you won't.
We have some other positives, namely that a couple of horrendous stocks owned by retail investors (the industry's insulting name for home-gamers) finally got some lift: GoPro (GPRO) and Alibaba (BABA). I have no particular catalyst for the move in Alibaba but the GoPro rally is strictly pin action off the amazing performance of GoPro supplier Ambarella (AMBA). This dog hasn't been able to hunt for ages, and it's always nice to see when a beating stops.
A positive read through by a Sanford Bernstein analyst of a new kind of flash memory developed by SanDisk (SNDK) has that always-loved stock rebounding, which his stemming losses from yesterday's drubbing of the semis, the nominal group with which SanDisk is affiliated.
Look, I am not sugarcoating the battlefield reports. Investors may have won these skirmishes yet still lost the battle for the session. Remember, though, in a second big day down like we are having, you need to see what's stabilizing. That's what works best tomorrow if the smoke clears. That's where you do your buying because investors know that if these stocks could withstand today's onslaught and still be standing like a stone wall, tomorrow will be an even better day.
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