When you examine the charts over the weekend, you are conscious that so many groups are making important stands, from the drugs and health care companies to the oils and oil services. They all seem fragile and are running up to resistance, but they certainly stopped going down.
Maybe the rhetoric of the election seems cooler when it comes to the health care sector. A four-week run up in oil can make the latter group come alive, although I think that one's fragile as all get out given the huge amount of equity that's been issued.
The gigantic runs post the new stock are unfathomable and to me almost inconceivable: I have never seen anything like the strength post a deal like Weatherford (WFT), or Devon (DVN) or Newfield (NFX), Marathon Oil (MRO) and Pioneer (PES) and Hess (HES). These are unprecedented comebacks, because they all bridge the companies to when oil moves higher.
At the same time, remember, the move is a little dangerous; while oil's chart is strong -- thank you, Bob Lang, for that imagery -- I don't know if any move can continue when the oil companies have the ability to open the tap very quickly.
The best answer I have heard about the bottom in oil comes from Rusty Braziel, author of "The Domino Effect," who theorizes that oil should never have gone down much below $40 and that was a severe, emotional reaction, with shorts pressing their luck to the point that we heard noises out of Saudi Arabia and Russia that things had gotten out of hand. Since then the rig count has fallen off a cliff, so it makes sense. Perhaps $40 really is equilibrium.
So much for bottoming. What looks robust and might have some staying power? We have some of the oddest amalgamations of groups that I want to share with you, with the hopes that we can figure them out through ratiocination, to use Edgar Allan Poe's classic term.
First theme that surfaces? Accessories. We heard this theme bubble up throughout earnings period, whether it be from the broad line department stores or individually successful chains like L Brands. It's translated in dramatic form to Kate Spade (KATE), Coach (COH), Michael Kohrs (KORS) and to a lesser extent Fossil (FOSL), which has been hurt chiefly by the Apple (AAPL) watch. (Apple is part of the Action Alerts PLUS portfolio).
All of these companies reported upside surprises except Fossil. I can't talk to the longer-term strength of KATE, KORS of Fossil, but I think the turn in Coach is very real, a combination of much better management by the low-key Victor Luis and a change both in style and execution. I believe that Luis has managed to stealthily de-emphasize the off-price, factory outlet mall factor, which has hurt too many of these companies in retail and apparel. The turn in Coach is real; we did a terrific segment on Mad Money about it, and I believe that you haven't missed much at all, even as the stock has clearly formed a bottom at $27 data back to September.
Next theme: a return to a powerful concept that has seemed to have languished with some high- profile misses in the group: auto parts and auto parts stores. My long-time favorite, AutoZone (AZO), has once again come to the fore.
A slightly better-than-expected earnings report plus that endless, relentless buyback, have to be behind the resurgence. O'Reilly Automotive is back as a competitor for your investing dollars in the space and a new one, a former underperformer, has truly picked up the pace: Genuine Parts (GPC).
I have always thought GPC to be a sleeper, a takeover waiting to happen. It doesn't seem to make sense that the stock's so strong now. It did beat on earnings when it reported last, but it missed on revenues. Maybe the outsized yield propelled it for a bit? Anyway, its anomaly intrigues me.
The next group is hardly surprising: the utilities. They are truly trading as one block right now. There had been a period where those with suspect earnings, namely First Energy (FE) and Entergy (ETR), had lagged. I didn't get the latter's underperformance at all and have pushed it numerous times.
These days, though, it doesn't matter. In a low yield universe, with the Fed conceivably on hold, it made sense to pile into them. I do not care for these right now: way too extended. It is also a sign of a weaker market that they could be the leader. Their strength, however, is undeniably a positive and simply can't be ignored. Action Alerts PLUS owns what I think is the best: American Electric Power (AEP), but to commit new money here is to believe that we are going back to 1.65% on the 10-year Treasury, and I don't think we can muster that level without a flight to quality rampage.
Steel stocks bottomed, with an almost unnoticed 266% tariff slapped on Chinese steel on March 1. The dumping was so rife that even our endless globalization love fest had to be nipped, given the outrageous and almost punitive Chinese attempts to dump steel here in a way that threatened our steel industry as certain as the Saudis are trying to wreck our oil and gas industry.
You caught a series of doubles in the truly hobbled stocks: AK Steel (AKS) and US Steel (X), both of which have been covered amazingly by James Passeri, in Real Money as part of our incredible Stressed Out series. (If you haven't read that package and the remarkable run from the bottom of the faux credit crisis of the second week of February, you are missing out on some breathtaking reporting.)
Sustainable? These stocks sank so low that I guess anything's possible. I say go with best of breed Nucor (NUE), though, which is far less likely to give up all of its gains if the market takes an overdue header.
