If you step back for a minute, there's a lot of logic going on in individual stocks even as the overall market seems downright confusing.
You just have to recognize what is working and what isn't and then overlay the political and the international on top of it and you can make some sense of it.
First, as I will never tire of saying, get rid of the prevailing risk on risk off orthodoxy that is so blinding because it is at the heart of all foolishness. I can say that having taken a break from the market for a week and am seeing things a little more clearly than the hour-by-hour boys whose thoughts pollute our brains. That's because there is indeed betting going on all over the place. You just need to know the tables.
On the big table, there's a gigantic bet being made against commodities. Every single taker of commodity prices is trying to stage a rally except those that have JUST admitted to problems with commodities.
Kimberly Clark's raw costs, largely oil based, have clearly peaked even as the company hasn't been able to master any real domestic growth. It has taken evasive action to grow in emerging markets and it is succeeding. It's been able to hold the line to increase the line on pricing to a degree that it hasn't cost them too much in lost sales. It has also decided to give you a higher dividend than the others, and the market loves that because, over at the fixed-income table, bonds are going up in price and down in yield. Again, that's' the commodity bet.
Colgate has consistently gone higher. It's done so because it has had an emerging market concentration from the beginning, has been able to innovate quickly. People like its growth and price increases in the face of higher commodity prices. It's taking share, too, because of innovation.
Procter & Gamble is losing share and hasn't won the battle yet against commodity increases and has to roll back prices.
Clorox isn't losing share to speak of, but has not been able to offset commodity prices.
Yet, all four of these stocks, to me, are buys. In fact, PG and CLX, despite truly disappointing quarters, have rallied and it isn't just because of yield which is bountiful. I sat that because Eaton (ETN) and Emerson (EMR) have similar yields but are going down.
It's because of commodities. Like it or not, the market believes Eaton and Emerson need commodity prices to go higher for their stocks to go higher. These stocks, like Cummins (CMI) and Caterpillar (CAT) are perceived, again rightly or wrongly, as commodity givers not takers, and they will keep getting slaughtered as oil goes down. Doesn't matter that that's wrong. It's the bet people are making and that transcends everything.
Now move over to three other sectors for more perspective: tech, banks and oil. All three are teetering unless they have some secular growth story going on them and most don't.
Tech's Europe and Asia. The elections in Europe are perceived as a reaction to austerity. But so far austerity, which is code for Germany, is still in charge because the revolt against Germany has just begun. The first day of a Socialist victory does not a defeat of Germany make. But Sarkozy was viewed as Merkel's ally and now he has been replaced.
No matter, in the interim we are going into the summer months where Europe shuts down. Tech, with its miserable performance for all but companies that store internet data -- the only real secular growth story -- is falling apart. You can tell that from the performance of Microsoft (MSFT) and Apple (AAPL), which had the strongest of quarters. (IBM (IBM) is not tech; it is consulting and is therefore a cost saver, not an expenditure. You need IBM to come in to be able to fire people no matter what country you are in.) Forget tech for now.
Banks? The international banks have tried and failed to distinguish themselves from Europe. Just a fact. They will be pulled down unless they can raise their dividends to the point of defense and the government won't let them. Their buybacks are meaningless and share count isn't even shrinking.
Domestic banks are levered to a distinct shortage in housing where housing is most needed and to a gentle decline in housing price coupled by a severe decline in interest rates that is making people nervous to not buy. That's what 2012 has been about which is why the domestic banks are still safe.
The oils? They have no yield protection and oil is in glut in the U.S. coupled by a relative decline in oil use projected in Europe and no easing in China. Many are forgetting that China can cut rates.But China is encouraging domestic consumption so oil isn't reacting to that change from export to import.
Plus, natural gas has put a ceiling on oil and natural gas can't rally because there have been too many deals made that require drilling.
In other words, tech, oil and international banks are being considered commodity givers that need growth, because tech is a commodity that can be deferred, the international banks need growth from Europe to eliminate risk and the oils? Well, they are just for sale, period.
Which leaves retail. There the measure is Wal-Mart (WMT). The scandal knocked the stock down to a level that found buyers. The oil price decline will make sales better.
If Wal-Mart can rally, they all can rally. They are domestic housing plays. Home Depot (HD) and Lowe's (LOW) show you that. Watch retail for more declines in oil. Same with restaurants. They should rally.
Now, there's the best acting group of all: housing stocks. They make the most sense. They are huge buyers of commodities. They are selling into a cyclically growing population and they have rationalized nationally, -with the exception of the poorly-executing KB Home (KBH), so they can put up homes where they are needed.
You can apply this prism to everything. The autos are pathetic because they are Europe and need growth. Plus they have gotten little benefit from commodity declines because they have screwed up their buying.
Utilities are going higher because of household formation. They are slow growth plays with yield. Telcos have secular data growth, so see big data. Drugs have yield and slow growth, they work, too, witness that Pfizer (PFE) like Procter, can't seem to go down more than it has. Disney (DIS), upgraded today, is an oil play and therefore a commodity taker. See restaurants and retail.
So look through everything as a play on who benefits when commodities fall and who benefits when commodities rise and you have got it.
Don't be confused. Use the new prism. Not the ridiculous on/off nonsense. Every stock by its nature carries risk. The stocks of companies that need commodities to go lower work. The opposite, don't.
The only reason why this isn't obvious to people is the prevailing orthodoxy lumps all stocks together. And that's why only some are making money and others are losing. Pretty simple when you think about it.