Leadership is so hard to come by in this market. We seem to gain and then lose it on a daily basis. Just think how often leadership has changed: we loved the banks, and then hated them, we loved the industrials, then hated them, we loved the soft goods, and then hated them. We loved FANG last week, now we have turned on it. We loved tech upside surprises, now they can barely hold on.
What does work?
A bedraggled group of stocks like the utilities, the real estate investment trusts, the oil and oil service stocks, a smattering of domestic companies with no Chinese inputs, finely honed upside surprises, like that of McDonald's (MCD) this week or Visa (V) last week, and some takeovers galore.
That's just not enough to sustain an advance, especially when there seems to be some sort of bizarre tech sell-program that is relentless in its unloading of both good and bad tech, upside surprise and downside surprise as if the earnings didn't matter.
The question is, are these inputs enough to sustain a rally or do they embrace so few sectors that it's all for naught on an intermediate or even a short-term basis. The action tells you point blank it isn't enough. Let's go over why there isn't enough here to save this tape after we got one more phony opening that hurts so many people.
To me the market has gotten too fickle to maintain a sustained advance. We've got a fourth day of up prices, yet I think that as the so-called "bullish" days go on things grow more negative.
But let's review to see what I mean.
First, the takeovers. It's great to see a return of Merger Monday. Of course the biggest, T-Mobile (TMUS) and Sprint (S) , looks like a bust as many believe it is dead on arrival. It has actually hurt a bunch of stocks. It's typical of how tough this market can be. We see these two stocks going down because few believe the deal can pass antitrust muster - more on that later. But the suppliers all act as if it will be approved so the merger is perceived as very negative for tech in general and telco related tech in particular.
But let's try to be positive for a second because we did put together three good days before this collapse. We've got a handful of deals that have real impact on their sectors: Cramer Fave Marathon Pete's (MPC) buying of competitor Andeavor (ANDV) , another Cramer fave Marriott Vacations Worldwide (VAC) buying competitor ILG (ILG) , and Prologis (PLD) buying DCT Industrial (DCT) , a merger of warehouse REITs, both of which we have said make terrific investments.
Now, these sectors, refining, timeshares and real estate investment trusts themselves don't provide leadership. But they do create value for their shareholders justifying the ownership of stocks as something that can product instant wealth for the acquired. These deals all take out competitors so, if they do get approved less competition ultimately means higher prices. They bulk up the fees that bankers charge, something so important toward the bottom line. And they make it so there's at least some fear of being short. Ever since the January peak I have been saying that the risk reward in this market has skewed heavily toward the shortside. Stocks of even good companies that break down can't seem to find any footing down 10, 20, 30% or more. We finally have some tension for the shorts. When you think of leadership you need to think "will it create some fellow travelers." All of these deals with the exception of the Sprint, T-Mobile deal will provide that extra spur.
Second we do have some positive action in the utilities and the real estate investment trusts, with the latter being aided by the DCT deal. I know these are only two groups, and two small groups at that. But they are a sign that the ten year may not go above 3%, so when the smoke clears on this sell program perhaps we will see some lift in any stock that has a 3%-plus yield. Right now only a 4% yield seems to have any stabilizing power.
We've got the oil stocks going again, this time without oil itself. Looking at these stocks over the weekend, combing through the charts, I think they are all extended. The move took people by surprise because it's coming from a combination of stronger demand and geopolitical tension. I do not think it is more than that or you wouldn't have the futures curve be so outrageously low. Did you know that West Texas Cushing crude is at $51.50 for 2022? What does that tell you about the long-term.
But right now that's being ignored.
You know what else is being ignored? The price of natural gas is getting clobbered and that's really bad for many of the oil and gas stocks are getting crushed. It's a big reason why Chesapeake (CHK) is so bad.
Finally you have the upside surprises. I think that you do get a couple of good days after genuine ones - most aren't frankly.
But there just aren't enough of them and If they are in tech, at least, today, it means nothing.
Now I know that today is real ugly but I would use the weakness in the upside surprises in non-telco tech, to buy, not sell, starting with Microsoft (MSFT) and Intel (INTC) . They shouldn't be down.
Tomorrow is another day.
Join Jim Cramer May 5 for TheStreet's Boot Camp for Investors
- An exclusive market update from Jim.
- A keynote interview between Jim and PayPal CEO Dan Schulman.
- Break-out panels with top market experts like Tony Dwyer, chief market strategist at Canaccord Genuity; Mike Hanson, senior vice president of research at Fisher Investments; and Peter Hug, global trading director with Kitco Metals.
- Roundtable discussions with TheStreet's Carley Garner, Stephen "Sarge" Guilfoyle, Bob Lang and other columnists.
