You can tell you have a decent market when, after a big run, investors take a breather from buying the loved ones and decide to snap up the stocks that have been left behind.
That defines today's action.
Let's start with retail. While I don't know the long-term investing implications of bricks-and-mortar retail, these down-and-outers were able to score some buyers at last because Target (TGT) was too negative earlier in the year when it forecast negative comp sales.
Today when it rescinded that forecast and gave you something to cheer about, buyers actually circled back to the group. What's important to know is that this group has fallen so far behind that people are finally, post-Amazon (AMZN) Prime Day -- the day that will live in bricks-and-mortar infamy -- willing to consider some buys. In a bad market, these stocks would never have any takers. A bad market is just led by the hot stocks of the day, notably with the shorthand of FANG. A good market says, "Wait a second, we have thrown the baby out with the bath water and this has to end."
Do I believe in the "turn" in retail? I simply want to remind you that not everyone can be as easily Amazoned. But I will only endorse three right now -- Home Depot (HD) , Walmart (WMT) and TJX (TJX) -- because all three have Amazon defenses. Home Depot, during this season, is a gardening and contractors' delight. Among all the retailers, it is uniquely levered to household formation and the increasing value of a home. Those can't be taken away by Amazon.
Walmart? I just think it's a retailer that was doing worse and has been improving with bold steps, like the addition of Jet.com. Walmart, under CEO Doug McMillon, is making structural changes that will lead to a better chain, and that's different from pretty much every other retailer. You are comparing the old Walmart to the new and that encourages buying, and I think it's right because business happens to be better than it was.
Finally, retailers are discovering that if they close bad stores, they begin to do better. But when you close bad stores, that merchandise goes somewhere. It goes to TJX. My charitable trust owns it. We have held it for too long and rode it up, made small sales and then rode it down badly and turned a gain into a loss. An unfathomable sin. However, as I told club members in my monthly talk yesterday, I am not giving up on my thesis and just bought some more.
That said, I am going to say something dangerous. I "hope" I am right. Unfortunately, hope should never be part of the investing process.
The next group of down-and-outers to attract buyers: the oils. Admittedly, this is a nascent bit of buying, but the inability of the bears to get oil to crack $42 has led to a short-covering rally in the crude market, which has led to several days of oil-stock buying. The idea that investors can even entertain purchasing these toxic shares is rather remarkable after the losses they have generated.
Again, though, in a real bull market investors take a look at what's been thrown away and they say, "Hey, these stocks have some rate of return down here. They are not all going bankrupt. Let's get in some of those that are making a lot of money."
The one I know that makes the most here is Apache (APA) , which is why my charitable trust owns it. The darned thing can make $12 per barrel here and all I can say is that if oil were at $62 and it made $12 a barrel, you'd be buying it here. But because oil's stuck in this range, no one wants it. I think people will be surprised with how much Apache ends up making on its Alpine High discovery. Then again, I have been saying this for months, and like, TJX, it's been wrong. Notice I didn't say "early." I said wrong. You could argue that I should be disqualified for even saying good things about it given how wrong I have been, and all I can say is, that's a reasonable complaint, but the thrust of my argument here is that there's a group of people who have decided in the last two days that not everything's worthless and that if you want to know one that's not worthless, try Apache. (TJX and Apache are part of TheStreet's Action Alerts PLUS portfolio.)
Then there's another hated group that's catching a bid and seems to be breaking out: the autos. Notice GM (GM) flirting with $36 today. I think people are recognizing that GM at six times earnings with the possibility of a better second half is worth owning at least for its 4% yield. Same for Ford F with its 5% yield. Plus, the fellow travelers are doing well. Hertz (HTZ) , which you should think of as one gigantic used-car company, has been up all week. Speaking of car dealers, AutoNation's (AN) got buyers, and then the most beat-up group of all, the auto parts dealers, are seeing their stocks fly higher after a prolonged period where a tsunami of sellers visited them almost daily.
The proximate cause of the buying? Just like Target ignited its group with a pre-announcement of better-than-expected earnings, Lithia Motors (LAD) , which retails and services new and used vehicles, pre-announced a better-than-expected quarter yesterday. Again, a savior that has people thinking, "Hmmm, maybe we were too negative on these stocks."
Mind you, though, I think these rallies are all minor chords in the symphony. They are not to be taken to the bank. They are to be taken to the trading floor. That said, what typically happens now in my 37 years of esteemed experience is that tomorrow the analysts who cover these stocks get emboldened by "the action" and come out of their foxholes and fallout shelters and panic rooms and tell you to buy their stocks. The analysts will talk about all sorts of historical comparisons both for the stocks themselves and for the stocks vs. the entire stock market. They will say Target can be extrapolated to retail and Lithia to autos. Someone who has been a bear on energy will become a bull, saying it's pretty clear that once again oil held the $43 level and that means there's more demand than we realize and dwindling supply. Others will come up with a thesis to buy Chevron (CVX) or even Occidental (OXY) for their cash flows. Heck, why not? Occidental even boosted its dividend by a penny today. You don't boost to cut. Oh, and of course, some pop off from OPEC, sensing the right moment, is going to promise newfound discipline in worldwide pricing.
I say enjoy the trades. Remember, though, this is a market that loves technology, worships at the altar of healthcare and thinks the industrials area about to have a renaissance.
And who knows, now that Fed Chair Janet Yellen is done squawking and has driven the bank stocks down, maybe they can rally on their earnings tomorrow, too.
I like a market that rotates into the down-and-outers and embraces value even without mergers and acquisitions. It makes you want to trust it more. I trust it already, but evidence of reform among the penalized is always welcome.
Eat, Drink and Talk Money With Jim Cramer
Meet Jim Cramer at an exclusive reception at his Bar San Miguel in Brooklyn, N.Y., on Tuesday, July 25, from 6:30 to 9 p.m. ET.
The evening will start with a screening of Jim's CNBC show Mad Money. Afterward, Jim will join the party fresh off of the CNBC set to mingle, take photos and answer your investing questions.
Tickets include dinner, drinks and an autographed copy of Jim's book Get Rich Carefully.
Click here for more information or to buy tickets.
Where: Bar San Miguel, 307 Smith St., Brooklyn, N.Y.
When: Tuesday, July 25, 6:30 to 9 p.m. ET