I do not know how medical devices have made such a decisive turn. This group had been such a laggard that it is remarkable to see any burst here at all, let alone sustained runs from the likes of Stryker (SYK), Zimmer Biomet (ZMH), Bard (BCR), Becton Dickinson (BDX), Edwards Life Sciences (EW) and the incredible Intuitive Surgical (ISRG).
Edwards has the device of the era, the one that eliminates cracking the chest for open heart surgery. I can't say enough good things about it. Intuitive Surgical has nine lives. At least some of the strength here is the never ending battle with the shorts, and right now the longs have an upper hand. Bard and Becton always seem to get new money in when big pharma acts terribly, which is precisely what is happening right now, with only biopharma having weaker charts. But Stryker and Zimmer Biomet feel "take-overish", and I think that they are being rumored higher. This is a group to watch, with ISRG threatening a breathtaking breakout.
The food group is so ridiculously strong that you can assume there has to be both consolidation and a spur having to do with its embrace of natural and organic. That was the theme in a recent Mad Money showing that Campbell's (CPB), General Mills (GIS) and Hormel (HRL) had reinvented themselves on the fly.
But a look at Kellogg's (K), McCormick (MKC), Tyson's (TSN) and Smucker's (SJM) would tell you that it might not even matter what they do; these stocks want to go higher. I wish I could say it is all dividend-oriented, the usual bond market equivalent. However, it's bigger than that. Tyson's not a dividend play at all.
It's leveraged to the lower cost of commodities, which makes me think that could be behind a lot of this move for all of them. They are so overextended as to seem foolish to buy. However, you could have said that weeks ago and been wrong. They are as strong as the natural and organics, namely Hain (HAIN), White Wave (WWAV) and United Natural Foods (UNFI) have been weak.
The final strong group is perhaps the one most exploiting still: the home. We know that when employment is strong and homes are being bought, the principal driver of consumer spend switches from clothes to home improvement. That means Home Depot (HD) is back and so are the aisles of the great chain.
The action for example in recent Mad Money guest Briggs & Stratton (BGG), principally an outdoor power equipment company dedicated to fixing up the outside of your home, has a stock that just won't quit. I think it is overdone, but if we have a big planting season and lots of good spring weather, the move will be justified.
We have the usual cast of characters doing well, namely Masco, Fortune Brands Home and Security, although that one has room to run, as does Whirlpool, which has been kept back by Latin America. The road builders for new planned unit developments, namely Vulcan Materials and Martin Marietta Materials, have been rockets; I agree with my writing colleague Matt Horween that these have to pull back.
We often forget how correlated Waste Management is with the group, but you can tell by looking at competitors Republic Services (RSG) and Waste Connections (WCN) that there's no fluke here. Don't forget RPM International (RPM), Sherwin Williams and PPG Industries (PPG) as adjuncts; they have all been on fire. Both RPM and PPG would have much more room to run even as not all of their products are directly related to the home. I like all of them, but am partial to RPM as there was never a reason for it to get hit to begin with.
You want odd in the group? Check out the recent runs in Rovi (ROVI) and Best Buy (BBY). I think these are related to really sprucing up your place. I keep thinking about the giant screen TVs that Tech Data (TECD) talked about as selling like hotcakes when the CEO was on Mad Money recently. If Best Buy can come back, you could have a real homerun on your hands. Remember it was cellphones that kept that one back, and the IPhone 7 will be around the corner. I don't know Rovi enough except it seemed like a serial misser of numbers. Maybe that's coming to an end.
Two others that must be watched if not purchased: Stanley Black & Decker (SWK) and Newell-Rubbermaid (NWL). The former reported an excellent quarter, but truly gave miserable guidance, much to the chagrin of its holders, including my charitable trust. Judging by the discussion of tool strength from both Lowe's (LOW) and Home Depot on their recent conference calls, I think a bargain can be had right here, right now.
I feel the same way about the second quarter closing of the deal between Newell-Rubbermaid and Jarden. I know that anyone should be reluctant to invest in a company that's a creation of a sale, not a buy of Martin Franklin, the shrewd former chairman of Jarden. But I think that combination is a very powerful one.
Of all of the investible themes, I like the last one best. However, we have a Wednesday event that is going to play havoc with the home improvement theme: the Fed. So I would be wary of doing anything before that discussion, for fear that someone says "this move is now over."
The charts are powerful enough to withstand such a withering blast. But not before a pullback, so perhaps you buy some of the best of the ones you can get comfortable with and then wait. However, the strength in the charts seems unassailable to me, and I would be trying to get comfortable with the ones you can before they have further appreciation.
